Agencies still struggling with performance contracts

Years after federal policy-makers started to promote performance-based contracting, agencies are still only skimming the surface of its potential, according to procurement experts.

A recent Price Systems survey shows how little progress some agencies have made. Of 104 government information technology executives, 73 percent said they and their program managers had inadequate training for setting realistic baselines, the measurements they need to establish in order to track the performance of a project. Furthermore, 78 percent said they have inadequate training for estimating contracting costs, according to the survey, titled “A Cracked Foundation,” which was released Nov. 30.

The contracting methodology is based on the idea that contractors should be rewarded for meeting an agency's needs rather than a list of specifications. Contracts are often structured so that companies are paid for meeting certain performance benchmarks or penalized for failing to.

But it's a challenge to agency managers who are used to spelling out the hardware and software requirements rather than measuring performance, said Michael Sade, director for acquisition management and procurement executive at the Commerce Department.

“We weren’t trained to think in terms of outcomes -- that’s just not what the government is,” Sade said Nov. 27 at a luncheon hosted by the Young Armed Forces Communications and Electronics Association, an offshoot of the Bethesda, Md., chapter of AFCEA.

Performance-based contracts still often leave vendors questioning what customer agencies want, Sade said. It also complicates competition because rather than simply trying to underbid other companies on price, contractors have to put together a proposed solution to the agency's problem and then try to convince the agency that it's the best value, Sade said.

Karen Evans, administrator for e-government and information technology at the Office of Management and Budget, said in a speech Nov. 30 that the government has moved past the point of deciding whether performance-based contracting is a good idea. As a philosophy, she said, agencies have largely embraced it. But are they executing it well when they try?

"The only way you can really answer that is if you have the data,” she said. The baseline marker of financial information is essential in order to show whether a project saves an agency money.

“You need to know what you’re shooting for,” Evans said. “If you don’t know what the baseline is, then how can you agree to have a percentage [of] efficiency gained or percentage [of] savings done if you don’t know where you’re starting from?"

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