The effectiveness of performance-based contracting in the defence sector: A systematic literature review

Abstract

Performance-based contracting in the defence sector, also known as performance-based logistics (PBL), is attracting growing interest from operations and supply management scholars. In the defence sector, PBL entails outsourcing weapon system-related maintenance and logistics activities in such a way that it incentivises suppliers to invest in equipment reliability and process improvements at a reasonable cost. Research has advanced our knowledge of how PBL contracts are designed and implemented, but we still have only limited understanding of PBL evaluation issues, specifically PBL effectiveness and its influencing factors. Focusing on the defence context, we address this knowledge gap through a systematic literature review and synthesis of 45 peer-reviewed articles. We identify 15 factors influencing PBL effectiveness, which are grouped into six categories: governance, supply chain management, defence buyer input, innovation, environmental factors, and resources and capabilities. We extend prior research by developing a classification framework of the factors influencing PBL effectiveness. Further, we leverage defence industry-specific characteristics to suggest avenues for impactful future research through a series of propositions, including the need to examine how political factors influence the effectiveness of performance-based contracting in the defence sector. We also suggest that environmental sustainability and resilience requirements should be included when evaluating the effectiveness of PBL contracts and defence contracting more generally.