Resource Dependence, Alternative Supply Sources, and the Design of Formal Contracts

Authors


Deanna Malatesta is an assistant professor of public administration and policy at Indiana University Purdue University-Indianapolis. Her research addresses the management of public organizations, governance, and contract structure.
E-mail:dmalates@iupui

Craig R. Smith is an assistant professor in the School of Government and Public Policy at the University of Arizona. His research focuses on public sector contracting and interorganizational collaboration.
E-mail:crsmith@email.arizona.edu

Abstract

Employing a resource dependence theoretical framework, the authors analyze a set of recently awarded contracts between the Environmental Protection Agency and its suppliers to determine how joint dependence, supplier dependence, and government dependence affect contract design—specifically, the decision to use a cost-plus (flexible) contract. Findings provide evidence that organizations choose contract designs that will reduce uncertainty related to securing critical resources. However, different dimensions of dependence have different effects: (1) higher levels of joint dependence lead to more flexible governance forms; (2) the lack of alternative suppliers is a more important factor than high levels of financial dependence; and (3) the parties involved in government procurement are likely to perceive government as a unique type of organization, which, in turn, has implications for contract design choices. The authors conclude with managerial strategies for restructuring power/dependence relationships to achieve the contract design most likely to yield a surplus in the exchange.

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