Determinants of contract duration in outsourced services in the defense sector

ABSTRACT

In this article we analyze the contract duration using Transaction Cost Theory with a sample of 283 outsourced services in the Spanish Army during the period 2009–2014.The analysis results show that the greater the specificity of the service, the greater the duration of the contract. In addition, it is obtained that the greater the uncertainty about the behaviour of the provider, the lower the duration of the agreement. These results are consistent with existing literature and empirical works.

However, in the case of external uncertainty and incompleteness of the contract, they do not affect the contract duration. This may be because less complex services for shorter terms can be specified better and are less affected by external circumstances. Therefore, the uncertainty should be decomposed and analyzed according to their sources.

KEYWORDS:

• Outsourcing
• Transaction Cost Theory
• specificity
• uncertainty
• service contracts
• defense

JEL CLASSIFICATION:

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Acknowledgements

This work was supported by the Centro Universitario de la Defensa under Grant CUD2015-13 and to Aragon Government and the European Regional Development Fund under Grants S14/2 (CIBER Análisis Económico-Financiero de la Empresa y los Mercados) and S17 (CREVALOR). Furthermore, the authors would like to thank Professor Jorge González-Chapela, General García-Castellanos, as well as the members of the Spanish Army for their collaboration in collecting data from the surveys used

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ PLACE is a database where there is information about public tendering and contracts. https://contrataciondelestado.es/wps/portal/plataforma

² Before distributing the questionnaire among contracting authorities, we pretested it with interviews from experts in public procurement in the Army industry.

Additional information

Funding

This work was supported by the Centro Universitario de la Defensa under Grant CUD2015-13 and to Aragon Government and the European Regional Development Fund under Grants S14/2 (CIBER Análisis Económico-Financiero de la Empresa y los Mercados) and S17 (CREVALOR).