Cost Implications of Indefinite Delivery–Indefinite Quantity Contracting in the US Defense Sector

Abstract

Public sector procurement policies are traditionally designed to encourage open competition to ensure a fair price. Yet many public agencies also deliberately use procurement strategies, such as contract types, delivery methods, or bidding terms, that restrict competition to obtain other benefits. One such tool in the US public sector is the indefinite delivery–indefinite quantity (IDIQ) contract, which selects a limited number of firms to compete for subsequent construction requirements. Because IDIQ contracts by design limit competition after the initial award, the purpose of this study is to explore whether these contracts are associated with cost differences from traditional contract forms in the context of US defense sector construction procurement. The study presents a statistical analysis of three cost metrics across 316 completed US Air Force projects, the largest analysis of costs on IDIQ contracts to date. The results show a 5% cost premium when using IDIQ contracts based on differences at the contract-award and no statistically significant difference in costs after the contract-award. The findings suggest that public sector owners should carefully consider and justify the cost tradeoffs before employing IDIQ contracts for construction services. The findings contribute to a small but growing body of knowledge on IDIQ contracting, while establishing a path forward for researchers to examine transaction costs and the total value for money in using these contracting tools.