Implications of Transaction Costs for Acquisition Program Cost Breaches
Abstract
It is generally accepted that cost growth in federal major defense acquisition programs (MDAPs) is partially attributable to inaccurate cost estimates. Cost analysts exhaustively analyze manpower and resources to provide accurate estimates. However, the influence of transaction costs is often ignored in traditional cost estimates. This thesis investigates the association between cost growth and transaction costs, the real cost of business negotiations and program management. We collect MDAP cost threshold breach data and cross reference it with a proxy for MDAP transaction costs (Systems Engineering/Program Management Costs) to determine whether a correlation exists. We use multiple logistic regression models to analyze the binary outcome of breach or no breach. The results show that for MDAPs with cost-plus contracts, there is a statistically significant relationship between the likelihood of a cost threshold breach occurring and the relative magnitude of the MDAP's transaction costs; no such relation exists for fixed-price contracts. Although these results show an association between cost threshold breaches and transaction costs, there is no evidence of causality between these two variables. An exploration of causality is a topic for future research.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 2013
- Accession Number
- ADA582900
Entities
People
- Carl T. Biggs
Organizations
- Naval Postgraduate School