Performance-based contracting: a literature review and future research directions

Abstract

This paper aims to provide a review and synthesis of the performance-based contracting (PBC) literature across academic disciplines. It also seeks to examine how the operations and supply management (OSM) discipline in particular relates to PBC studies in other study fields. The research is based on a systematic literature review of 241 peer-reviewed articles across disciplines, published between 1985 and 2014. A classification framework of PBC research is proposed, addressing key aspects of PBC design and management: performance specification and evaluation, the design of incentives and their impact on supplier behaviour and risks allocation depending also on the risk attitudes of buyers and suppliers. The comparative analysis of literature by discipline helps identify current empirical and theoretical limitations of relevant OSM studies. The paper concludes that future OSM research should expand its theoretical framework and empirical focus to better understand PBC design and management. Eight specific suggestions for future OSM research are offered, e.g. examining the potential of PBC as means for managing sustainability and innovation goals of supply chains. The paper helps advance OSM research in this area by providing a structured overview of definitions, theories, conceptual frames, methods and empirical studies from other disciplines.