Buying in a businesslike fashion - And paying more?

The government, particularly the Department of Defense (DoD), is undergoing yet another wave of acquisition reforms, which are intended to bring commercial buying practices to DoD's purchasing operations. This research shows that, prior to these reforms, the DoD's buying practices were superior to commercial practices in terms of prices paid for a large number of electronic and engine parts. The research compares DoD and purchasing of more than 676,000 identical items costing more than $60 million with commercial purchasing of the identical items. It finds that the DoD's purchasing superiority holds even when purchasing costs are considered. The DoD achieved these results because it was already using commercial practices commonly followed by large firms: aggregating purchases, using cost data, and negotiating aggressively in markets with few suppliers. Some of the recent reforms will undermine the DoD's ability to exploit these common commercial practices and will raise the government's costs.

Duke Scholars

Author Ashish Arora Fuqua School of Business