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2. Cost Reimbursement Contracts (C+) a. C+FF—Cost-plus-fixed fee: Contract pays allowable costs plus fixed fee (If FF=0 then same as Time & Materials, If FF
also include the costs of internal coordination and motivation. Whereas vertical integration brings transaction-specific assets under the control of one organization and reduces opportunism from holdup, hierarchies can’t control costs as effectively as markets—or suffer from “low-powered” incentives. Moreover, bounded rationality limits the span of effective internal managerial control, so that lower-level managers and employees often engage in multitasking, sub-optimizing, and unproductive rent-seeking behavior (Prendergast, 1999). Hierarchy in a government organization can lead to legitimate sub-optimization, where the joint pursuit of lower-level goals fails to coincide with the global objectives of the organization.22 This often happens in the budget planning process with internal lobbying for resources. However, opportunism can compound the problem by introducing strategic efforts to gain local advantage at the expense of the larger group. Sub-optimization can thus expand to include the strategic use of asymmetric information for local benefit. As a consequence, while government in-sourcing can reduce ex-post opportunism due to holdup, the tradeoff includes: a) low-powered incentives, b) internal opportunistic behavior, and c) an increase in administrative costs. 23 Anytime ex-ante competition among suppliers is transformed into an ex-post bilaterally dependent relationship, additional governance structures are required to induce cooperative adaptation.24 These structures can include anything from agreements to share and verify cost and performance information in incentive contracts to the careful crafting of dispute settlement mechanisms. However, such agreements often increase external transaction costs. The higher external transaction costs, the larger production cost savings need to be to support the decision to outsource. An underlying objective of TCE is to 22 A further complication (but beyond the scope of this discussion) is employee goals not congruent with the government’s. This includes the strength of incentives for efficient operation. Why, for example, should a contracting officer who is spending public funds (and not his own) be more diligent in monitoring performance when dealing with outside contractors than “in-house” supervisors are in dealing with internal procurement? 23 Wintrobe (1977) offers a good review of the literature that analyzes the strategic behavior of a public monopolistic, budget-maximizing bureau—or internal agent (Niskanen, 1971), that can make take-it-or-leave-it budget proposals, and its sponsor—or internal principal. Mueller (1989) later replaces the assumption the bureau is allowed to make take-it-or-leave-it budget proposals with a model in which the sponsor chooses a desired level of output based on the bureau’s announced price per unit of output. Claar (1998) expands the role of the sponsor to regulate the bureau by allowing it to select both the level of output and the allowed price per unit, based on the bureau’s reported marginal cost. Adapting Baron and Myerson’s (1982) incentive compatibility framework for regulating a monopolist with unknown costs to the sponsor’s problem of monitoring a bureau with unknown costs, the welfare-maximizing pricing policy deviates from the standard efficient pricing policy, P=MC. The deviation of the optimal pricing policy from the usual P=MC pricing rule arises due to asymmetric information—or the informational advantage the bureau has concerning its own costs. Internal transaction costs must, therefore, include a subsidy paid by the sponsor in addition to MC to induce the bureau to report its costs truthfully. Baron and Besanko (1984) modify the Baron-Myerson model to permit the regulator to conduct random audits of costs. This introduces an additional transaction cost—monitoring costs. These examples point to the internal transaction costs (a subsidy to induce truthful reporting or monitoring costs to establish correct costs) that must be weighed against any production cost advantages that might exist from insourcing or internalizing transactions in government’s make or buy decisions. 24 According to Williamson and Masten (1999), the “central problem of economic organization is adaptation” (p. xi). The challenge of adaptation is especially acute when ex-ante competition leads to ex-post monopoly power. Whenever products, services or projects cannot be well specified in advance (due to complexity, uncertainty about future conditions, measurement difficulties, etc.), and they involve transaction-specific assets, then ex-ante competition (e.g., competitive bidding) can lead to ex-post monopoly/monopsony power. In turn, this leads to costly adaptation through bilateral bargaining and renegotiation. = ==================^Åèìáëáíáçå=oÉëÉ~êÅÜW=`ob^qfkd=pvkbodv=clo=fkclojba=`e^kdb====- 244 - = =
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Author(s) Title Publisher Issue Dat
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The research presented at the sympo
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Preface and Acknowledgements Those
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The NPS A Team Rear Admiral James B
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4 th Annual Acquisition Research Sy
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PANEL -- IMPLEMENTING AN OPEN SYSTE
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Plenary Panel - Acquisition Reform
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In May 1996, Rear Adm. Hamilton bec
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Panel - Enhancing Collaborative Cap
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Collaborative IT Tools Leveraging C
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Group’s Perceived Usefulness Grou
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diagnose collaborative capacity enc
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Organization A Problem Interagency
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Incentives - Collaboration as a pre
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Two other frequently cited barriers
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Panel - Analytic Approaches to Shap
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Discussant: Michael McGrath - Deput
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Panel - Strategic Sourcing Wednesda
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Abstract In this paper, we examine
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support from the taxpayer. A key co
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etc. (Figure 1) (Kraljik, 1983). Vi
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that companies adopted a strategic
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Benchmarking Industry According to
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80% 70% 60% 50% 40% 30% 20% 10% 0%
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initiatives. In efforts to reduce s
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eduction goals. Also, in the same m
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Conclusion The DoD is struggling to
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Gabbard, E. G. (2004, April). Strat
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Staff. (2005, December 8). Hacket r
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Panel - Implementing RFID in the De
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What Is the Right RFID for Your Pro
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Introduction The evolution and appl
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Literature Review RFID technology w
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The reader is a device used to coll
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Active tags sometimes have sensors
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An RFID network with open architect
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Passive tag application: Railcar ta
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This system has lowered the risk of
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Because of the temperature-induced
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Thereafter, through a process of tr
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to be read at a few inches by an op
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RFID technology has even enhanced s
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The Costs of RFID operation An RFID
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• Abandonment: The ability to aba
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Fleisch, E., & Tellkamp, C. (2005).
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Williams, D. (2005, August 4). Pres
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logistics systems from the military
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Panel - Transforming the DoD Acquis
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upon the best knowledge and practic
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cost, this form appears to be the m
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access to, and conducted his analys
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organizational problems surface thr
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Change in analytic framework. Burea
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As we look at the effort to change
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interpretation or narrative. What
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common construction. Rather, sense-
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There will be a temptation for acto
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modeling suite. The key comparison
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This model provides us also with th
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here, particularly if the organizat
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organization identified through pri
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Levitt, R.E., Thomsen, J., Christia
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BACKGROUND To an extent, we are add
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Concept Refinement Concept Decision
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some subset of commercial “best p
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transforms the value of a public-se
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We also assume that since the gover
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Of course, we know in reality that
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CONCLUSIONS The acquisition of publ
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Panel - Issues in Acquisition and P
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To What Extent are DoD Activities C
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NAVSUP Data Call (2003 and 2004) FI
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exemption from a particular regulat
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time in the procurement schedule, a
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should be fully supported by applic
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example, federal government, state
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ADR Techniques Traditional litigati
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out the top three with 25.7% of res
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It is a consensus building, public
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Investigative Question 1—Conclusi
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Question 3b: Did the ADR process us
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suited than another to resolution.
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Investigative Question 7: Barriers
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customer, and each of these service
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Panel -- Implementing an Open Syste
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Open Systems and Modular Open Syste
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procurement planning phase include
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procurement documents and specific
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system technical architecture requi
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These evaluation factors are tradit
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In the Cost Reimbursement contract
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technical, schedule, and past perfo
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Developing Performance Based Requir
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The DoD Performance Specification d
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due to many of the reasons presente
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even if there were ten other upgrad
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software developers can employ when
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Conducting this analysis will be as
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integration of “best of breed”
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Reform of Budgeting for Acquisition
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350000 300000 250000 200000 150000
Page 205 and 206: In fact, the disagreement between t
Page 207 and 208: Functional Area Analysis D O T M L
Page 209 and 210: Though many in Washington blame the
Page 211 and 212: In response to an open-ended questi
Page 213 and 214: CAPITAL BUDGETING IN THE DoD AND TH
Page 215 and 216: investment. Full funding also helps
Page 217 and 218: c. Functional Requirements If it is
Page 219 and 220: 4. Budgeting Phase of Capital Progr
Page 221 and 222: private firm, one can combine the t
Page 223 and 224: 4. Acceptance of a project using th
Page 225 and 226: Another disadvantage of the payback
Page 227 and 228: Another guideline is that firms mus
Page 229 and 230: This concept has remained consisten
Page 231 and 232: purchases. Also, the Office of Mana
Page 233 and 234: CONCLUSIONS The current practices o
Page 235 and 236: REFERENCES Bierman Jr., H., & Smidt
Page 237 and 238: Ratnam, G. (2005, December 12). Big
Page 239 and 240: Brian C. Payne, Captain Instructor
Page 241 and 242: A Transactions Cost Economics (TCE)
Page 243 and 244: SECTION 1: INTRODUCTION This report
Page 245 and 246: SECTION 2: REVIEW OF TRANSACTION CO
Page 247 and 248: cooperative agreements, but since t
Page 249 and 250: characteristic that defines many ou
Page 251 and 252: The added risk faced by military co
Page 253 and 254: J) Some Empirical Evidence On the w
Page 255: unproductive bargaining and influen
Page 259 and 260: N) Results from a Bargaining-game M
Page 261 and 262: efforts to screen for reliability a
Page 263 and 264: Program Managers lead Program (Proj
Page 265 and 266: Table 2. Research, Development, Tes
Page 267 and 268: To minimize transaction costs for t
Page 269 and 270: A recent initiative to accommodate
Page 271 and 272: Technical complexity within a syste
Page 273 and 274: As briefly introduced above in Sect
Page 275 and 276: Table 5. Typical Contract Type by P
Page 277 and 278: multiyear procurements and other ty
Page 279 and 280: Alpha Contracting reduces procureme
Page 281 and 282: SECTION 4: SYNTHESIS AND CONCLUSION
Page 283 and 284: Finally, DoD contracting practice w
Page 285 and 286: Productive Effort Parameters Unprod
Page 287 and 288: f. Operational Significance. (added
Page 289 and 290: enchmarks, and the like. Elements T
Page 291 and 292: Cooter, R., Marks, S., & Mnookin, R
Page 293 and 294: Nissen, M. E. (1997). JSOW alpha co
Page 295 and 296: Development of Measures of Success
Page 297 and 298: of acquisition practitioners to all
Page 299 and 300: Attributes of Good Metrics. Certain
Page 301 and 302: Center ACEs were from separate loca
Page 303 and 304: unique. Every interview transcript
Page 305 and 306: appropriate. However, when asked if
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they are receiving in their attempt
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forcing each activity and report to
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Force Space Command System Program
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corporate Air Force acquisition ini
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Hayes, B. Measuring Customer Satisf
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Pope, K. Measuring the Effect of th
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Using KVA and Real Options Analysis
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Estimating Return on Investment and
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This research project gathered info
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“I have determined that the curre
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On Budget Allocation to Increase Op
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Panel - Perspectives in Program Man
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Best Practices: Better Support of W
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When Should You Terminate Your Own
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- Management activities, expenditur
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RF COMMUNICATIONS DIVISION ROCHESTE
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REQUIREMENT HF MANPACK TACSAT VHF/F
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Figure 4. System Components INTEGRA
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My best technical experts would spe
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“JULIE-GATE” The program was st
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All agreed it was finally over, and
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A short time later, the world waite
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some of NASA’s Mars probes) or if
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managing systems with tipping point
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The second example of tipping point
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Although the plant did not begin co
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snt - add-new-tasks strength {work
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einforcing loop. We show how, throu
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there is no more project backlog. F
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Frac requiring rework (Frw ) 1.0 0.
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Total Backlog as a Fraction of Inti
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provide opportunities for improveme
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divided into avoiding tipping point
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The horizontal axis of Figure 14 re
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Total Backlog Total Backlog/Initial
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deadline and ensuring that it is re
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unrealistic due to drastic changes
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Kharbanda, O., & Pinto, J. (1996).
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Panel - Service Contracting Thursda
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Managing the Services Supply Chain
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include professional, administrativ
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Service Characteristics and their I
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given stage is made dependent on th
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contracted effort. The procurement
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Construction, Repair and Maintenanc
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The second phase of the procurement
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human capital. This is partially du
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for the contracting of services wil
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Yet a RAND study of the Army showed
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services, the Army appears to have
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(janitorial) services, food service
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Each requirement organization provi
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Brown, S. W., Gummesson, E. Edvards
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Gronroos, C. (1982). Strategic mana
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What Works Best when Contracting fo
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Panel - Earned Value Management Thu
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Measuring Uncertainty in Earned Val
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level of rate-of-change and the abs
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But, if the widget is only half com
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so more rapidly in environments cha
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Impending Task Delays (ITD) can be
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with: v: In the Fisher model, it re
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In discrete time form, the estimati
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Thus, various types of delay such a
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Entropy The uncertainty (non-specif
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Panel - Contractors in Support of M
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Contractors Supporting Military Ope
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drivers and other historical refere
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Another factor driving toward incre
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number of highly experienced Blackw
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Unity of command is one of the prin
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was reimbursed for expenses actuall
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principles, such as unity of comman
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aircraft involved in re-supply miss
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President Cheney) has apparently ma
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modest proposals for incremental ch
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In July 1937, the “China Incident
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President Roosevelt’s assistant,
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Pilots of the Flying Tigers receive
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was larger than the marine aid stat
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Merchant vessels kept Britain in th
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The final vignette involves Charles
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contract (Wake Island pre-war). In
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purposes continues to be the “leg
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Going to War with Defense Contracto
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Abstract This paper reports on an e
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Table 1: Factor loadings and alpha
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depict causal relationships tested
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work-related experience than younge
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Discussion and conclusion On averag
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2003 - 2006 Sponsored Acquisition R
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NPS-PM-04-017 Matthews, David. The
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Technical Reports NPS-GSBPP-03-003
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