Berendt: Why is this so difficult?

OFPP: Seven Steps to performance based acquisitions

In 2004, the Office of Management and Budget issued guidance that agencies should apply performance-based service acquisition methods to 40 percent of all eligible service actions of more than $25,000 — including contracts, task orders, modifications and options — awarded in fiscal 2005.

Furthermore, OMB issued guidance that outlined seven steps to performance-based acquisitions. Those steps are:

1. Establish an integrated solutions team.

2. Describe the problem.

3. Examine private- and public-sector solutions.

4. Decide how to measure and manage performance.

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

6. Select the right contractor.

7. Manage performance.

Although performance-based contracting is not a new concept for the federal government, many agencies have not embraced the idea.

The seven performance-based acquisition steps provide a process for developing and awarding contracts. Let’s examine three common reasons government agencies give for why performance-based service acquisitions don’t work and how proper application of the seven steps can solve those problems.

One common problem: The contractor does not provide what an agency needs. This occurs when there is miscommunication between the agency and contractor. If the agency does not specify the problem and the desired result, then the contractor must continue re-engineering the product or service until the agency is satisfied.

Similarly, the provider may satisfy the terms of the contract, but the deliverable doesn’t solve the problem. This occurs when the customer specifies an inappropriate solution. The provider fulfilled the customer’s request, but not what was actually needed.

Step 2 of OMB’s guidance asks the agency to describe the problem. This is an important step toward resolving the problem. Instead of focusing on how to solve the problem, the agency should focus on the outcome. By starting the problem-solving process, this ensures that the provider knows what must be achieved. Being meticulous initially in defining the problem is the essence of performance-based contracting.

It is important to define requirements and articulate outcomes for all the stakeholders, not just the project manager. This is precisely why Step 1 asks the agency to establish an integrated solutions team.

Another common concern among agencies is that performance-based contracts cost more. To determine whether the government is getting a fair market price for a project, an agency needs to conduct rigorous market research, as indicated in the third step. Agencies also need to evaluate the services available in the marketplace and bid work competitively to encourage innovation and reduce costs, ensuring that the government gets the best value.

It is also essential to establish performance standards and determine — in advance of solicitation — the best way to evaluate the provider’s performance.

It is equally important to develop metrics that monitor the provider’s performance. Without performance evaluation metrics, no one knows whether the provider is meeting acceptable service levels.

Berendt is SI International’s vice president of program and acquisition management for the intelligence community.