Relational Contract: Applicable to Department of Defense Contracts
AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH
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This paper examines the importance of time to contractual performance, technology uncertainty, and firms reputation in determining contractual tightness of aircraft engine contracts negotiated between the Air Force and defense contractors. Utilizing the type of price selected by these contracts as a proxy for contractual tightness, I defined contractual tightness as a measure of ex ante specification or a measure of how much the price is nailed down at the outset of the contractual relationship. Using a relationship approach to contracting, this paper seeks to test, using formal econometric procedures, the importance of time-to-performance, firms reputation, and technological uncertainty in determining contractual tightness measured by the type of price selected ex ante between the Air Force aircraft engine defense contractors. Forty-four data points for this analysis came from thirteen Air Force contracts that procure a certain type of aircraft engine from two defense contractors.
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