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In view of a lack of understanding of the consequences of performance‐based contracting (PBC), this paper aims to reveal deeper insights into the mechanisms inherent to PBC and explore which benefits and uncertainties may result for providers and customers.

Conducting a comprehensive literature review and drawing on insights from agency theory as a framework, the auhtors analyzed a broad range of academic publications on the benefits and uncertainties of PBC and developed testable propositions from the provider's and the customer's perspective.

With PBC, in comparison to the conventional selling and supporting of machinery or equipment, the manufacturers are more likely to acquire customers for highly innovative technologies, to increase their profit, and to improve customer loyalty. Manufacturers, however, have to deal with uncertain revenues and costs which affect their profit. The customers are more likely to receive increased performance at decreased costs. Concerning the performance, however, the customers enter into an uncertain relationship of dependence.

This is the first paper to analyze the benefits and uncertainties of PBC in manufacturing industries systematically from an agency theory perspective. The paper further develops extant research by outlining the mechanisms of PBC and relating the benefits and uncertainties that are scattered over a broad body of literature. The paper proposes several promising avenues for further research.

The aim of the paper is to identify and review the impact and challenges of new contractual arrangements on UK military procurement and other limited or oligopolistic markets.

The unit of analysis is the large-scale procurement programme. Two cases of major military platforms (naval and air defence) examine through-life maintenance or “contracting for availability” and build theory on procuring complex performance (PCP). Propositions are developed from the literature then tested and extended from the case analysis, supported by 35 interviews from buyer and supplier representatives.

Examining UK military platform procurement reveals a perspective not present in fast moving high volume supply chains. In oligopolistic markets such as defence, the Ministry of Defence (MOD) represents a market of one, seeking ambitious and non-incremental innovation from the prime contractor during the procurement process. The new contractual arrangements show an increasing shift in responsibility to the prime contractor who coordinates service support and supply chain incentivisation over extended, often multi-decade platform lifecycles.

The cases were conducted separately and later compared. Whilst based on defence sources, the paper concludes with general recommendations for all public-private complex procurements and seeks to explore other industry sectors as part of further research into PCP.

Examined from a theoretical and practical perspective, the cases reveal the challenges facing procurement in major public-private projects. The changing role identified reflects extended timescales and the quasi-market military procurement environment, compounded by current economic and politically charged conditions. Procurement by default increasingly plays a new shaping role in large-scale programme management driven by outcome-based contracting. Customers such as the MOD must re-evaluate their role under these new contractual arrangements, providing leadership and engaging with future contracting capability and innovation.

To investigate how providers of product-service bundles design and manage their contracts with upstream suppliers to incentivise incremental innovation for the benefit of their downstream customers, who contract the provider based on performance.

An embedded multiple-case study was conducted to examine elements of a European jet fighter’s manufacturing and after-sales supply chain. The embedded cases concern provider contracts with first-tier suppliers of product and service offerings. Data collection involved 21 semi-structured interviews, documents and other secondary data sources. Data analysis was informed by agency theory to assess the effectiveness of contract design and management in delivering incremental innovation and to identify related contracting strategies.

We identify four strategies for fostering incremental innovation in contracts between providers and their first-tier suppliers. These include two contract design strategies, i.e. reducing goal incongruence and addressing information asymmetry; and two contract management strategies, i.e. reducing outcome uncertainty and promoting inter-firm integration between providers and sub-suppliers.

The research offers managerial guidelines regarding how providers can design and manage their tier-one supplier contracts to achieve incremental innovation. These include encouraging early supplier involvement, using focussed KPIs in contracts, and managing product and service-offering suppliers differently.

The research shows the contingent effect during contract design and management of a sub-supplier’s product vs. service offering, which, in turn, impacts incremental innovation. We also find that using focussed key performance indicators in sub-supplier contracts can be effective in improving product and service quality.

In the United Kingdom under the New Labour government from 1997 to 2010, there was a shift of power away from local towards central government, leading to a situation in which the role of public service organisations could appear to be mainly implementing priorities set by central government and complying with national standards, enforced through the setting of targets and the use of performance management frameworks. The key performance management systems, and the standards within them, became increasingly focused on outcomes, defined as the results that services produce that have an impact on the lives of service users and citizens – the benefits of the service rather than the volume or quality of the outputs (Willis & Bovaird, 2011).

The performance of service supply chains in terms of service levels and cost efficiency depends not only on the effort of service providers but also on the inputs of sub-contractors and the customer. In this sense, performance-based contracting (PBC) entails increased financial risk for providers. Allocating and managing risk through contractual relationships along the service supply chain is a critical issue, and yet there is scant empirical evidence regarding what factors influence, and how, provider willingness to bear PBC-induced risk. This paper aims to address this gap.

The paper draws on agency theory and two cases of logistics service supply chains, in the food retail and automotive industries respectively, to identify key influencing factors. Data were collected through semi-structured interviews with 30 managers of providers and sub-contractors and review of 35 documents, notably contracts and target letters.

Four influencing factors were found: performance attributability within the service supply chain; relational governance in service supply chain relationships; provider risk and reward balancing; and provider ability to transfer risk to sub-contractors. The propositions developed address how these factors influence provider willingness to bear PBC-induced risk.

The factors identified are external to the provider mindset and refer to the management of contractual relationships and service delivery interactions along the service supply chain. The paper contributes to agency theory by stressing the risk allocation implications of bi-directional principal-agent relations in service supply chains.

The study suggests ways in which providers can increase their capacity to bear and manage financial risk related to PBC design.

The paper identifies factors that influence provider willingness to bear financial risk induced by PBC in service supply chains.

Service transformation of health and social care is currently requiring commissioners to assess the suitability of their contracting mechanisms to ensure goodness of fit with the integration agenda. The purpose of this paper is to provide a description and critical account of four models of contracting, namely Accountable Care Organisations, the Alliance Model, the Lead Provider/Prime Contractor Model, and Outcomes-based Commissioning and Contracting.

The approach taken to the literature review was narrative and the results were organised under an analytical framework consisting of six themes: definition and purpose; characteristics; application; benefits/success factors; use of incentives; and critique.

The review highlighted that while the models have relevance, there are a number of uncertainties regarding their direct applicability and utility for the health and social care agenda, and limited evidence of effectiveness.

Due to the relative newness of the models and their emerging application, much of the commentary was limited to a narrow range of contributors and a broader discussion is needed. It is clear that further research is required to determine the most effective approach for integrated care contracting. It is suggested that instead of looking at individual models and assessing their transferable worth, there may be a place for examining principles that underpin the models to reshape current contracting processes.

What appears to be happening in practice is an organic development. With the growing number of examples emerging in health and social care, these may act as “trailblazers” and support further development.

There is emerging debate surrounding the best way to contract for health and social care services, but no literature review to date that takes these current models and examines their value in such critical detail. Given the pursuit for “answers” by commissioners, this review will raise awareness and provide knowledge for decision making.

The purpose of this research is to analyse military logistics providing a decision support instrument for contracting in defence supply chains.

This instrument – the Performance‐Based Logistics (PBL) portfolio – is developed following the contingency approach. Qualitative interviews and illustrative examples from Germany, Austria and Switzerland are used to validate the portfolio.

The proposed portfolio examines a military demand in respect of its required effectiveness (robustness and resilience), and the suppliers' ability to influence efficiency (forecast and supply risk). In combination, the contingencies are used to recommend three alternative types of PBL contracting.

This paper is based on conceptual work with illustrative case examples. Therefore, although the authors believe that the PBL portfolio provides useful guidance for further research, the empirical applicability of this instrument must be proven.

The research on PBL is gaining importance, but still there remains a deficiency of theoretical grounding and management instruments. This study is a first approach to use the contingency framework for developing such an instrument. The value of the PBL portfolio lies in supporting normative decision making for contracting military supply.

The purpose of this paper is to critically rethink the concepts and the theoretical foundations of IT governance in small‐ and medium‐sized enterprises (SMEs).

The paper is based on multiple case studies. In total, eight cases of outsourced information system projects where failures occurred were selected. An outsourced information system failure (OISF) is suggested as a failure of governance of the IT in a SME environment. A structure for stating propositions derived from two competing theories is proposed (Agency Theory and Theory of Trust).

The results reveal that trust is slightly more important than control issues such as output‐based contracts and structured controls in the governance of IT in SMEs.

The world of SMEs is significantly different from that of large companies, and therefore, the concept of IT governance in SMEs needs reconsideration. For researchers and practitioners, it would be more meaningful to focus on actual, working SMEs instead of on a version of their activities derived from those of large companies.

The paper offers two contributions. First, it elaborates the limited research on IT in SMEs and second, it brings theoretical foundations for their IT governance. The value of IT governance in SMEs is explained.

Performance-based contracting (PBC) has been gaining popularity over the years. However, empirical studies investigating the impact of PBC features have been limited. The main purpose of this study is to investigate the effect of PBC features leading to quality investment that fosters financial benefits.

After examining the validity and reliability of scale items through confirmatory factor analysis, this study tested hypotheses using covariance-based structural equation modeling of survey data from 381 supply, logistics and operations managers.

The findings reveal the impact of PBC features (joint knowledge generation, goal congruence and incentive alignment) on financial benefits and the mediation impact of quality investment between these features and financial benefits. The upfront investment for quality enhancement was found facilitator of PBC features to achieve financial benefits. The findings also reveal the importance of collaborative communication and information sharing for knowledge generation that leads financial benefits through quality investment. This study shows that PBC governance strengthens the theory of relational view by empowering collaborative efforts and aligning goals and incentives within downstream suppliers for knowledge generation and quality enhancement.

An analysis of PBC features by industry would be very beneficial in differentiating between and more thoroughly understanding the commonalities and differences across various sectors. Investigating how these change across industries would also help identify any bias in PBC implementation.

This study illustrates that it will be practical and beneficial for suppliers to understand the major drivers of quality investment and the relationship between quality investment and the financial benefits of selecting PBC.

Unlike most previous studies, this research contributes to the literature in that it is one of the relatively few examples of empirical research on PBC features. Overall, the findings of this study will improve our understanding of how PBC features enhance upfront investment in quality and improve financial benefits.

This study aims to empirically test the effects of key characteristics of performance-based contracting (PBC) (i.e. reward/payment scheme, increased supplier autonomy and transfer of responsibilities) on supplier goal commitment.

This study developed a conceptual model applying goal-setting theory (GST), expectancy theory (ET) and job characteristics theory (JCT). Survey data were collected and analyzed using structural equation modeling (SEM) to establish a validated measurement instrument for testing the hypotheses.

The findings revealed that PBC positively affects supplier goal commitment due to its unique characteristics, which translates into improved supplier performance. Furthermore, this study validated the mediating role of goal alignment and felt accountability operating between PBC characteristics and supplier goal commitment.

This study explored the buyer–supplier relationship from the supplier's standpoint. Using a more inclusive data set, future research may involve a dyadic analysis and focus on the effects of the following factors on the supplier goal commitment: relational aspects (e.g. trust and collaboration), the risk transfer from the buyer to the supplier, different incentive schemes and successful PBC implementation factors.

This study presents new, validated insights for contract selection, design and management. It underlines the importance of choosing the proper contract, having the appropriate contract design based on the desired outcomes and effective contract management by exhibiting the psychological/behavioral effect of fundamental PBC characteristics.

PBC represents an active research stream, but its psychological/behavioral implications are understudied. Therefore, this research puts forth a conceptual framework with multiple testable hypotheses illustrating the relationship between PBC and supplier goal commitment.