Overview

The OMB, Office of Federal Procurement Policy (OFPP) initiated the performance-based contracting “pledge” effort in October 1994 ultimately achieving a sign-up of 28 government agencies ranging from major cabinet agencies to small independent entities such as the Nuclear Regulatory Commission and the Railroad Retirement Board. The overall strategic thrust of the effort was to improve the value received by the public from federal contracting for services through improved definition of desired results in services contracts. Collateral objectives include increasing the use of fixed-priced contracting in lieu of cost reimbursable where possible, adoption of commercial contracting practices where relevant, creation of performance incentives for both the government buyer and the performing contractor, innovative approaches to the management of large umbrella contracts and streamlining the procurement system through elimination of non-productive regulatory requirements.

It was recognized by the OMB/OFPP architects and the service contracting community at the outset that a significant shift to performance-based contracting would require major cultural changes within both the buyer and seller community; but that the payoffs of the program outweighed the difficulty in moving through these changes.

Contractor Community Position on Risks and Benefits:

The primary risks in moving services contracting away from open-ended, cost reimbursable environments to a more closed-ended, performance-based results posture are two-fold: (1) the risk that the performance requirements associated with a given contract will ultimately not include sufficient scope to accomplish all of the work which must be done; and (2) that the definition of performance requirements will be inadequate resulting in varying degrees of non-responsive results. These risks suggest that implementation should be done on a very careful, deliberate and, in some cases, pilot basis.

The benefits of increasing the use of performance-based contracting are very significant:

     • The process of attempting to develop a performance-based statement of work, when performed by a federal government
       team involving federal contracting and program (technical/management) representatives, will lead to an improved
       understandingand definition of what is really required in a given situation.

     • An improved, clear definition of performance requirements will provide offerors with a much sounder basis to compete and
       submit responsive proposals.

     • Use of draft RFPs with appropriate dialogue between prospective offerors and the federal buyer will improve the mutual
       understanding of the requirement and the ultimate quality of the final RFP.

     • The source-selection process will be more accurate and focused because proposal responses can be measured against
       specific performance requirements contained in the RFP/statement of work.

     • Use of performance requirements, quantitative and qualitative, can facilitate the use of performance incentives in many
       contract situations.

     • Performance-based solicitations can help streamline the procurement system through reduced procurement source-
       selection time and elimination of steps and procedures in the process.

Implementation Challenges:

The major overarching challenge is the generalized culture change that must be achieved. Both buyer and seller of services are accustomed to contract types and contract relationships which are often based on open-ended generalized definitions of functions and activities to be performed with equally generalized descriptions of the desired end state resulting from the work. Expressing services contracting requirements in specific results terms is often difficult and, in some instances, simply cannot be done - where there is open-ended developmental, unforeseeable, or high-risk type work involved.

The transformation from the current situation to performance-based contracting will require substantial infrastructure activities such as training, development of best practices, guidance documents, and computer-based tools to assist architects of performance-based solicitations.

The useful practice of greater use of draft RFPs will require investment in mechanisms to assure a meaningful two-way conversation between the government buyer and the source of the comments on the draft RFP. The current arms length paper-trading practices on draft RFPs must give way to direct hands on dialogue to assure success.

Developing competent performance-based statements of work requires an exceptional degree of openness and teamwork between procurement and program professionals requiring attention to mechanisms and procedures for making this happen successfully. Special attention should be given to the development of quality assurance plans (with associated metrics) to be applied in measuring constructive performance.

Well-done performance-based contracts provide a significant opportunity to create performance incentives (with down-side risks), which can result in higher levels of quality/value delivered by the contractor. The current practices associated with cost plus award fee contracting provide a good starting point for designing incentive mechanisms.

The original pledge agreement for performance-based contracting contemplates alternate dispute mechanisms being available to permit fast identification and resolution of problems in lieu of formal administrative or legal grievance actions. Such mechanisms have been extremely helpful in a number of instances and are viewed as highly desirable given the magnitude of the cultural and process changes associated with performance-based contracting.