Hostname: page-component-cd9895bd7-fscjk Total loading time: 0 Render date: 2024-12-28T17:34:17.321Z Has data issue: false hasContentIssue false
  • English
  • Français

Performance and Risks in the Defense Procurement Sector

Published online by Cambridge University Press:  25 June 2010

JEAN-MICHEL OUDOT
JEAN-MICHEL OUDOT
Affiliation:
French Ministry of DefenceMinistère de la défenseDirection des affaires financières / QEFI14, rue Saint-Dominique75700 Paris SP07France Phone: +33 6 74 67 17 21; Fax: +33 1 42 19 42 15 e-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Risks that emerge during the implementation and enforcement stages of defense procurement help explain procurement outcomes. Adverse events have impacts on the timing, cost and quality of goods supplied. The procurement process is analyzed on the basis of an original dataset covering 48 defense procurement contracts signed by the French Ministry of Defense with 18 European contractors. Contractual problems create the most adverse events in this sector, while technological risk is the second most significant risk. Although opportunism takes various forms, it is found only rarely in these defense contracts.

Keywords

Performancerisk assessmentdefense procurementtransaction cost economicsopportunism
Type
Research Article
Information
Journal of Public Policy , Volume 30 , Issue 2 , August 2010 , pp. 201 - 218
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alberts, C. J. and Dorofee, A. J. (2005) Mission Assurance Analysis Protocol: Assessing Risk in Complex Environments. Software Engineering Institute, Carnegie Mellon University, http://www.sei.cmu.edu/pub/documents/05.reports/pdf/05tn032.pdf, accessed on March 11, 2010.Google Scholar
Argyres, N. S. and Mayer, K. J. (2007) Contract Design as a Firm Capability: An Integration of Learning and Transaction Cost Perspectives. Academy of Management Review 32(4): 1060–1077.CrossRefGoogle Scholar
Bajari, P., Houghton, S. and Tadelis, S. (2006) Bidding for Incomplete Contracts: An Empirical Analysis. NBER working paper nº12051.CrossRefGoogle Scholar
Bergemann, D. and Välimäki, J. (2002) Information Acquisition and Efficient Mechanism Design. Econometrica 70(3): 1007–1033.CrossRefGoogle Scholar
Binderkrantz, A. S. and Christensen, J. G. (2009) Governing Danish Agencies by Contract: From Negotiated Freedom to the Shadow of Hierarchy. Journal of Public Policy 29(1): 55–78.CrossRefGoogle Scholar
Bower, A. G. and Osband, K. (1991) When More Is Less: Defense Profit Policy in a Competitive Environment. Rand Journal of Economics 22(1): 107–119.CrossRefGoogle Scholar
Bulow, J. and Klemperer, P. (2002) Prices and the Winner's Curse. Rand Journal of Economics 33(1): 1–21.CrossRefGoogle Scholar
Carson, S. J., Anoop, M. and Wu, T. (2006) Uncertainty, Opportunism and Governance: The Effects of Volatility and Ambiguity on Formal and Relational Contracting. Academy of Management Journal 49(5): 1058–1077.CrossRefGoogle Scholar
Casadesus-Masanell, R. and Spulber, D. F. (2000) The Fable of Fisher Body. Journal of Law and Economics 43(1): 67–104.CrossRefGoogle Scholar
Chavas, J.-P. (2004) Risk Analysis in Theory and Practice. Elsevier Academic Press, San Diego (CA).Google Scholar
Coase, R. H. (2000) The Acquisition of Fisher Body by General Motors. Journal of Law and Economics 43 (1): 15–32.CrossRefGoogle Scholar
Coase, R. H. (2006) The Conduct of Economics: The Example of Fisher Body and General Motors. Journal of Economics and Management Strategy 15 (2): 255–278.Google Scholar
Cour des Comptes (1997) La gestion budgétaire et la programmation au ministère de la défense [budget management and programmation in the defense department], rapport public particulier, Les Editions des Journaux Officiels.Google Scholar
Cour des Comptes (1999) Rapport au Président de la République. Les éditions des Journaux Officiels.Google Scholar
Das, T. K. and Teng, B.-S. (1998) Between Trust and Control: Developing Confidence in Partner Cooperation in Alliances. Academy of Management Review 23(3): 491–512.CrossRefGoogle Scholar
Dorofee, A. J., Walker, J. A., Alberts, C. J., Higuera, R. P., Murphy, R. L. and Williams, R. C. (1996) Continuous Risk Management Guidebook, Software Engineering Institute, Carnegie Mellon University.CrossRefGoogle Scholar
Freeland, R. (2000) Creating Hold-Up through Vertical Integration: Fisher Body Revisited. Journal of Law and Economics 43(1): 33–66.CrossRefGoogle Scholar
French Department of Defense June 3 (2005) Comité des Prix de Revient des fabrications d'Armement, vingt-septième rapport d'ensemble. Journal Officiel de la République Française, Edition des documents administratifs.Google Scholar
French Department of Defense May 10 (2006) Comité des Prix de Revient des fabrications d'Armement, vingt-huitième rapport d'ensemble [Comity for price assessment of military equipment, twenty-eighth general report]. Journal Officiel de la République Française, Edition des documents administratifs.Google Scholar
Government Accountability Office March (2004) Defense Acquisitions. Stronger Management Practices Are Needed to Improve DOD's Software-Intensive Weapon Acquisitions, report nº04-393.Google Scholar
Government Accountability Office November (2005) DOD Acquisition Outcomes. The Case for Change, report nº06-257T.Google Scholar
Government Accountability Office November (2005) Best Practices. Better Support of Weapon System Program Managers Needed to Improve Outcomes, report nº06-110.Google Scholar
Government Accountability Office December (2005) Defense Acquisitions. DOD Has Paid Billions in Award and Incentive Fees Regardless of Acquisition Outcomes, report nº06-66.Google Scholar
Government Accountability Office April (2006) Defense Acquisitions. Major Weapon Systems Continue to experience Cost and Schedule Problems under DOD's Revised Policy, report nº06-368.Google Scholar
Government Accountability Office July (2006) Defense Acquisitions. Further Management and Oversight Changes Needed for Efforts to Modernize Cheyenne Mountain Attack Warning Systems, report nº06-666.Google Scholar
Helper, S., MacDuffie, J. P. and Sabel, C. (2000) Pragmatic Collaborations: Advancing Knowledge While Controlling Opportunism. Industrial and Corporate Change 9(3): 443–488.CrossRefGoogle Scholar
Hong, H. and Shum, M. (2002) Increasing Competition and the Winner's Curse: Evidence from Procurement. Review of Economic Studies 69(4): 871–898.CrossRefGoogle Scholar
Kasunic, M. (2004) Army Strategic Software Improvement Program (ASSIP). Survey of Army Acquisition Program Management. Results of the 2003 Survey of Army Acquisition Managers, Software Engineering Institute, Carnegie Mellon University.CrossRefGoogle Scholar
Keynes, J. M. (1936) The General Theory of Employment, Interest and Money, MacMillan Cambridge University Press.Google Scholar
Klein, B. (1991) Vertical Integration as Organizational Ownership: The Fisher Body – General Motors Relationship Revisited. In The Nature of the Firm: Origins, Evolution and Development, edited by Williamson, Oliver E. and Sydney, Winter213–226. New-York, Oxford University Press.CrossRefGoogle Scholar
Klein, B. (1996) Why Hold-ups Occur: The Self-Enforcing Range of Contractual Relationships. Economic Inquiry 34: 444–463.CrossRefGoogle Scholar
Klein, B. (2000) Fisher-General Motors and the Nature of the Firm. Journal of Law and Economics 43(1): 105–141.CrossRefGoogle Scholar
Knight, F. H. (1921) Risk, Uncertainty and Profit, University of Chicago Press.Google Scholar
Kovacic, W. E. (1991) Commitment in Regulation: Defense Contracting and Extensions to Price Caps. Journal of Regulatory Economics 3(3): 219–240.CrossRefGoogle Scholar
Lafontaine, F. and Masten, S. E. (2002) Contracting in the Absence of Specific Investments and Moral Hazard: Understanding Carrier-Driver Relations in US Trucking. NBER Working Paper nº8859.CrossRefGoogle Scholar
McAfee, R. P. (1993) Mechanism Design by Competing Sellers. Econometrica 61(6): 1281–1312.CrossRefGoogle Scholar
March, J. G. and Shapira, Z. (1987) Managerial Perspectives on Risk and Risk Taking. Management Science 33(11): 1404–1418.CrossRefGoogle Scholar
Marschak, T., Glennan, T. K. Jr. and Summers, R. (1967) Strategy for R&D. Studies in the Microeconomics of Development. New-York: Springer-Verlag.Google Scholar
Masten, S. E. (1993) Transaction Costs, Mistakes and Performance: Assessing the Importance of Governance. Managerial and Decision Economics 14(2): 119–129.CrossRefGoogle Scholar
Mayer, K. J. and Argyres, N. (2004) Learning to Contract: Evidence from the Personal Computer Industry. Organization Science 15(4): 394–410.CrossRefGoogle Scholar
Miwa, Y. and Ramseyer, J. M. (2000) Rethinking Relationship-Specific Investments: Subcontracting in the Japanese Automobile Industry. Michigan Law Review 98: 2636–2667.CrossRefGoogle Scholar
Myerson, R. (1989) Mechanism Design by Competing Sellers. In Allocation, Information and Markets, edited by Eatwell, John, Milgate, Murray and Peter, Newman. New-York: W.W. Norton & Co.Google Scholar
Peck, M. J. and Scherer, F. M. (1962) The Weapons Acquisition Process: An Economic Analysis. Harvard: Harvard University.Google Scholar
Roth, A. E. (2002) The Economist as Engineer: Game Theory, Experimental and Computation as Tools for Design Economics. Econometrica 70(4): 1341–1378.CrossRefGoogle Scholar
Ryall, M. D. and Sampson, R. C. (2008) Formal Contracts in the Presence of Relational Enforcement Mechanisms: Evidence from Technology Development Projects. University of Maryland working paper.CrossRefGoogle Scholar
Sadeh, A., Dov, D. and Shenhar, A. (2000) The Role of Contract Type in the Success of R&D Defense Projects Under Increasing Uncertainty. Project Management Journal 31(3): 14–22.CrossRefGoogle Scholar
Thomas, G. B. (1999) External Shocks, Conflict and Learning as Interactive Sources of Change in U.S. Security Policy. Journal of Public Policy 19(2): 209–231.CrossRefGoogle Scholar
Williams, R. C., Pandelios, G. J. and Behrens, S. G. (1999) Software Risk Evaluation. Method Description, Version 2.0. Software Engineering Institute, Carnegie Mellon University, http://www.sei.cmu.edu/reports/99tr029.pdf, accessed on March 11, 2010.Google Scholar
Williamson, O. E. (1967) The Economics of Defense Contracting: Incentives and Performance. In McKean, (ed.) Issues in Defense Economics, Columbia University Press, New-York: 217–256.Google Scholar
Williamson, O. E. (1985) The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting. New-York: The Free Press.Google Scholar
Williamson, O. E. (1991) Comparative Economic Organization – The Analysis of discrete Structural Alternatives. Administrative Science Quarterly 36(2): 269–296.CrossRefGoogle Scholar
Williamson, O. E. (1993) Opportunism and Its Critics. Managerial and Decision Economics 14(2): 97–107.CrossRefGoogle Scholar
Williamson, O. E. (1996) The Mechanisms of Governance. Oxford: Oxford university Press.CrossRefGoogle Scholar
Yates, J. F. and Stone, E. R. (1992) Risk Taking Behavior. Wiley, Chichester.Google Scholar
Young, P. C. and Tippins, S. C. (2001) Managing Business Risk. An Organisation-Wide Approach to Risk Management. American Management Association, New-York.Google Scholar