Does Location Matter for Winning Government Contracts? An Examination of U.S. Defense Awards

Abstract

Despite being one of the largest sources of product and service sales, few studies have addressed firm competitive strategy in the context of government contracting. To address this limitation, we examine how a firm’s location can be a differentiating factor that leads to higher government procurement awards. Drawing on information-gathering interviews with government procurement officials and defense contractor employees, we develop hypotheses around three possible mechanisms—tacit information transfer, trust between parties, and the “revolving door.” Empirically, we examine 3.29 million U.S. Department of Defense contracts administered by 334 contracting offices located across the U.S. The results show that a firm’s proximity to government contracting officials increases procurement award amounts, and this effect is driven by enhanced tacit information flow between government agencies and bidding companies.

Keywords: Government contracting, nonmarket strategy, political influence

JEL Classification: M10