Rethinking contract design: Why incorporating non-legal drivers of contractual behavior in contracts may lead to better results in complex defense systems procurement
| Published date | 01 March 2015 |
| DOI | https://doi.org/10.1108/JOPP-15-02-2015-B004 |
| Pages | 208-235 |
| Date | 01 March 2015 |
| Author | Peter Kamminga |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 15, ISSUE 2, 208-235 SUMMER 2015
RETHINKING CONTRACT DESIGN: WHY INCORPORATING NON-LEGAL
DRIVERS OF CONTRACTUAL BEHAVIOR IN CONTRACTS MAY LEAD TO
BETTER RESULTS IN COMPLEX DEFENSE SYSTEMS PROCUREMENT
Peter Kamminga*
ABSTRACT. Defense acquisition programs are plagued by surging delays and
cost overruns. In particular, contract manag ement of defense acquisition
programs has been identified as “high risk” – and threatening to project
results. This article examines how contracts, as legal mechanisms, may be
disruptive and obstruct cooperation between the DoD and contractors. The
main observation this article makes is that tensions between the norms set
forth in contracts and other non-legal norms can become a major reason for
problems in defense procurement. It explains why these tensions may
undermine cooperative behavior between contractors and the DoD and can
become a source of disappointing acquisition program results. A framework
is provided for identifying such tensions, and contract design principles are
proposed to enhance cooperation and eliminate these tensions wh en
drafting contracts for defense acquisition and other complex programs.
INTRODUCTION
The Department of Defense (DoD) is the largest contracting
agency of the federal government, procuring approximately 370
billion USD in 2010 (Rendon, 2013; Ellman, Livergood, Morrow, &
Sanders, 2011). The DoD is responsible for procurement of a range
of critical supplies and services including commercial-type supplies,
administrative services, and highly complex information technology
systems and major defense weapon systems (Rendon, 2013). In this
article, I focus on the last two, as they are the most complex and
therefore seem to face the most problems.
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* Peter Kamminga, Ph.D., is an Associate Professor, Law Faculty, VU
University Amsterdam and a Fellow at Harvard University Law School. His
scholarship and tea ching focuses on procurement and contracting of
complex projects.
Copyright © 2015 by PrAcademics Press
RETHINKING CONTRACT DESIGN 209
Defense construction and weapon acquisition programs are
typical examples of complex multi-party endeavors that are governed
by contracts and plagued by delays and cost overruns. The DoD uses
a specific class of contract, however, parties involved encounter
similar problems to those found in other complex contractual
relationships. – It is challenging to design a governance structure that
effectively regulates the dynamic relationships between contract
parties.
Up to now, the legal and economic literature that addresses the
limits of complex contracts has focused mostly on how to deal with a
lack of clarity of contracts, incompleteness and problems resulting
from differences in interpretation (Grossman & Hart, 1986;
Williamson, 1996). Meanwhile, management researchers conduct
extensive research on the importance of cooperation in successfully
executing contracts. Some research has been done on how contracts
can undermine cooperation between parties and the mechanisms
that determine the parties’ contractual behavior. Little or no research,
however, has been done on the dynamics between these
mechanisms and how to address the problems arising from this
interaction. This article aims to fill this void.
Part I of this article focuses on cooperation as the cornerstone for
successful contract management of acquisition programs. It builds on
findings from both contract literature and project management
literature indicating that contracts used in complex undertakings
often fail to effectively support, and may even undermine,
cooperation between parties (O’Reilly, 1999; Walker, Hampson &
Peters, 2000; Kamminga, 2008). Part II explains why today’s
contracts are, fundamentally, imperfect devices for coordination in
complex contractual relations such as defense acquisition. It also
addresses why contract weaknesses, such as incompleteness,
particularly lead to problems in acquisition of complex information
technology systems and major defense weapon systems. This is
followed in part III by an analysis of the largely unexplored
relationship between contracts and the other drivers of contractual
behavior, and how this can contribute to a breakdown in cooperation
in complex defense projects. Further, the additional variables that
influence contracting behavior and comprise the normative
framework are presented. Part IV then presents an analytical
framework for identifying and diagnosing tensions between these
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