The way to better contracts

Writing performance-based contracts might take longer in the short run, but the long-term benefits are more than worth it

Steve Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy.

One of the most frustrating things about my almost 20-year involvement in the efforts to improve the quality of government contracting is the slow progress in moving toward performance-based contracting for services.

There has been a push for it for a long time now. It began under Al Burman, my predecessor as administrator of the Office of Federal Procurement Policy during George H.W. Bush's administration. That push continued while I was OFPP administrator from 1993 to 1997 and has remained a focus since. The government has made some progress, but it has been excruciatingly slow.

There is one obvious reason for this: If you haven’t included performance metrics in your contract, it involves a lot of work to change it into a performance-based contract when you go to recompete it. And there are other reasons. Sometimes it is genuinely difficult to develop relevant performance metrics for contractors, just as it is for in-house activities — for example, what are relevant outcome-based metrics for State Department diplomacy? Finally, there is the sometimes vexing issue of changing and adding to performance metrics during the life of a long contract as technology and user requirements change.

However, the second and third explanations don't really account for the frequent statements one hears about how hard performance-based contracting is. One is left with the depressing conclusion that we’ve made far less progress than we should have mostly for the first reason — which is the worst of the three.

I am one of the world’s biggest fans of streamlining contracting and shortening the time to award. But program managers need to recognize that some of the things that add to the time it takes to get a contract awarded are good investments that ensure faster and better execution of the contract in the long run. In that case, the evidence is overwhelming that using performance metrics — whether for in-house or contracted activities — can improve performance by motivating and focusing employees and facilitating feedback, which is a necessary tool for organizational learning. We need to bring those benefits to contracting.

To counter the government's long and somewhat depressing track record, new approaches are necessary. I recently heard about a good one from Deborah Broderick, the FBI’s energetic and innovative new senior procurement executive.

She realized that generic training for program managers in how to do performance-based contracting was producing scant improvement in actually doing it, so she decided to try a new approach. When program managers are developing a request for proposals, she brings in trainers to work with them, the contracting officers and the contracting officer's technical representatives. The effort is not an abstract performance-based contracting lesson but a hands-on development of performance metrics and other contract provisions that are specific to the bid in question.

So far, she’s taken this approach on about 15 requests for proposals, and she reports that her program customers are pleased with the innovation. They are producing true performance-based RFPs, and although it's still early, their satisfaction with contractors' performance on the awarded contracts is high.

Frankly, we should all be ashamed that we haven’t made more progress in 20 years on this issue. Let’s put our collective heads together and come up with more ideas like Broderick’s so we can move forward on performance-based contracting.

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Reader comments

Wed, Mar 23, 2011 George Fennermann

Performance-based contracts, WoW, let's say we write that into Congress' Contract with America! If they can't cut the budget and restore fiscal sanity, they're fired, and have to vacation in a Russian Gulag.

Fri, May 7, 2010 Interested Party

While I am a supporter of PBC in some limited applications, I wish mention another aspect. From the Contracting Officer perspective, there is almost always push back from program office staff regarding the effort to produce good procurement packages. Given the shortages of staff we are all experiencing, we can't offer them much help as is envisioned in the market survey stages. The point that I wish to make, which I admit is annecdotal, is that poorly written PBC efforts often end up in worse performance and more difficulties in enforcement, especially if you failed to come up with just the right measures the first time.

Thu, May 6, 2010 Vern Edwards

Steve: I have the highest respect for you and always praise you for the great work you did at OFPP. You were the best OFPP administrator in the history of that office. But you are dead wrong about PBC. The push for PBC did not begin with Al Burman in the early 1990s. It began with Darleen Druyun and Kenneth Gerkin of the Air Force in the mid-to-late 1970s, and culminated with the publication of Air Force Regulation 400-28 in 1979, which you may have known OFPP Pamphlet No. 4. The Air Force tried to implement PBC throughout the 1980s. They made it mandatory for certain kinds of services. But they eventually gave up. Why? Because it was too hard and there was no evidence that it worked. Steve, why do you think there has been such slow progress with PBC? Isn't it possible that progress has been slow because the concept is much more limited in practical application than its advocates have been selling it to be? Couldn't it be that the concept is not suitable for application to complex, long-term service requirements that do not produce tangible products or outcomes or for which requirements cannot be fully specified ex ante? You and the other PBC advocates--the most persistent of which include contractors hoping to gain by selling training and consulting services-- have made unwarranted assertions in support of PBC and have been telling unverified "success stories." I don't oppose things just to be ornery and contrary. I like the PBC concept, but it simply is ill-suited to the realities of modern service contracting. Ralph Nash and I have written extensively about the shortcomings of PBC and have proposed other solutions to the problems of service quality. But the PBC advocates never respond to the critiques. They just keep selling. So now you tell us a "success" story from one of the smallest contracting organizations in the government, with no supporting data, just claims from a new senior procurement executive. Really, Steve, this is no good. PBC will never take hold. But that won't keep its advocates from making unsupported claims for its effectiveness and refuse to consider the implications of the results of trying for 30+ years to push a concept that sounds good (I admit that) but that has been shown again and again to be poorly adapted to reality. In my 30+ years in government contracting I have learned that workable good contracting ideas don't have to be sold. They sell themselves. Vern

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