Predicting Federal Contractor Misconduct

Abstract

Each year, the United States Federal government procures goods and services in an amount that exceeds three percent of the nation's gross domestic product. Federal acquisitions are subject to binding legislative guidance, including the expansive Federal Acquisition Regulations and agency-specific supplements. In addition, contracting firms face oversight from a variety of executive sub-agencies, all of whom monitor ongoing and ex post performance. Uncle Sam enjoys virtually unlimited power to reclaim previously disbursed revenues, to debar (or ban) misbehaving contractors from future government business, and to imprison and fine contracting miscreants. Despite the unique nature of the business environment and the monetary importance of Federal contracting, prior literature generally ignores the determinants of contractor misconduct. Whether and to what extent firm characteristics predict a range of misbehavior, covering a span from minor statutory violations to fraud commission, is the subject of this paper. We exploit a hybrid research design that combines both within- and between sample elements and document a consistent association between certain contractor characteristics and misconduct commission and severity. We also find that artifacts of the awarding agency display a predictable relationship with contractor misconduct, underscoring the complex institutional setting in which contractor deviancy occurs.