Transaction cost economics and A-76 : a framework for defense managers

Abstract

With competing demands on DOD's limited budget, outsourcing, within the OMB Circular A-76 framework, has been the vehicle of choice to attempt to achieve cost savings. However, the bureaucratic process is not always compatible with realization of long-term savings. While corporate America has experienced real savings through outsourcing, DOD's experience has not been as successful. This thesis offers a new framework for analyzing DOD outsourcing using the principles of Transaction Cost Economics (TCE). The key tenets of TCE (asset specificity, complexity and frequency) are defined and their usefulness demonstrated as evaluation criteria in the outsourcing process. Additionally, the concept of opportunistic behavior in outsourcing arrangements will be analyzed. By using these concepts, within the A-76 process, stakeholders would have a method that could help avoid bad outsourcing decisions and achieve significant cost savings on a more consistent basis through more appropriate contract types.