Industry: ‘Why don’t feds get it?’

Experts say the government is not using performance-based contracting correctly

The Office of Management and Budget wants federal agencies to award more performance-based contracts, but industry experts say the government should first learn how to manage those contracts. However, both sides agree that performance-based contracting represents the future.

Meanwhile, the government is stymied by its inability to break old contracting habits, according to current and former acquisition officials. Performance-based contracts require the government to tell industry the results it wants and allow industry to propose how to achieve those results.

Some federal acquisition experts say many so-called performance-based contracts really are not that. That is also a problem in industry, said Chip Mather, senior vice president of Acquisition Solutions and former chief of information technology acquisitions at the Air Force. Organizations often simply return to older requests for proposals, edit in new language and then declare that those contract solicitations are performance-based, Mather said.

He refers to this behavior as “malicious compliance.” What agencies must do, he said, is start telling industry what they want to accomplish instead of what they want to propose.

Mather said the biggest obstacle to performance-based contracting is employees’ unfamiliarity with the new method, which often means acquisition workers manage such contracts incorrectly, even if they get the contract right.

That apparently is a common problem in government contracting. “In the Air Force, we somehow viewed contract award as the ultimate milestone,” said Mike Sade, assistant commissioner for acquisition management at the General Services Administration’s Federal Acquisition Service.

Despite those government and industry concerns about performance-based contracting, OMB recently asked federal agencies to increase their percent of performance-based contracts for services to 45 percent. The budget agency originally required that 40 percent of contracts for services qualify as performance-based. However, because many agencies met or exceeded the original goal, OMB raised the percentage goal in a May 22 memo signed by Paul Denett, administrator of OMB’s Office of Federal Procurement Policy.

In the memo, Denett suggested different avenues for training, and offered as recommended reading OMB’s “Seven Steps to Performance-Based Services Acquisition,” an online publication.

Some government officials swear by OMB’s guidance. Sade said the “Seven Steps” served him well as a procurement executive at the Commerce Department, where the department has an acquisition review board that reviews any contract for services valued at $10 million or more.

Meanwhile, some experts say industry responds enthusiastically to performance-based contracts. Companies like them because they allow the companies to make an offering to the government, said Angela Styles, former administrator of OFPP, and now a partner at the law firm of Crowell & Moring.

Sade said the government will get better at awarding and managing performance-based contracts. The key to changes needed for success is patience, Sade said. “It’s going to take some time.”

Sade added that government could release a seven-step guide for industry. “There really should be some sort of government outreach” to industry, he said. “Let’s agree on what it really means to manage a contract.”
OMB’s Seven Steps to Performance-Based ContractingAn online guide from the Office of Management and Budget can help prepare agencies for performance-based contracting.

The guide offers seven steps to success:

1. Form an integrated solutions team to manage the contract from the starting point of developing the solicitation to managing the contract after awarding it.

2. Target a problem that needs solving. Specify the high-level results the agency wants, describe a successful implementation and indicate the current level of performance.

3. Find examples of similar solutions in the public or private sectors. Perform market research and meet with other teams to learn about potential problems and ways others overcame them.

4. Develop a statement of objectives or a performance work statement.

5. Decide on performance metrics to evaluate the project. Use commercial-quality standards. Try to focus on as few measures as possible.

6. Select a contractor through a best-value process. Focus on the risks, quality of performance metrics and past performance on similar projects.

7. Manage performance after the contract award. Contractors should be included in meetings to regularly review performance and discover ways it can be improved.

— Wade-Hahn Chan

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