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Concerning Federally Sponsored Inducement Prizes in Engineering and Science: Report of the Steering Committee for the
acknowledging that some agencies have improved incentives and reduced the bureaucratic burden for government contractors in recent years, workshop participants noted that the Defense Advanced Research Projects Agency (DARPA) and other agencies continue to experience difficulties in their efforts to identify and contract with innovative companies in fast-paced sectors, or in new fields of technology in which the agency has not previously been active. In response to this challenge, DARPA, which has been a trailblazer in the use of alternative procurement mechanisms, has sought and recently received legislative authority from Congress to offer inducement prizes as a mechanism for attracting and engaging cutting-edge technology companies in support of the agency's mission.13
There was general agreement among workshop participants that inducement prize contests were not immune to the challenges that face the grant and procurement systems. Indeed, if prize contests are not designed or administered with care, they may discourage prudent risk taking or unorthodox approaches to particular scientific or technological challenges, or scare away potential contestants with excessive bureaucracy. On the other hand, many participants argued that prize contests— if carefully targeted, designed, and administered—might address some of these challenges in a manner that complements agency missions. Indeed, the workshop discussion and existing research on research tournaments and “prize-like contests” highlight several potential advantages of prize contests relative to traditional research grants or procurement contracts in the pursuit of particular types of objectives.14
One perceived strength of inducement prize contests is their potential for reducing the cost and bureaucratic/regulatory obstacles that might prevent federal agencies and innovative researchers and firms from finding each other and working together effectively. In principle, prize contests could lower the cost to federal agencies of identifying capable competitors, selecting among them, and subsequently monitoring and verifying their performance vis-à-vis a predetermined objective. Indeed, if the rewards associated with a given prize contest are adequately calibrated to the level of effort (cost and risk taking) required to compete successfully for it, capable contestants should self-identify. While the costs associated with identifying the highest performing competitors from a large pool of prize contestants can be significant, recent research on the use of auctions and other mechanisms to address this challenge suggests that these selection costs can be significantly reduced for the prize administrator.15 Moreover, whether the prize is awarded on the basis of objective criteria (e.g., the first to achieve X) or the relative performance of contestants, the tasks of identifying a winner and monitoring its performance are made easier because the prize—unlike conventional grants and contracts—is awarded after the prize objective has been achieved. By contrast, the cost and difficulty to federal agencies of assessing the relative capability of competitors and monitoring the performance of grant or contract winners can be quite high in the case of conventional contracts or grants.
Likewise, by relieving would-be prize contestants of the burden of complying with the multitude of government accounting rules, reporting requirements, and other information demands generally associated with federal grants and contracts, inducement prize contests may be more effective at attracting a broader range of participants and approaches to meet particular challenges. This is more likely to be the case if the criteria for winner selection are perceived to be transparent, objective, and fair.