Outcome-Based Contracting: What Works, What Doesn’t, and What’s Next

Abstract

This research addresses a foundational question for defense acquisition leaders, namely, what are outcome-based contracts (OBCs), under what conditions should the Department of War employ them, and what institutional capacities must be in place for them to succeed? Drawing on a multi-phase, mixed-methods research design that included a comprehensive literature review, 14 semi-structured interviews with senior commercial and contract management professionals across eight countries, two practitioner focus groups (N = 34), a federal acquisition community survey, and an executive roundtable with 62 senior acquisition leaders, this study integrates both U.S. federal and global commercial perspectives to identify five critical success factors for OBC implementation: requirements definition, data sufficiency, inter-party trust, governance capability, and oversight balance. The theoretical foundation integrates Graeber’s (2001) anthropological theory of value, Zeithaml’s (1988) perceived value framework, Vargo and Lusch’s (2004, 2008) Service-Dominant Logic, and empirical research on perceived service quality in business-to-government settings (Finkenstadt, 2020). A central finding is that outcome-based strategy and outcome-based contracts are distinct constructs; conflating them produces implementation failure. The study offers five policy recommendations directed at defense acquisition leadership, including FAR repositioning, governance training investment, portfolio prioritization, and structured low-risk piloting mechanisms.