Over the past decade, a number of contracting reforms have been put in place across the government to streamline and simplify processes and to sharpen the focus on agency mission and results. Performance-based contracting (PBC), promulgated as a government-wide policy in 1991 by the Office of Federal Procurement Policy (OFPP), is one such reform. It is applicable to some if not all aspects of the various types of projects operated by the department. Its effective use depends on the ability of the government/contractor team to understand and manage the risks inherent in any contracted effort.
PBC emphasizes that all aspects of an acquisition should be structured around the purpose of the work to be performed, as opposed to the manner in which it is performed. It offers contractors flexibility to determine how best to meet the government’s requirements, while ensuring that desired performance levels are achieved and that payment is made only for results that meet negotiated performance standards. DOE has included this technique as part of its own contract-reform agenda and has been using a performance-based approach for major projects at Rocky Flats, Oak Ridge, the Nevada Test Site, and elsewhere.
Successful PBC is based on defining existing conditions, specific requirements, and the desired results or outcomes, along with objective, meaningful, and measurable performance and quality standards. In addition, incentives are used to focus contractor efforts and to reward success. In a successful performance-based contract, expectations must be made clear, with agency and contractor teams working together in a business partnership to achieve well-defined and measurable results.
Agencies across the government are increasingly relying on PBC. Moreover, a March 9, 2001, memorandum to all agencies from the deputy director of the Office of Management and Budget (OMB) requires that 20 percent by dollar value of all agency service contracts for FY2002 be performance-based. This mandated percentage would increase in future years.
A 1998 study conducted by OFPP found cost savings on the order of 15 percent and increases in customer satisfaction (up almost 20 percent) when agencies used performance-based contracts rather than traditional requirements-based procurements (EOP, 1998). Much of the success of a PBC approach results from effective use of a cross-functional team for identifying desired outcomes and establishing effective performance metrics.
The integrated project team (IPT) concept included in DOE Order O413.3 is an essential element in implementing a performance-based approach (DOE, 2000). The committee strongly supports the use of these IPTs and suggests the following PBC methodology: