Combating Principal-Agent Relationship Problems: Use of the Truth Revealing Incentive Mechanism

Abstract

The purpose of this MBA professional report is to introduce the Truth Revealing Incentive Mechanism (TRIM) as a tool to help the government obtain more accurate cost estimates and control program costs. The TRIM is an economic mechanism based on principal-agent relationships that uses incentives to align contractors interests with those of the Government. The TRIM combats principal-agent problems by extracting a contractor's true estimated costs. The TRIM is structured so that revealing the true estimated cost offers the contractor the highest potential fee. This report describes the principal-agent theory, identifies principal-agent problems in the current DoD contracting environment, discusses how the TRIM addresses these problems more effectively than traditional cost-reimbursement contracts, and explains how and where the TRIM can be applied. This report also includes an electronic version of the TRIM in Microsoft Excel format, as well as a practitioner's guide to help contracting officers use the TRIM.

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Document Details

Document Type
Technical Report
Publication Date
Dec 01, 2007
Accession Number
ADA475970

Entities

People

  • Daniel R. Gates
  • E. C. Yoder
  • Peter J. Coughlan

Organizations

  • Naval Postgraduate School

Tags

Communities of Interest

  • Human Systems
  • Space
  • Weapons Technologies

DTIC Thesaurus Topics

  • Air Force
  • Business Administration
  • Contract Administration
  • Contractors
  • Contracts
  • Cost Estimates
  • Cost Overruns
  • Cost Reimbursement Contracts
  • Department Of Defense
  • Governments
  • Jet Propulsion
  • Management Personnel
  • Military Acquisition
  • Motivation
  • Organizational Structure
  • Procurement
  • Spreadsheet Software

Readers

  • Asian Economic Studies
  • Control Systems Engineering.
  • Government Contracting/Procurement.

Technology Areas

  • Microelectronics