Autonomy versus control in procurement and contracting: the use of cost-reimbursement contracts in three US federal departments

Date01 March 2017
DOI10.1177/0020852315619477
Published date01 March 2017
International Review of
Administrative Sciences
2017, Vol. 83(1S) 41–58
!The Author(s) 2016
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DOI: 10.1177/0020852315619477
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International
Review of
Administrative
Sciences
Article
Autonomy versus control in
procurement and contracting:
the use of cost-reimbursement
contracts in three US federal
departments
Yong Woon Kim
Sang-Hur College of Liberal Arts, Konkuk University,
Republic of Korea
Trevor Brown
John Glenn College of Public Affairs, The Ohio State University,
USA
Abstract
This article examines the efficacy of central attempts to influence the use of specific
types of contracts, namely, cost-reimbursement versus fixed-price contracts, by indi-
vidual departments within a decentralized procurement system. We draw five years of
data (Fiscal Years 2004–2008) from the Federal Procurement Data System to examine
the contract type decisions of three US federal agencies: the Department of Health and
Human Services, the Department of Defense, and the Department of Homeland
Security. The results of our analysis suggest that while departments have discretion
to purchase products that meet their mission requirements, there is relative uniformity
in the reliance on cost-reimbursement versus fixed-price contracts.
Points for practitioners
The driving factor in the use of one contract type over the other is not the department
in question, but rather what the department buys. Following central regulatory guid-
ance, the three departments in our sample tend to use cost-reimbursement contracts
for complex products and fixed-price contracts for simple products. The practical
implications for central policymakers is that focusing guidance on what departments
buy may be more effective in maintaining overall budget control rather than focusing on
how the department buys products.
Corresponding author:
TrevorBrown, John Glenn College of Public Affairs, The Ohio State University, Page Hall, 1810 College Road,
Columbus, Ohio 43210, USA.
Email: brown.2296@osu.edu
Keywords
administrative organization and structures, contracting out, control, implementation,
regulation
Introduction
Governments the world round buy lots of things (e.g. Aguado-Romero et al., 2013;
Johnston and Gudergan, 2007; Proeller, 2007). In Organisation for Economic
Co-operation and Development (OECD) countries, government contracting
accounts for 12% of gross domestic product (GDP).
1
In the US, in Fiscal Year
(FY) 2014, federal agencies spent $445 billion on contracts, over one-third of all
discretionary spending.
2
With procurement and contracting representing an
increasing share of public budgets, central legislative and executive authorities
often regulate the procurement process in an effort to achieve central goals. As
with any delegated function, the challenge in regulating procurement and contract-
ing is to balance the center’s goals with the individualized needs of delegated units
(Schwartz, 2007).
The 15 cabinet-level executive departments of the US federal government offer
a landscape to explore the balance between autonomy and control in procure-
ment. The system is governed by an overarching set of regulations designed to
promote standardization and control, while allowing departments to tailor their
approach to their mission, culture, and product requirements. The stated goal of
this system of regulations is ‘to deliver on a timely basis the best value product or
service to the customer, while maintaining the public’s trust and fulfilling public
policy goals’.
3
Given the US’s growing federal debt, one of the primary goals of
US federal policymakers is to reduce cost escalation in government procurement.
Cost-reimbursement contracts, which put the risk of cost overruns on the gov-
ernment, have been identified as a key cost driver (GAO, 2009a). In the absence
of a hard cap on procurement spending, central officials have two basic options
to reduce procurement cost growth: regulate how products are purchased or
regulate what products departments buy. The how strategy involves issuing
cross-cutting regulations that promote or mandate the use of fixed-price contracts
instead of cost-reimbursement contracts. Alternatively, the what strategy involves
reducing the procurement of products that are typically purchased with a cost-
reimbursement contract. This article investigates which strategy is likely to curb
the use of cost-reimbursement contracts by delegated departments within the
current system.
We draw five years of data (FY 2004–2008) from the Federal Procurement Data
System, the most comprehensive and largely untapped database on US federal
contracting practices, to examine the contract type decisions of three federal
departments: the Department of Health and Human Services, the Department of
Defense, and the Department of Homeland Security. We complement the contract
data with a survey of federal procurement professionals on the characteristics of
42 International Review of Administrative Sciences 83(1S)

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