SARA panel: Feds need tutorial on performance-based deals

Performance-based contracting chapter

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Federal agencies will never make the long-awaited transition to performance-based acquisitions unless they first learn how to measure performance.

That was the conclusion of the Acquisition Advisory Panel, whose draft report strongly urges agencies to shift from time-and-material contracts, which are based on fixed hourly rates, to performance-based contracts, in which vendors are paid for meeting specific metrics.

But that requires program managers to think differently, according to the panel. They must define performance measures and results rather than specific activities and processes.

Too often federal program managers begin with the right intention only to fall back into their old habit of dictating how the work should be done, the report states.

Still, the biggest problems involve the performance measures, the panel found. Program managers frequently define metrics that are not linked to the specific outcomes defined at the outset. Sometimes, the report states, the measures were simply insufficient.

“It was clear throughout these orders and contracts [the panel reviewed] that a performance-based approach was intended but the execution was lacking,” the report states. Contracts billed as performance-based add a “veneer” of measures on top of detailed statements of work, according to the report.

The panel suggests that agencies consider two different types of performance-based acquisitions, depending on the program. In many cases, they should take a "transformational" approach, in which they give their contractors a lot of flexibility in deciding how to meet the agency's needs. With the flexibility, the contractors assume a lot of risk. If they fail to meet their goals, they will suffer financially.

That approach might not work if agencies are concerned about meeting certain cost, quality or timeliness demands. If that is the case, they might try a "transactional" approach, in which the agencies provide more detailed guidance to the vendor and lessen the financial risk.

The panel released its report Dec. 22. The long-anticipated document covers many aspects of federal acquisition. It offers recommendations on better ways to cast the steps for the contracting style. The panel urges more best-practice guides, information on incentive packages and appropriate measurements inside contracts.

The panel believes the Office of Federal Procurement Policy, within the Office of Management and Budget, should issue clearer guidance to teach agencies when and how best to use performance-based contracting. Furthermore, the report recommends that OFPP drop its governmentwide quota that requires 40 percent of acquisitions be performance-based. The quota should instead be set by an individual agency, the report states.

In one type, called “transformational,” an agency would let the vendor use unique means to meet the agency’s need. The vendor carries the project risk. In the “transactional” style, agencies would give more guidance to the vendor out of concern for meeting certain cost, quality and timeliness demands. The agency assumes the risk.

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