Contracting for complex performance in markets of few buyers and sellers: The case of military procurement

Abstract

Purpose

The aim of the paper is to identify and review the impact and challenges of new contractual arrangements on UK military procurement and other limited or oligopolistic markets.

Design/methodology/approach

The unit of analysis is the large-scale procurement programme. Two cases of major military platforms (naval and air defence) examine through-life maintenance or “contracting for availability” and build theory on procuring complex performance (PCP). Propositions are developed from the literature then tested and extended from the case analysis, supported by 35 interviews from buyer and supplier representatives.

Findings

Examining UK military platform procurement reveals a perspective not present in fast moving high volume supply chains. In oligopolistic markets such as defence, the Ministry of Defence (MOD) represents a market of one, seeking ambitious and non-incremental innovation from the prime contractor during the procurement process. The new contractual arrangements show an increasing shift in responsibility to the prime contractor who coordinates service support and supply chain incentivisation over extended, often multi-decade platform lifecycles.

Research limitations/implications

The cases were conducted separately and later compared. Whilst based on defence sources, the paper concludes with general recommendations for all public-private complex procurements and seeks to explore other industry sectors as part of further research into PCP.

Originality/value

Examined from a theoretical and practical perspective, the cases reveal the challenges facing procurement in major public-private projects. The changing role identified reflects extended timescales and the quasi-market military procurement environment, compounded by current economic and politically charged conditions. Procurement by default increasingly plays a new shaping role in large-scale programme management driven by outcome-based contracting. Customers such as the MOD must re-evaluate their role under these new contractual arrangements, providing leadership and engaging with future contracting capability and innovation.

Citation

Caldwell, N. and Howard, M. (2014), "Contracting for complex performance in markets of few buyers and sellers: The case of military procurement", International Journal of Operations & Production Management, Vol. 34 No. 2, pp. 270-294. https://doi.org/10.1108/IJOPM-10-2013-0444