Vern had posted the following comment in response to an article on the Government Executive website regarding defense mergers:

"The "share line" you mentioned refers to a fixed-price incentive contract with either firm or successive targets. It is an old contractual arrangement that dates back to WWII. It is described in Part 16 of the Federal Acquisition Regulation. There is absolutely nothing new about it. It has been in fairly common use since the mid-1960s and has been much studied since then -- by Harvard, Rand, GAO, and others -- and the findings have been that it does not work especially well if at all."

I value Vern's comments, and I would like to better understand the last statement regarding the findings that indicate that it does not work especially well if at all. Can someone please point me to the source documents in support of that finding?

Thanks!!!

I will put together a bibliography of the documents and post them here later today.

Vern

These are ordered by date, oldest first, and then by author name.

Scherer, The Weapons Acquisition Process: Economic Incentives, Harvard, 1964.

*Deavers and McCall, Notes On Incentive Contracting, RM-5019-PR, Rand, 1966

Fisher, Cost Incentives and Contract Outcomes: An Empirical Analysis, RM-5120-PR, Rand, 1966.

*Fisher, A Reappraisal of Incentive Contracting Experience, RM-5700-PR, Rand, 1966

* Williamson, The Economics of Defense Contracting: Incentives and Performance, in Issues In Defense Contracting, 1967

*Fisher, Improving the Effectiveness of Incentive Contracts, DTIC AD673332, Rand, 1968

*Logistics Management Institute, An Examination of the Foundations of Incentive Contracting, Task 66-7, DTIC: AD683677, 1968

*McCall, ?The Simple Economics of Incentive Contracting,? The American Economic Review, December 1970

*Hiller and Tollison, ?Incentive Versus Cost-Plus Contracts in Defense Contracting,? Journal of Industrial Economics, March 1978

*Kennedy, Incentive Contracts and Cost Growth, Air Force Business Management Research Center, DTIC: AD-A140930, 1983

*GAO, Incentive Contracts: Examination of Fixed-Price Incentive Contracts, GAO/NSIAD-88-36BR, 1987

See also our own Bob Antonio's article at this website: http://wifcon.com/anal/analfpif.htm.

The most comprehensive of these is the one by Prof. Kennedy of Notre Dame University's business school. It is 454 pages long and contains a very comprehensive bibliography of other studies through 1983. There has been relatively little written about formula incentive contracts since then, but there are some articles if you look around. I don't count articles in Contract Management magazine and other such publications as sources of scholarly studies. While they are often informative, they are rarely based on original research and are often written by people with an agenda. I also do not count articles written by consultants and practitioners that are not based on scholarly research. I look for work done by people who are seeking the truth.

An asterisk indicates that the item is available on the internet, and most are free. Some require knowledge of advanced mathematics in order to fully understand the authors' arguments and conclusions. I don't have time to provide urls, so you'll have to do that for yourself. Google Scholar is a great resource.

This ought to keep you busy for a while.