Performance Based Service Contracting (PBSC): It’s All About Performance

  |  April 1, 2009

This development is a major paradigm shift in Government contracting, and it is posing a challenge for both Government and Industry.
What is the history of PBSC?
In 1991, the Office of Management and Budget’s Office of Federal Procurement Policy (OFPP) released OFPP Policy Letter 91-2, which was the genesis of Performance-Based Service Contracting (PBSC).  One of the early attempts at defining PBSC was the use of contractor past performance as a major determination factor in proposal evaluation and contractor selection.  In 2000 and 2001, the concept of PBSC, as it applies to the services industry took hold, and the Government recognized the need for a process to develop PBSC program, resulting in a very robust 7-step process for developing PBSC contracts.
While OFPP has been proactive in developing policy and the 7-Step Process, they have been "hands-off" in defining how Agencies should implement PBSC, and there is no Government-wide PBSC implementation strategy.  This has caused considerable confusion – both within the Public and Private Sectors.

How is PBSC Different?
Non-performance based RFP’s provide the contractor with a Statement of Work (SOW) and generally tell the contractor which labor categories and skill mixes to use.  They often provide the contractor with the number of hours, or Level of Effort (LOE), per labor category.  The proposal instructions typically require the contractor to provide a technical approach to the SOW.  This approach has been used for many decades and has placed a significant burden on the Government.

Performance-based RFP’s, however, provide the contractor with either a Statement of Objectives (SOO) or Performance Work Statement (PWS) which is similar to the SOW, but does not provide the contractor which labor categories and skill mixes to use, or the number of hours/LOE per labor category.  In addition, some RFP’s even require the contractor to develop and propose their own metrics, incentives and SOW.  The operative phrase in PBSC is "let the contractor solve the problem."

PBSC projects also require a different approach to project development, project management, and contract administration.  Contractually, PBSC is based on incentives, and managing a PBSC contract requires managing to the performance objectives, using specified metrics.  Non-performance based contracts use cost/schedule as the control mechanisms, but in a performance-based environment, these are now just two of several metrics the contractor must meet.  Obviously, managing projects in a performance-base, fixed priced environment requires a very different approach to project development and management.  Contractors can no longer "estimate," they must know what they are doing and proposing in a FFP environment or face low win rates, and even lost revenues and profit.

What is the status of PBSC?
Legislation passed by Congress requires DOD to award 50% of its FY04 services contracts as Performance-Based Service Contracts (PBSC), and 35% as firm fixed price (FFP).  The legislation also mandates that DOD increase the number of FFP contracts to 50% during FY05 and increase this to 70% by FY11.  
This does not just affect DOD contracts.  In addition, the Federal Procurement Executives Council has agreed to use PBSC for not less than 50% of the total eligible service contracting dollars during FY04 which affects all of the non-DOD government agencies as well.

As you can see, the entire Federal Government is changing the way they do business and the way they procure services by moving to a performance-based, fixed priced environment.  This is going to have a major impact, especially on contractors who do not understand PBSC and how to bid and manage PBSC contracts.  Just as the Government is changing the way they do business, contractors must also change the way they do business to survive in this new performance-based, fixed priced environment. 
How can Contractors  Meet the PBSC Challenge?
We have seen that many contractors lack experience in responding to PBSC solicitations.  Therefore, OCI started offering PBSC training working with an affiliate firm, Performance Management Associates, Inc. (PMA).  PMA has provided PBSC-related training workshops to more than 300 Industry and Government personnel in the past two years.  OCI, in conjunction with PMA now offers PBSC training workshops for both Contractor and Government personnel to help them survive in this new performance-based, fixed price environment.  These workshops are reasonably priced and, unlike others, our workshops are oriented to the contracting, program management, and BD/proposal sides of the house.

Principal Instructor of the course is Ron Romonchuk, President of Performance Management Associates, Inc. (PMA); a Fairfax, VA based firm specializing in PBSC implementation for both the Government and its contractors. 


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