Incentives in Third‐Party Governance: Management Practices and Accountability Implications

• Author: Amanda M. Girth
• DOI: http://doi.org/10.1111/puar.12645
• Published date: 01 May 2017
• Date: 01 May 2017

Incentives in Third-Party Governance: Management Practices and Accountability Implications 433

Public Administration Review,

Vol. 77, Iss. 3, pp. 433–444. © 2016 by

The American Society for Public Administration.

DOI: 10.1111/puar.12645.

Amanda M. Girth is assistant professor

in the John Glenn College of Public

Affairs at The Ohio State University. She

studies frontline management decisions in

contract implementation and accountability

challenges in third-party governance. Her

research has been published in

Journal

of Public Administration Research and

Theory

,

Public Administration Review

, and

Administration & Society

.

E-mail: girth.1@osu.edu

Amanda M. Girth

The Ohio State University

Incentives in Third-Party Governance:

Management Practices and Accountability Implications

Abstract : Contract incentives are designed to motivate contractor performance and to provide public managers with

a powerful tool to achieve contract accountability. Our knowledge of contract incentives is rooted in contract design,

yet as we move beyond contract specification and further into the contract lifecycle, we know little about why and how

managers implement incentives. This study assesses public managers’ use of contract incentives in practice and advances

theory development. A typology of contract incentives is constructed to capture a comprehensive range of formal and

informal incentives, and the factors that influence managerial use of incentives are identified. The findings shed

light on the complexities of maintaining accountability in third-party governance structures and the management

techniques aimed at improving the performance of public agencies.

Practitioner Points

• What is not written into the contract is as important as what is. Public managers use informal means to

motivate contractor performance; these incentives can be as effective as the formal incentives codified in the

contract.

• Public managers should strategically utilize a full range of sanctions and rewards—formal and informal,

monetary and nonmonetary—to maintain contract accountability. Creativity in tailoring the right set of

incentives that both match the product and motivate the contractor can help to appropriately align incentives

with contractor goals and increase performance.

• Following through on executing rewards and sanctions is pivotal to maximizing the motivational power

incentives. Inconsistency and leniency can undermine incentives and compromise accountability.

C oncerns about accountability have grown as

governments at all levels have come to rely on

contracted third parties to assist in program

delivery (Dubnick and Frederickson 2010 ; Hefetz and

Warner 2012 ; Heinrich 2002 ; Posner 2002 ; Romzek

and Johnston 2005 ; Romzek, LeRoux, and Blackmar

2012 ). Sorting out responsibility for cost overruns,

delivery delays, and poor quality is increasingly

complicated by the complexity of goods and services

that governments buy—interconnected social service

and health care systems, multimodal transportation

networks, and integrated information technology

systems, to name a few. Incentives—rewards and

sanctions tied to documentable performance—offer

promise as a tool to encourage desired contract

outcomes and hold third parties accountable when

contracts fail.

The track record of incentive-based contracts is

mixed. Examples of success range from effective use

of time incentives in state highway construction

(Lewis and Bajari 2011 ) to favorable outcomes

in local juvenile justice (National Center for

Justice Planning 2013 ). There are also notorious

instances of failed incentive-laden, performance-

based contracts. Take, for instance, the contracts

for Joint Strike Fighter tactical fighter aircraft and

Comanche reconnaissance attack helicopters. Despite

significant scheduling delays and cost overruns,

prime contractors for the programs received 100

percent and 85 percent, respectively, of the award

fee allowable by their contracts (GAO 2005). As

practitioners and policy makers promote incentives

as best practice (Burleson and Wilson 2007 ;

Kelman 2002 ; GAO 2012), more inquiry is needed

to understand the conditions that lead to their

successful implementation.

We know very little about the implementation of

contract incentives beyond contract specification. What

we do know about incentives focuses on monetary

incentives that are written into the contract (Brown,

Potoski, and Van Slyke 2006 ; Kelman 2002 ). Drawing

from stewardship theory (Donaldson and Davis

1991 ), some attention to nonmonetary techniques

has emerged in the public management literature