Developing capacity and reducing risk? An analysis of federal international contracting

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The US federal government outsources much of its work abroad, spurring a large and competitive industry to implement these contracts. Simultaneously, the US government has an explicit foreign policy goal of improving local economic development in many of the countries where contract implementation occurs. As such, agencies may prioritize awarding contracts to local organizations as a tool to both develop capacity and improve sustainability. This study explores the extent to which federal agencies select locally owned versus externally owned contractors, and the factors that predict whether a contract will be given to a locally owned firm. Findings show that that when uncertainty is high, US agencies are more likely to use externally owned service providers to reduce risk. Locally owned contractors tend to be selected in countries with higher levels of capacity, and when the contracting agency has development objectives. Taken together, findings indicate that contracting officials generally prioritize management considerations, although the US Department of State may use contracts as a form of foreign aid.