A Model for Determining Optimal Governance Structure in DOD Acquisition Projects in a Performance-Based Environment

Abstract

Prior to the requirement for performance-based contracting, the government structured its acquisition regulations and business practices in a way that resulted primarily in transactional exchanges between the government and industry. The transition to performance-based contracting has created the need for the government to better understand how to both design and govern long-term relationships with their suppliers. This study develops a conceptual model that provides a framework for assessing how knowledge of variables such as environmental uncertainty, task stability, technology application certainty, risk, and transaction-specific investments impact the selection of the optimal mode of governance. Our model views governance alternatives along a continuum ranging from short-term transactional exchanges to more long-term relations exchanges. Moreover, our model predicts the circumstance under which various governance alternatives would be optimal. Finally, we use data from several ACAT I programs to assess the validity of selected components of the model and to assess the impact of governance type on program outcomes.