Journal article

Time-Based Procurement

Zhaolin Li, Lusheng Shao

International Journal of Production Economics | Elsevier | Published : 2015

Abstract

This study investigates the design of a time-based procurement contract when a supplier possesses private information about intrinsic completion time and may choose to exert time reduction effort. We first derive the optimal (complex) contract for the buyer, and then evaluate the performance of a (simple) fixed-price and fixed-time (FPFT) contract. Our analysis shows that the structure of the optimal time-based contract and the performance of an FPFT contract depend largely on time reduction forms. Specifically, if time reduction follows a multiplicative model, the optimal contract induces the intrinsically slow supplier to reduce time, and offers a fixed payment to the intrinsically fast su..

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University of Melbourne Researchers