Contractor default: Predictions, politics, and penalties in the procurement process

Abstract

AbstractIn this study, we provide an analysis of federal contractor default. We examine both the predictability and the consequences of contractor default. We discover that a firm's political contributions, size, sales derived from government contracts, and primary industry concentration are positively related to default, while the average quality of firm contracts and liquidity are negatively related to default. Production of a product rather than service delivery, the number of modifications, and the requirement of a subcontractor are positively related to contract default. Department of Defense contracts and the use of commercial item procedures are negatively related to default. Defaulting firms tend to receive smaller contracts after default. To mitigate possible punishment, defaulting firms increase their political contributions, especially to congressional candidates.