INCENTIVES IN INCENTIVE CONTRACTING - AN APPLICATION OF THE MIMIC MODEL

A handful of empirical studies have endeavoured to analyse the cost-containment effectiveness of the incentive contracts that the Department of Defence has used for its acquisition of weapon systems. A serious omission from all of these studies has been a consideration of the motivation of contractors to renegotiate these contracts many times. Since contract modification is an important and recognized part of incentive contracting, it is surprising that so little attention has been paid to the contractor's incentive to seek these modifications. The purpose of this paper is to examine empirically the effects of incentive contract cost-sharing provisions and contract renegotiations on contractor cost-savings effort.