Performance-based contracting in the defence industry: Exploring triadic dynamics between government, OEMs and suppliers

This study takes a rare longitudinal perspective to examine performance-based contracting (PBC) in the context of the development of a major capital defence project. It employs a triadic framework to examine changes in actors and their roles over time in fulfilling the project. The triads involve both contractors as suppliers and government entities. More specifically, using a historical narrative method the study suggests that over the 30 year span of the new warship's development, different parties occupy the nodes of triads where the roles or functions of the principal and agents in the contract change over time. Our use of a triadic perspective enables us to trace both the withdrawal of the government customer from a position of authority and the specific strategy of one supplier to occupy the vacated role as systems integrator. The study makes three distinct contributions: firstly, to our understanding of PBC through tracing the development of the conditions that enable PBC in largescale long-term public-private contracting such as clear role delineation. Second, it adds to understanding of principal -agent behaviour in triadic public-private projects, suggesting that customer and supplier roles need to be perceived as supply network dynamics. Third, it suggests reasons why this defence acquisition underperformed, focusing on the mediation of the customer's value requirement through powerful players seeking to extend their control. We argue PBC must be re-assessed in complex environments to include less direct financial measures such as long-term market share and adopt a more nuanced approach to contractual management than simply transferring risk. (C) 2016 Elsevier Inc. All rights reserved.