PerformanceBased Service Contracting

1
BearingPoint
Performance-Based Service Contracting

• Proposed Deliverables
• Performance Management Framework
• Methodology and Approach
• Guiding Principles
• Check List
• Templates
• Sample Blueprints
• Performance Management Plan
• Incentive Plan

2
Best Practices As an example - NASA

• Use incentives to motivate contractor performance
• Award term
• Measurable, outcome-based award fee
• Establish teaming arrangement with the contractor
• Use partnering
• Establish common and organization specific goals
• Update Quality Control, Quality Assurance
  programs
• Require contractor QC program (I.e., ISO 9000)
• Re-evaluate existing government QA program
• Use predictive technologies
• Evaluate contractor processes vs. detailed
  inspections
• Use outcome-based metrics to gauge contractor
  success

3
Whats Industry Doing?

• DOD increasing reliance on PBCs see policy and
  guidelines at (http//www.abm.rda.hq.navy.mil/navy
  aos/content/view/full/139)
• Air Force utilizes PBC see market research web
  site at http//www.afcesa.af.mil/search/index.asp
• Navy launching full scale effort to overhaul
  Facility Service Contracting
• Private sector uses PBC, usually with preferred
  vendor in long term relationships

4
Monetary Incentives

• Fixed-price contracts, by their nature, include
  positive monetary incentives. If it costs the
  contractor less to perform, his profit margin
  goes up. A negative incentive can also be
  included in case the desired results are not
  achieved (deduction should be equal to the value
  of the service lost).
• Cost-plus-incentive-fee (CPIF) or
  fixed-price-incentive-fee (FPIF) contracts can be
  used when there is some latitude in achieving the
  desired results. The ability to succeed or fail
  is controlled by the Contractor the Governments
  ability to influence contractor performance is
  limited to specific areas.
• CPIF with multiple incentives contracts include
  setting a target cost, along with minimum and
  maximum values for cost, fee, technical
  performance, and schedule. Funds available for
  fees are divided into pools so that there is no
  overlap.

5
Monetary Incentives (Continued)

• Cost-plus-award-fee (CPAF) and fixed-price-award-f
  ee (FPAF) contracts are used when a mechanism to
  motivate a contractor is desired, but performance
  cannot be measured objectively or where the
  Governments performance objectives can only be
  stated in general terms. Both types require an
  award-fee plan as a part of the contract.
  Incremental adjustments to the criteria in work
  authorizations can be made.
• Share-in-savings.

6
Non-Monetary Incentives

• Revised schedule
• Reduced oversight
• Positive performance evaluation
• Automatic extension of contract term or option
  exercise (FAR Part 17 still applies)
• More frequent payments
• Lengthened contract term (award term contracting)
  or purchase of extra items (award purchase)
• Publish article(s) in agency newsletter or speak
  at agency seminars
• Letters of appreciation to individual employees
  may translate to bonuses
• Use trade space for licensing, access to agency
  officials, etc.
• Use those FAR clauses that can be negotiated to
  your advantage

7
Development of practical, meaningful, and
measurable metrics improves the PBC process for
the Government and its Contractors.

• Develop metrics definitions based on industry
  best practices with performance target ranges
  based on historical averages
• Include business impact measures as well as
  operations measures
• Quantifiable and verifiable metrics ensure the
  quality of the measurements
• Dont raise the bar higher then a level which we
  can perform

8
Minimum Suggested Government Requirementsfor a
Public Sector Solicitation

• Performance requirements that define the work in
  measurable, missionrelated terms.
• Performance standards (i.e., quality, quantity,
  timeliness) tied to the performance requirements.
• Government quality assurance (QA) plan that
  describes how the contractor's performance will
  be measured against the performance standards.
• If the acquisition is either critical to agency
  mission accomplishment or requires relatively
  large expenditures of funds, positive and
  negative incentives tied to the Government QA
  plan measurements.

9
Minimum Suggested Government Requirementsfor a
Public Sector SOW

• Proposed statement of work and the satisfaction
  of all objectives set forth in the Statement of
  Objectives
• Performance measures and metrics and the
  correlation of the performance measures and
  metrics to the achievement of the Statement of
  Objectives
• Incentives and/or disincentives and their
  correlation to the achievement of the Statement
  of Objectives
• The methodology for tracking and reporting
  results from the system of measures and metrics
• The approach to continuous performance
  improvement, and
• The approach to minimizing the burden to the
  Government of administering the performance based
  system

10
Regulations

• The Interagency Task Force on Performance-Based
  Service Acquisition modified the Federal
  Acquisition Regulation (FAR) to give agencies
  flexibility in applying PBSA. This is
  recommendation number one of six
• Recommendation Modify the FAR Part 2 to include
  definitions for 1) performance work statement,
  2) quality assurance surveillance plan, 3)
  statement of objectives, and 4) statement of work
  to support changes to Part 37. Modify FAR Parts
  11 and 37 to broaden the scope of PBSA and give
  agencies more flexibility in applying PBSA to
  contracts and orders of varying complexity.

11
Contractor Risk

• Try not to take severe punishments-contrary to
  partnering
• Put as much work as possible into Firm Fixed
  Price
• Use our work schedule to plan QAE evaluation
  locations
• Work can slip without QAE presence
• Need dedicated QAEs -full time
• Ensure QAEs are trained
• Partnering helps the QA process
• QAE issue resolution matrix is important
• Electronic QA input does save QAE time
• Insure Quality Management Plan addresses QC and
  QA

12
Government Risk

• Need Government Insight not Oversight
• Government needs to develop consistent, uniform
  service metrics
• Government culture can hamper trust and true
  partnership with Contractors