The partnerships of performance-based contracting (PBC) between government and original equipment manufacturer (OEM) have been well demonstrated in most studies, but very few attempts have been made at such partnerships between a foreign government (FG) and a localized third-party logistics (3PL) supplier while they operated the same system. This article constructs a principal-agent model to support resource allocation, and then uses it to analyze commonly observed risk-aversion contracting between a FG customer (principal) and a localized 3PL logistics supplier (agent) with cooperative game combinations by fixed payment, cost-sharing incentive, as well as a performance incentive conditions. Finally, a real military logistics service application in Taiwan is demonstrated by the assessment model to generate the maximum utilities while under cost-sharing incentive condition by using offset obligation between FG and OEM.
- Dominant strategy
- Performance-based contracting
- Third-party logistics (3PL)