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41 Maintenance warranty projects have included micro- formance plan and track progress toward measurable surfacing, chip seals, saw and seal, pavement marking, performance targets. crack seals, and higher types of asphalt and concrete Federal Acquisition Streamlining Act of 1994. It was pavement surfacing, which fundamentally may be necessary to evaluate the effectiveness of implement- rehabilitation and reconstruction projects. ing the act's streamlining provisions. Bid price is a function of the warranty period. Bid The ClingerCohen Act (formerly the Federal Acquisition prices for warranty projects are roughly the same as for Reform Act/Information Technology Reform Act of nonwarranty projects for 1-year periods and increase 1996). This legislation required new programs to meet at to about 3% for 3-year warranty periods. Bid prices for least 90% of cost, schedule, and performance goals. 5-year warranty periods for asphalt projects were 9% Federal Acquisition Regulation. Changes to the Federal higher than nonwarranty projects in Ohio. Acquisition Regulation supported performance-based The life-cycle costs of 23 asphalt pavement projects contracting. were 12% lower for expired warranty projects com- The OFPP pilot on PBMC. This project showed that pared with normal contracted projects. costs declined 15%, customer satisfaction rose 18%, North Carolina stopped using warranty provisions and financial audits declined 93% for 26 performance- for an epoxy-pavement marking project because of an based contracts worth $585 million and involving 15 early failure. Montana also experienced failures on federal agencies (OFPP 1998). pavement marking projects with 4-year warranties. The number of bidders remained essentially the same Mainly as a result of the success of the OFPP pilot, the on warranty and nonwarranty maintenance and higher- Office of Management and Budget set a goal that 20% of type projects. all eligible service contracts in excess of $25,000 consist of Eighty-eight percent of state DOTs reported that main- performance-based contracts (Office of Management and tenance cost savings were positive but under 10%, Budget 1998). The Procurement Executives Council set although West Virginia anticipated more than 50% a goal that, by the year 2005, 50% of eligible contracts be savings on a pavement marking project. performance-based service contracts. Roughly 46% of state transportation agencies said there was a slight improvement in project quality, 23% reported A large body of literature on performance-based con- there was great improvement, and 31% said the effect of tracting is applicable to federal agencies. One of the most the warranty provisions on quality was unclear. widely used sources is Acquisition Central's online guide, Roughly 54% of DOTs asserted that warranty contract- "Seven Steps to Performance-Based Services Acquisition" ing is superior to conventional contracting to obtain (see Acquisition Central 2007). This online guide sets out better quality and reduce life-cycle costs. the following basic steps to performance-based contracting: 1. Establish team; PERFORMANCE-BASED CONTRACTING IN THE FEDERAL GOVERNMENT 2. Decide what problem needs solving; Performance-based contracting in the federal government 3. Examine private-sector and public-sector solutions; dates back more than 25 years. In 1980, the Office of Fed- eral Procurement Policy (OFPP) issued a pamphlet entitled, 4. Develop a performance work statement (PWS) or "Guide to Writing and Administering Performance State- statement of objectives; ments of Work for Service Contracts" (OFPP 1980). Around the same time, American Airlines started using perfor- 5. Decide how to measure and manage performance; mance-based contracts, known as service-level agreements, and other firms in the private sector, such as IBM, followed 6. Select the right contractor; and suit (Hiles 2002). 7. Manage performance. The DOD encouraged performance-based contracting during the 1980s. Eventually a consensus among federal A number of features of performance-based contracting agencies emerged regarding the virtues of this approach to in the federal government are somewhat different than the contracting. The following federal legislation, regulations, procedures used in highway maintenance contracting in the and research contributed to a significant shift toward using states, Canada, and around the world. Some of these features performance specifications in federal contracts: are as follows: The Government Performance and Results Act of 1. A great deal of importance is given to the composition 1993. Federal agencies were required to prepare a per- and role of the acquisition team.