Use of Incentives in Performance-Based Logistics Contracting
Abstract
Abstract: Performance-based logistics (PBL) contracts, in which vendors are given responsibility for management of complex fleets, have been relatively common in certain commercial sectors, particularly the airline industry, but their use within the Department of Defense (DoD) only dates back to the late 1990s. PBL contracts depend on the ability of the customer to properly structure and implement contract incentives to promote vendor behavior that reduces costs and improves performance. Recent DoD policy efforts have encouraged the use of PBLs, relying on research that indicates that PBLs can be successful in lowering costs and improving performance. The research problem of this proposed effort is to move beyond the question of whether PBL contracts work to examine how best to structure the incentives built into PBL contracts to promote reduced costs and improved performance. The technical approach for this proposed research project would be to examine the literature on performance-based contracting practices and the literature on the use of contract incentives and examine the usage of these practices in case studies of DoD PBL contracts. DoD PBLs demonstrate problems inherent in managing highly complex fleets of assets, exhibiting multiple configurations, multiple critical systems, numerous locations, a mix of organic and external support, and highly variable usage rates. The anticipated outcomes of this research project will provide insights into the effective management of highly complex fleets by public and private entities in general. The study of incentives also provides an opportunity for investigating the classic principal/agent problem: how can the principal (DoD) use the tools at its disposal (incentives) to get the behavior it seeks from an agent (the contractor)? Additionally, by examining PBLs this research will illuminate an issue of considerable media, watchdog, and Congressional interest by providing insight into how (and to what degree) government agencies can use incentives to promote desired behavior and performance by contractors. This research will identify best practices and lessons learned in the use of contract incentives in PBL contracting. As part of the technical approach to this research effort, CSIS will identify and make available a dataset of defense PBL contracts for analysis, providing a resource for other researchers to use in future research efforts. CSIS will also identify contract incentives currently in use in DoD PBL contracts adding to the body of knowledge on the use of contract incentives in public sector projects. Finally, by doing case studies on the use of incentives in defense PBL contracts, this research will illustrate not just whether, but how PBLs can be used effectively. These objectives will be supported by making key aspects of the research available for use by other researchers on a publically-accessible website, such as GitHub, including the research methodology and key datasets.
Document Details
- Document Type
- DoD Grant Award
- Publication Date
- Apr 21, 2016
- Source ID
- N002441610009
Entities
People
- Andrew Hunter
Organizations
- Center for Strategic and International Studies
- United States Navy