The Relation between Cost Shifting and Segment Profitability in the Defense-Contracting Industry

2002 ◽  
Vol 77 (4) ◽  
pp. 949-969 ◽  
Author(s):  
Annie S. McGowan ◽  
Valaria P. Vendrzyk
Keyword(s):  
Market Power ◽  
Government Contracts ◽  
Cost Shifting ◽  
Defense Contractors ◽  
Defense Contracting ◽  
Government Work ◽  
Defense Contracts

We test the conjecture from prior research that defense contractors' excess profitability in the 1980s stemmed from their ability to shift common overhead costs to government contracts that typically allow cost reimbursement or price renegotiation (Rogerson 1992; Thomas and Tung 1992; Lichtenberg 1992). Although we confirm prior evidence that defense contractors enjoyed abnormally high profitability on their government work in the 1984–1989 period (a period of relatively low competition for defense contracts), we find no evidence that this excess profitability is attributable to cost shifting. In addition, we find no evidence that the Top 100 defense contractors (firms that likely wield above-average market power) are able to use cost shifting to exploit a lack of competition in the industry. Our results suggest that, contrary to the conjectures in prior research, the unusually high profitability reported on government contracts in 1984–1989 is more likely attributable to nonaccounting explanations than to cost shifting.

An Examination of the Relations among Tax Preferences, Implicit Taxes, and Market Power in a Noncompetitive Market

2006 ◽  
Vol 28 (2) ◽  
pp. 47-67 ◽  
Author(s):  
Debra A. Salbador ◽  
Valaria P. Vendrzyk
Keyword(s):  
Market Power ◽  
Relative Position ◽  
Tax Reform ◽  
Empirical Work ◽  
Significant Relation ◽  
Defense Contractors ◽  
Defense Contracting ◽  
Tax Returns

We examine whether market power within a noncompetitive industry is related to a firm's ability to retain the benefits received from statutory tax preferences. Using both a market-based measure and an accounting-based measure proposed by Dunbar and Sansing (2002), we estimate tax preferences for a sample of 60 defense contractors for the three years preceding (1984–1986) and immediately following (1988–1990) the passage of the Tax Reform Act of 1986 (TRA86). We confirm that defense contractors enjoyed positive tax preferences in 1984–1986, which decreased significantly with the passage of TRA86. We find a negative and significant relation between changes in tax preferences and changes in pre-tax returns, which is consistent with implicit tax theory and supported by prior empirical work. We also find that this relation is significantly less negative for firms ranked among the Top 100 defense contractors than for unranked contractors. We conclude that market power is positively related to a firm's ability to retain the benefits of tax preferences, where market power is defined as relative position within the noncompetitive defense contracting market.

PAC Contributions and Defense Contracting

2000 ◽  
Vol 2 (1) ◽  
pp. 53-73 ◽  
Author(s):  
Micky Tripathi
Keyword(s):  
Fixed Effects ◽  
Political Action ◽  
Distribution Patterns ◽  
Political Activity ◽  
Defense Budget ◽  
Defense Contractors ◽  
Defense Contracting ◽  
Least Absolute Deviations ◽  
The Us ◽  
The Face

This paper examines the political activity of US defense contractors over the years 1980–1994. Using econometric techniques to account for both fixed-effects and selection, I examine the industry determinants and distribution patterns of political action committee (PAC) contributions to the US House of Representatives. The analysis finds that the size of the defense budget is a primary factor explaining political activity across the industry as well as within individual firms; firm size, dependency on defense, and defense contract awards explain much less. I also find that firms appeared to change their political strategies in the face of large exogenous shifts in the US defense budget. While defense expenditures were on the rise, defense firms spread their contributions relatively broadly over the defense committee system; when the budget fell, however, the firms switched strategies and targeted committee leaders. An incidental contribution of the paper is an empirical application of the trimmed least absolute deviations estimator for fixed-effects models with selection.

Simulating a Contract Closeout Process

2012 ◽  
Vol 3 (4) ◽  
pp. 38-59
Author(s):  
Clayton Jerrett Capizzi ◽  
Joseph Wilck ◽  
Xueping Li
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Simulation Model ◽  
Realistic Model ◽  
Simulation Software ◽  
Government Contracts ◽  
Defense Contractors ◽  
Resource Levels

Government defense contractors are burdened by contracts which have ended, but have not been finalized and closed. In order to keep good relations with organizations regulating government contracts, contractors have been forced to devise a strategy to address contract closeouts. Data was collected about a defense contractor’s contract closeout process, and a simulation model of the system was developed to aid in completing the contract closeout process. Using simulation software, the closeout process was successfully modeled under varying resource levels. The simulation model included true worker process times with integrated schedules, including holidays, over the expected period of performance. The simulation produced a realistic model which allows an organization to plan their resources to accomplish their contract closeout process under specified conditions and deadlines. The results are relevant to government (public sector) contracts as well as industrial (private sector) contracts where similar regulations are applicable.

Effects of Environmental Threat on U.S. Defense Contractors in War Zones from the Social Science and Technology Perspectives

2015 ◽  
pp. 6494-6502
Author(s):  
Jeffrey T. Fowler ◽  
Ruth Sharf
Keyword(s):  
Social Science ◽  
Social Science Research ◽  
Science Research ◽  
Defense Contractors ◽  
Defense Contracting ◽  
Asymmetric Warfare ◽  
Environmental Threat ◽  
Technological Advantage ◽  
Physical Threat ◽  
War Zones

The following article will explore environmental threat as it applies to contractor personnel in combat zones from both the technological and scientific perspectives. A unique aspect of defense contracting is the performance of contracts in war zones, such as Afghanistan. Asymmetric warfare, lacking conventional front lines, dictates that contractors encounter physical threat at any time and in a variety of circumstances. Under these conditions, contracting assumes a new dimension associated with a heightened level of physical environmental threat and the mitigating effects inherent in technological advantage. In addition, social science research into morale factors is an important element in contractor performance. It is interesting to note that the West has been unable to destroy the fundamentalist forces arrayed against it despite remarkable and rapid technological and scientific advances and their application in the theater of war.

Impact of contract bundling and consolidation on defense acquisition system and defense industrial base: The case of the u.s. department of the navy

2015 ◽  
Vol 15 (1) ◽  
pp. 1-37 ◽  
Author(s):  
Max V. Kidalov
Keyword(s):  
Acquisition System ◽  
Fiscal Year ◽  
Defense Acquisition ◽  
Industrial Base ◽  
Defense Contracting ◽  
Business Goals ◽  
Good Government ◽  
Department Of The Navy ◽  
Defense Contracts ◽  
The U.S

Despite Congressional and Presidential emphasis on reducing bundling and consolidation of defense contracts, recent studies cast doubt on whether such practices are problematic for small contractors or the defense acquisition system. Those studies proposed that bundling and consolidation are generally positive tools to procure best value. This paper tests these propositions by examining relevant U.S. Department of the Navy (DON) contracts for Fiscal Year 2010, when Congress reported record bundling and consolidation in U.S. defense contracting. Specifically, the paper looks to performance of Navy and Marine Corps buying commands in meeting small business goals and other good-government objectives such as competition, performance-based acquisitions, preference for commercial suppliers, and support for the U.S. defense industrial base. The paper recommends improvements in targeted good-government practices as measures to reduce bundling and consolidation.

What does consolidation mean for performance? Concentration, competition, and defense contracting outcomes

2018 ◽  
Vol 4 (1-2) ◽  
pp. 30-57
Author(s):  
Gregory Sanders ◽  
Zachary Huitink
Keyword(s):  
Performance Indicator ◽  
Performance Outcomes ◽  
Government Contracting ◽  
Industrial Concentration ◽  
Large Dataset ◽  
Performance Incentives ◽  
Defense Contracting ◽  
Contract Performance ◽  
Lower Likelihood ◽  
Defense Contracts

How does industrial concentration influence performance outcomes in government contracting? This paper hypothesizes that concentration influences contract performance directly, as well as indirectly through reducing competition for contract awards. Tests of these hypotheses on a large dataset of US defense contracts reveal nuanced results. Increasing concentration is directly associated with a higher likelihood of contract terminations, and remains the same even after accounting for levels of competition (suggesting competition does not mediate the influence of concentration on this performance indicator). Contrary to expectations, higher competition is associated with a higher rather than a lower likelihood of terminations. Concentration is not associated with the incidence of cost ceiling breaches, and competition resulting in single (rather than multiple) offers is associated with a lower likelihood of a breach. When a breach has occurred, however, higher concentration is associated with larger breaches sizes, and higher competition with smaller breach sizes. Combined, these results partially support concerns about a connection between concentration, market power, and diminished performance incentives but suggest that the nature of these relationships depends upon the indicator of contract performance being considered.

Why do the national financial and monetary policies not boost the economy?

2020 ◽  
Vol 26 (7) ◽  
pp. 1496-1521
Author(s):  
N.I. Kulikov ◽  
M.A. Kulikova ◽  
A.A.S.R. Mobio
Keyword(s):  
Central Bank ◽  
Policy Support ◽  
Gdp Growth ◽  
Government Contracts ◽  
Monetary Policies ◽  
The Past ◽  
Russian Economy ◽  
Yearly Average ◽  
Analysis And Synthesis ◽  
The Government

Subject. This article assesses the reasons why the economic policy of the Government and Central Bank of Russia does not cause the economic advance. The article tries to find out why the two strategic programmes adopted over the past ten years have not been implemented in most indicators. Objectives. The article aims to analyze the results of financial and monetary policies in Russia over the past ten years, and establish why the Russian economy has been growing within one percent yearly average all these years, and its share in the world economy has not grown, but got reduced even. Methods. For the study, we used the methods of analysis and synthesis. Results. The article proposes certain measures and activities to move to soft financial and monetary policies of the State and corresponding changes in the structure of the Russian economy. This will help ensure six to seven percent GDP growth annually. Conclusions. High loan rates have become the main obstacle to GDP growth in Russia. It is necessary to accept concrete actions and decisions concerning the Bank of Russia key rate, expansion of the functions of the Central Bank of the Russian Federation, industrial policy, support of consumer demand, long-term government contracts for the real sector enterprises, etc.

Vertical Boilerplate

2017 ◽  
Author(s):  
James Gibson
Keyword(s):  
Market Power ◽  
Real World ◽  
Empirical Work ◽  
Full Scale ◽  
Market Mechanism ◽  
Law School ◽  
Information Cost ◽  
Information Costs ◽  
Policy Proposals ◽  
Radical Solution

Despite what we learn in law school about the “meeting of the minds,” most contracts are merely boilerplate—take-it-or-leave-it propositions. Negotiation is nonexistent; we rely on our collective market power as consumers to regulate contracts’ content. But boilerplate imposes certain information costs because it often arrives late in the transaction and is hard to understand. If those costs get too high, then the market mechanism fails. So how high are boilerplate’s information costs? A few studies have attempted to measure them, but they all use a “horizontal” approach—i.e., they sample a single stratum of boilerplate and assume that it represents the whole transaction. Yet real-world transactions often involve multiple layers of contracts, each with its own information costs. What is needed, then, is a “vertical” analysis, a study that examines fewer contracts of any one kind but tracks all the contracts the consumer encounters, soup to nuts. This Article presents the first vertical study of boilerplate. It casts serious doubt on the market mechanism and shows that existing scholarship fails to appreciate the full scale of the information cost problem. It then offers two regulatory solutions. The first works within contract law’s unconscionability doctrine, tweaking what the parties need to prove and who bears the burden of proving it. The second, more radical solution involves forcing both sellers and consumers to confront and minimize boilerplate’s information costs—an approach I call “forced salience.” In the end, the boilerplate experience is as deep as it is wide. Our empirical work should reflect that fact, and our policy proposals should too.

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