GPO dots the i’s on a new performance-based contract
Safeguards and incentives could make it a model for other agencies, observers say
- By Aliya Sternstein
- Aug 14, 2006
The Government Printing Office has awarded a contract to Harris, an international communications and information technology company, to develop the agency’s first Web-based document distribution system. The contract, more so than the project for which GPO awarded it, has procurement analysts talking.
GPO created a performance-based, cost-plus-award contract that some analysts say should be a model for other agencies. The agency “spelled out its expectations in an almost mathematical way,” said Alan Chvotkin, senior vice president and counsel at the Professional Services Council. The contract “looks like a very solid, although somewhat complicated, award-fee plan,” he added.
The one-year contract is worth $9.6 million initially and has optional extensions that could make it worth $29 million by the time the project ends in 2008. Officials at the agency, which is responsible for distributing all official government information, refer to the project as the Future Digital System.
GPO expects basic system functions to be delivered by July 2007 and enhancements by July 2008. The contract’s payment structure should give both parties flexibility to accommodate changing technology, GPO officials said.
The agency issued a cost-plus-award-fee contract, in which the prime contractor is paid for doing the work and receives an additional award fee or bonus for good performance. Under such an agreement, the contractor is entitled to payment for unexpected costs that arise after signing the agreement if GPO thinks those extra costs are justified.
That means the contract costs could exceed the expected $29 million, said Mike Wash, GPO’s chief technical officer.
“The counterbalance of that is we have well-defined requirements of what we want,” he said. “There’s also been a lot of due diligence on Harris’ part on reviewing those requirements, which gives us comfort that [our estimates] are very accurate.”
Wash said GPO will rely on earned value management (EVM), a project oversight method that compares current project status to original cost and timeline projections. “They are at risk for losing their bonus if they don’t deliver on time or even exceed expectations,” Wash said.
Other procurement experts say GPO created a contract safety net for what many acknowledge is a risky project. “The downside of [cost-plus-award] contracts is that they require more managerial oversight by the government and the contractor,” said Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources, a market research firm.
The trick, he said, is to keep cost and time consumption visible enough to anticipate and react to changes in requirements, funding or schedules.
“GPO is applying an EVM system, which is a good tool for tracking contract performance and knowing how much more funding will be required to complete the work,” Bjorklund said.
Details on the award fee criteria are presented throughout several pages in the request for proposals document. The $29 million baseline covers materials, construction, design and award fees through three versions of the Future Digital System.
Chvotkin said the contract’s bonus fee arrangement places emphasis and inducements on the items that are most important to the agency.
The deliverables are broken down into “musts,” “shoulds” and “coulds.” As the name implies, the musts are required. The shoulds are tasks that GPO would like to get delivered early if possible. Coulds are objectives that might be impossible to complete given the technology currently on the market but would be good to attain if possible.
GPO will grant bonus compensation depending on the number of musts, shoulds and coulds fulfilled. For example, to win an award in performance ratings for quality, the contractor must deliver 100 percent of the musts and at least 80 percent of the shoulds. If the contractor delivers all except one of the musts, it gets no quality bonus, even if it delivers all the shoulds and the coulds.
Under the contract’s terms, the company is at risk of forfeiting part of the base amount. Wash explained that that is a safeguard feature.
“If they come in under cost, we’ll give them a bonus,” he said. “If they go over, we will reduce their payout. They could actually get paid less than their cost to deliver the system. From the taxpayers’ perspective, that’s the right thing to do.”
If it becomes apparent to GPO through its EVM monitoring that the contractor is in trouble and unable to deliver the musts, GPO would take corrective action, Wash said.