The Challenge of Performance Based Service Contracts

  |  March 30, 2009

The central part of Section C will become the Statement of Objectives (SOO), and the contractor rather than the Government will prepare the Statement of Work (SOW). The purpose of this article is to describe how Performance Based Service Contracting (PBSC) developed and how it will impact on the work of proposal preparation / business development / program management professionals.

The Background of PBSC

PBSC had its genesis in the Services Contract Act of 1990, and the Office of Management and Budget (OMB), through its Office of Federal Procurement Policy (OFPP) provided the initial implementation policy in OFPP Policy Letter 91-2, Service Contracting. The initial interpretation of PBSC focused on Past Performance, which perhaps incited the most overused cliché in the history of government proposals: “our past performance is a true indicator of our future performance.” In 1994, the Past Performance Pledge Program was adopted, when 20 Federal agencies and more than 100,000 Federal contractors signed a pledge to make past performance a major criteria for selecting contractors. A Final Report on Past Performance was issued in 1997 by OFPP, declaring it a success, and in 1998, OFPP published its PBSC Best Practices Guide.

Shortly after the 2000 Presidential Inauguration, the Bush Administration published the President’s Management Objectives, and Competition in Contracting was one of his ten major objectives. In 2001, the Federal Procurement Executives’ Council set the following goal:

“As part of the President’s Management Agenda, the Performance-Based Service Contracting (PBSC) goal for FY02 is to award contracts over $25,000 using PBSC techniques for not less than 20% of the total eligible service contracting dollars, as established under the Government-Wide Acquisition Performance Measurement Program.”

While the Council has not formally released its goals for FY03 and beyond, there is a general consensus that they will increase annually, and that by FY06, at least 60% of all Federal services contracts will be PBSC.

Concurrent with these actions, the OFPP recognized that PBSC encompassed much more than past performance. OFPP convened a working group comprised of representatives from DOD, Agriculture, Treasury, Commerce, GSA representing the Government, and Acquisition Solutions, Inc. representing industry to develop a process for the Government to follow in developing a PBSC. The result was a seven-step process that was tested and adopted in late 2001. This process was made available to all government agencies in January 2002, and many agencies have adopted these processes.

Fundamentals of PBSC

In a non-PBSC procurement, the government provides the contractor with a Statement of Work (SOW) in RFP Section C, generally telling the contractor what labor categories they desire, and frequently directing the number of hours to be provided by each labor category. The contractor develops a proposal to the procuring agency that generally contains a technical approach to performing the work defined in the SOW, a management approach, key personal resumes, past performance, and its prices for providing the services requested.

In a PBSC procurement, the government provides the contractor with a Statement of Objectives (SOO). Armed with this 2-5 page SOO, the contractor provides the government with the SOW, labor categories, and the hours proposed in each labor category to meet the government’s objectives. In other words, the Government tells the contractor what they desire and lets the contractor “solve the problem.” In a way, it’s similar to the word problems they use in mathematics or logic classes where you’re given the answer and you have to define the problem. Another very different approach to PBSC is that it is based on “performance metrics.” A PBSC RFP may include a Performance Work Statement (PWS) providing the performance metrics, or it may require the contractor to provide the performance metrics based on “best practices,” that both the Government and contractor would use to monitor performance.

PBSC is also different in how the contracts are administered. To be truly effective, a PBSC must contain the provisions for both positive and negative incentives. Let’s use an example of a Help Desk task where one of the performance metric is to “answer 92% of all calls by the second ring.” In a non-PBSC environment, excluding award fee type contracts, these types of metrics were not monitored very closely, and if they were, the government did not have very many options for enforcing the standards. In a PBSC environment, if the contractor meets this metric, they will get the fee negotiated for his contract. However, if they exceed this performance metric, they will receive additional fee, and if they does not meet this metric, they will receive less fee.

The Challenge of PBSC for Proposal / BD / Program Management Professionals

Obviously, contractors who wish to be successful in the new PBSC environment are going to have to learn a new set of skills and adapt a different approach to the way they develop their proposals to the Government, and in the way they manage their PBSC projects. The proposal strategies must start prior to the RFP release, and they must include the project management and staffing considerations that will be carried on through the life of the project. Therefore, the successful 21st Century proposal manager must develop a much better understanding of the tools and techniques for project development and performance metrics. In addition, this affects the BD and Program Management aspects of the Company

OCI recently completed a market analysis and found there is not a training program in Performance Based Service Contracting for proposal / BD personnel. Because of the great need for training in this new discipline, OCI is now offering a training class aimed at the range of personnel involved in proposal preparation work. This includes proposal managers, proposal writers, marketing managers, business development managers, capture managers, program managers, project managers, and group executives.




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