Exploring the Implications of Transaction Cost Economics on Joint and System-of-Systems Programs

Abstract

As the Department of Defense (DoD) moves from the single-system, platform-centric paradigm to the capabilities-based paradigm, the scope and complexity of solutions are growing. The increasing emphasis on joint service and system-of-systems (SoS) capabilities has created both opportunities and challenges for materiel acquisition. A key barrier that needs to be overcome for the DoD to achieve the promises of joint service and SoS programs involves the challenge of transaction costs. These are the less visible, but nonetheless significant, costs of negotiating, managing and monitoring transactions. In an effort to identify the effect of transaction costs on more complex acquisition programs, this paper examines cost and schedule breaches in a subset of Major Defense Acquisition Programs (MDAP) that includes a sample of 84 programs, divided into joint-service and traditional (single service) acquisition programs, and single-system and system-of-systems (SoS) programs. The results suggest there is a statistically significant higher risk of cost and schedule breaches in SoS programs than in single system acquisition programs. This paper contributes to a broader study that eventually needs to be conducted that will evaluate the benefits and costs of increased reliance on joint service and SoS programs.