Competition and Price Analysis of Indefinite Delivery Indefinite Quantity Contracts for Construction

Abstract

Indefinite delivery-indefinite quantity (IDIQ) construction contracts use an overarching master contract between an owner and contractor for multiple projects over a specified time period. The practice is widespread in the U.S. federal government but its efficacy has been the subject of relatively few studies. This dissertation offers a state-of-practice review of IDIQ construction contracting as well as an empirical analysis of the competition and cost implications of using IDIQ contracts. Content analysis of 90 federal requests for proposal reveals IDIQ contracting use for a wide range of facility types and construction services. Findings suggest that IDIQ contracts reflect the inherent paradoxical organizational tensions in public sector procurements. On one hand, IDIQ contracts reflect a desire for flexibility, simplified procurement processes, and finding the most qualified contractors. On the other hand, public owners must put control mechanisms in place to obtain a fair price, protect the public interest, and comply with regulations. Statistical analysis of 935 U.S. Department of Defense construction projects shows that IDIQ contracting corresponds with lower levels of competition as measured by the number of bids, even when controlling for factors like delivery method and market conditions. A subsequent analysis of 316 U.S. Air Force construction projects shows IDIQ contracting is associated with approximately five percent higher costs, driven by higher bid prices as compared to engineering estimates. However, multiple award IDIQ contracts also appear to be effective at maintaining a minimal level of competition needed to protect the public’s interest. Interviews with practitioners reveal that IDIQ contracting may yield reduced transaction costs, better schedule performance, and other benefits that offset the cost premium. For design-build projects in particular, IDIQ contracts may serve as a streamlined alternative to two-step source selection. The findings of this dissertation contribute to bodies of knowledge on IDIQ contracts and framework agreements, neoclassical economic theory and paradox theory as applied to the construction industry, and construction project delivery methods research. It is the largest empirical study of IDIQ construction projects to date. The findings also have practical implications for public owners with large asset portfolios and for contractors interested in pursuing IDIQ contracts.