Subcontracting and the incidence of change orders in procurement contracts

In public procurement, most contracts are renegotiated ex post and involve subcontractors. We examine whether there is a causal link between subcontractor use and the incidence of change orders to amend the original scope of a project. Since subcontracting is likely related to unobserved project com...

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Bibliographic Details
Published in:Economic inquiry 2022-01, Vol.60 (1), p.247-264
Main Authors: Jung, Hojin, Kosmopoulou, Georgia, Press, Robert, Sicotte, Richard
Format: Article
Language:English
Subjects:
Change agents
Changes
Government purchasing
Negotiation
networks
procurement contracts
Purchasing
renegotiation
Subcontracting
Subcontractors
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Summary:In public procurement, most contracts are renegotiated ex post and involve subcontractors. We examine whether there is a causal link between subcontractor use and the incidence of change orders to amend the original scope of a project. Since subcontracting is likely related to unobserved project complexity, we use a novel IV, the predicted level of subcontracting from a method modeled after Christakis et al. (2010), to estimate the likelihood of renegotiation. The results establish that subcontractors are associated with an increased likelihood of change orders as well as a higher dollar amount renegotiated.
ISSN:0095-2583
1465-7295
DOI:10.1111/ecin.13002