This report investigates how the Air Force can design repair contracts to ensure high-quality, responsive repair for its contractors. The authors develop an economic model of contractor motivations and behavior, simulating contractor responses to various contract types to determine the government's optimal repair contract. The analysis focuses on the Air Force's repair system, where contractors constitute a significant and potentially growing segment. The simulation results suggest a contract structure that balances a substantial lump-sum payment with cost-sharing for essential, expensive spare parts.

This report presents a detailed economic modeling and simulation approach to optimize government repair contracts, specifically for the Air Force. It proposes a contract structure balancing fixed payments with cost-sharing for critical components, contingent on contractor maintenance of weapon system availability. The findings are particularly relevant for mature weapon systems with predictable operational patterns, suggesting a data-driven framework for procurement and maintenance strategies.