Outcome attributability in performance-based contracting: Roles and activities of the buying organization

In buyer-supplier exchanges that feature services or service elements, performance-based contracts have gained increasing popularity. One key problem in such contracts is the possible lack of attributability of performance outcomes to supplier inputs and efforts; suppliers are reluctant to be penalized for performance shortfalls that they are not responsible for. Prior literature has indeed argued that in case of low performance attributability (or: high outcome uncertainty), performance-based contracts are less effective, but has studied this uncertainty mainly in relation to external factors. Attributability of performance has not been studied in terms of the responsibilities of the supplier and the buying organization in service design and production. In addition, there has been little literature on how buyer activities during contract execution can help address some of the problems. This paper aims to fill this gap by developing a conceptual model on how outcome attributability relates to the roles of the buying organization in the service exchange, and how contract management activities can attenuate the effects of (low) outcome attributability on the level of supplier inputs and effort, which directly affects actual performance. We engage in theory elaboration to formulate a conceptual model based on two cases of performance-based contracting of cleaning services.