Risk Sharing in Government Contracting: Strategic Alliances as Safeguards in Government Supplier Relationships

Abstract

Interorganizational alliances have been extensively studied as strategic arrangements that enable firms to manage risks arising from their embeddedness in external relationships. However, the unique dynamics of business-to-government (B2G) relationships, where firms often face regulatory and political risks, remain underexplored. In this study, we examine how firms reliant on U.S. Department of Defense (DoD) contracts use strategic alliances to mitigate these challenges. Drawing on resource dependence theory and the resource-based view of the firm, we theorize that firms with higher government contract value are more likely to form alliances with other government contractors to help share risk and navigate government contracting challenges. We further identify two boundary conditions—an internal buffer (whether a firm operates as a generalist or specialist contractor) and an external buffer (the level of market-demand risk)—that moderate this relationship. Our analysis of 339 U.S. publicly traded DoD contractors from 2001 to 2019 provides robust support for our hypotheses. A post hoc mediation analysis further shows that alliances partially mediate the relationship between government contract value and market performance. Our study contributes to interorganizational relationships and business-government interface literatures by articulating the unique dynamics of B2G alliances and offering nuanced insights into how firms manage their relationships with powerful government buyers.