The Cost of Mismanagement: A Principal-Agent Analysis for Intelligence Studies

Government contracting is important in both threat reduction and the management of risk. Yet surprisingly little attention has been paid to contracting in intelligence studies. However, the US Department of Homeland Security’s contracting process has been historically deficient, allowing private sector firms to extract profit with low standards of performance. Utilizing principal-agent theory (PAT), this problem is illustrated with an empirical case study of Boeing’s participation in the Secure Border Initiative during the latter part of the George W. Bush administration and the first Obama administration. The program was a high-stakes initiative that demonstrated organizational vulnerability to adverse selection, information asymmetry, and moral hazard, the key causal variables of PAT. Its expensive failure shows how suboptimal incentive structures between the principal and agent produce predictable inefficiencies. The program reflects broader challenges plaguing the DHS acquisition system that may also be generalizable to intelligence contracting as a whole. Agencies must focus on mitigating asymmetric information through more precisely crafted contracts, attainable and measurable performance indicators, and greater transparency.