|
Who among us has not heard the new buzzword in the
U.S. federal business sector called "Performance-Based
Contracting?" But what is it? What is the big
deal? Is it yet another flavor-of-the-month, contracting/
program
management style touted as a new and improved way of
conducting federal business, which is usually only
the old way with a different wrapper? What does this
mean to me—contracting issues impact only contracting
professionals, right?
Actually, Performance-Based Contracts (PBCs) have
been around for more than 20 years and have long
been identified as an effective way to acquire
quality goods and services within available budgetary
resources. In fact, the federal government has
been promoting them as a way to achieve savings
and obtain greater value while also pushing federal
agencies to outsource more work to the private
sector. Hence, PBCs have never before had such
profound potential to significantly affect the
world of federal procurement. |
|
This article was published in the Fall
2004 issue
of Perspectives.
Please refer to our Terms
of Use policy regarding acceptable use of
content on the ICF International Web site.
|
|
The goal of PBCs is to improve the value of contracted services
by emphasizing objective, measurable, mission-related requirements
from the contractor. Service-oriented efforts are ideal candidates
for PBCs, though they can be used for much more. Together
the agency and the contractor choose performance measurements
to gauge a solution’s effectiveness, with rewards for
superior performance and penalties for sub-par work. This
helps ensure alignment of customer and contractor goals.
For those providing federal IT services, performance-based
Service Level Agreements (SLAs) are rising in popularity.
Through PBCs, the federal government benefits by receiving
better performance, lower cost, reductions of contract time,
and administrative burdens, while contractors benefit by
having more control over their ability to earn profits based
on performance. Added benefits of PBCs are the mutual establishment
of standards to measure performance, which later can be used
as reliable indicators of past efforts. This is important
since agencies are placing higher values on past performance
and are looking for those vendors who can demonstrate a successful
history of working with PBCs.
PBCs are becoming the preferred federal procurement vehicle.
Recently, the President’s Management Agenda ignited
interest in this area, improving the federal government’s
performance goals by converting 50 percent of all federal
service contracts to PBCs by fiscal year 2005. More than
$100 billion worth of contracts are eligible for conversion.
PBCs also are being boosted by legislation such as the Clinger-Cohen
Act (which shapes federal agencies’ approaches to IT
acquisition), the Government Performance and Results Act
(GPRA), and most recently the Service Acquisition Reform
Act (SARA), all of which were designed to link expenditures
of dollars with agency performance.
These directives are predicted to significantly transform
the federal acquisition workforce, its entire business structure,
its culture, and the broad arena of commercial item acquisitions.
Under SARA for example, some performance-based efforts will
now qualify to be considered “commercial item” acquisitions
and in some cases could be exempt from many oversight laws.
These factors alone could trigger enormous shifts in how
agencies operate.
However, the difficulties of changing large, bureaucratic
government organizations are immense. Despite the latest
PBC revolution, many agencies are not adhering to the guidance
while others remain poorly outfitted to capitalize on performance-based
contracting. Most still view it as simply adding performance
measurements or incentives to their statement of work and the
final contract. This narrow take on PBCs is inadequate and
ill-fated.
In a sense, the PBC model is harder for both parties:
they must think clearly about what is to be accomplished
and how to measure when and how well the work is completed.
Meanwhile, the government is no longer giving contractors
the details of what to do, shifting the burden of the agency’s
problems to the contractor. This is a different way of doing
business for the government, which has historically tried
to specify a solution.
To get the most from PBCs, agencies
must give their contractors greater autonomy in how work
is to be done in exchange for more accountability for final
results.
Eventually, this shift to performance-based contracting
is anticipated to result in clearer expectations for performance;
better communication between the agency and its vendors;
greater accountability for results, flexibility, and innovation;
and reduced costs overall. Many agencies are already changing
the way they have traditionally done business, drastically
affecting the skills needed by their procurement personnel.
Likewise, contractor-bid strategies successful in traditional
procurements may not be successful and could even be disadvantageous
in a performance-based procurement.
Still think PBC is just
another fad or that its mounting presence in the federal
marketplace will not have any impact on you, your profession,
or your organization? Think again. This ‘new’ way
of doing business has taken root in the acquisition decision-making
process and is branching out into acquisition programs at
all levels.
Learn more about ICF International’s
capabilities in the area of performance-based
contracting.
|
