Performance contracts fall short

Some agencies have made little progress in acquiring more products and services through performance-based contracting, despite efforts by the Office of Management and Budget to promote that approach. Performance-based contracting requires agencies to state the results they want from a contract instead of specifying detailed requirements for how to achieve those results.  OMB has asked agencies to adopt performance-based contracting for at least 45 percent of the contracts they award for services. According to Federal Procurement Data System data, agencies in fiscal 2007 awarded 38 percent of their eligible service dollars as performance-based acquisitions.  The percentage might be higher, but some agency data was not readily available, according to the governmentwide procurement data site.A major reason for missing that goal is inadequate guidance and training, according to recent audit reports and testimony. For example, the Treasury Inspector General for Tax Administration (TIGTA) said the Internal Revenue Service lacked the expertise in its program offices to establish a strategy for performance-based acquisition. The IRS did not use a performance-based approach partly because the agency’s program managers were unable to specify the results they wanted, TIGTA said in a report April 24. TIGTA examined 20 IRS acquisitions from 2005 and 2006. Only one contracting officer’s technical representative had formal training in performance-based acquisition. “This lack of knowledge, education and experience within the business units is one of the primary barriers” for not using performance-based acquisition, said Michael Phillips, TIGTA’s deputy IG for audit. Meanwhile, a few agencies are adopting the approach. At the Housing and Urban Development Department, performance-based acquisition accounted for 49 percent of its contracts in 2007. Last year, HUD targeted six contracts to develop as performance-based contracts, said Joseph Neurauter, the department’s chief procurement officer. Those contracts ranged from $1.5 million to $25 million.“By focusing attention on particular contracts, we could ensure that all elements of a performance-based contract would be developed,” Neurauter said. Those components include a performance work statement or statement of objectives, measurable performance standards, a quality assurance monitoring plan and incentives, where appropriate.Those contracts will provide lessons and experience to help HUD improve its development and management of performance-based contracts, Neurauter said. An advisory panel, which made 89 recommendations last year to improve federal contracting, said agencies did not prepare adequate performance work statements or identify meaningful quality measures and incentives that are effective. Agencies also did not adequately manage performance-based contracts, according to a report from the Acquisition Advisory Panel established by the Services Acquisition Reform Act.In theory, performance-based contracting fosters innovation and competition and produces measurable outcomes.OMB officials said they have taken steps to help agencies with performance-based acquisition. For example, OMB’s Office of Federal Procurement Policy has issued several memos that outline performance-based acquisition training requirements for acquisition. OFPP is working with an interagency team of experts to improve guidance on establishing performance incentives and selecting performance standards, said Paul Denett, OFPP’s administrator. The agency also is adding more best-practice examples to its “Seven Steps to Performance-Based Service Acquisition Guide,” Denett said.In addition, OFPP offers agencies seminars on performance-based acquisition.    At the IRS, officials have begun implementing TIGTA’s recommendations for establishing a perform ance-based acquisition strategy and training program. In March, the service sent a memo to all business units that encouraged program office managers to emphasize performance-based contracting, said James Falcone, chief of agencywide shared services at the IRS.The memo also identified training courses at the IRS, the Treasury Department and the Federal Acquisition Institute. Falcone said he urged program employees and contracting officers’ technical representatives to enroll. The memo requires program employees to meet with the director of procurement about any contracts other than firm-fixed price contracts that might be more than $10 million. “Selecting the appropriate contract type will improve outcomes, and improved outcomes will assist in reaching [performance-based acquisition] goals,” Falcone said. His office will monitor agency performance-based acquisition measurements against the agency’s goals.