Corporations that contribute to political campaigns will often receive favorable contract terms that can be measured in the “Sweetheart Index” developed by researchers at UCCS, Ball State University and Florida Atlantic University.
Stephen P. Ferris, dean, College of Business, worked with Reza Houston, assistant professor of finance, Ball State, and David Javakhadze, assistant professor of finance, Florida Atlantic. The paper “It’s a Sweetheart of a Deal: Political Connections and Corporate-Federal Contracting” will be published in the February 2019 edition of “The Financial Review.”
When the researchers controlled for lobbying, negotiation power and the employment of former government employees, corporations that made political contributions to legislators often received favorable government contracts in four areas: no-bid, cost-plus, multi-year and cost/pricing data requirements. The aggregation of the four areas into the “Sweetheart Index” often showed terms that benefited the contractor with little benefit for the government. On a scale of zero to four, the higher the index, the more favorable the terms.
“These results are consistent with the premise that there is a political influence on both the contract award decision and the choice of specific terms contained in the awarded contract,” wrote the researchers in their conclusion.
Data was used from the Federal Procurement Data System, the Center for Research in Security Prices and political action committee contributions reported to the Federal Election Commission.
“Given that the government spends vast amounts on its contracts, a more complete understanding of how quid pro quo relations influence that process is necessary,” the researchers said. “It suggests that the true advantage of political connections for firms negotiating federal contracts might be understated.”
The full text of the article is available through “The Financial Review.”