DOD pushes performance

The Defense Department is ordering contracting officers to make performance-based payments the primary form of financing on at least 25 percent of deals of at least $2 million come Oct. 1, furthering Pentagon efforts to use commercial buying practices.

The recent guidance issued by Jacques Gansler, the undersecretary of Defense for acquisition, technology and logistics, also mandates that such payments be the "prevalent form" on all fixed-price DOD contracts by fiscal 2005. According to Gansler, DOD used performance-based payments for 195 contracts worth $5.6 billion in fiscal 1999.

Advantages in using performance-based payments include an enhanced role for program managers, broadened contractor participation, lowered administrative costs and streamlined procurement oversight, according to Gansler's memo.

Among the information technology contracts affected by the change is the Navy Marine Corps Intranet, the eight-year, $6.9 billion procurement for outsourcing the services' voice, video and data services to Electronic Data Systems Corp. That deal, awarded last September, is a performance-based contract that also calls for EDS and the Navy to share savings under NMCI.

Writing contracts to be performance-based, rather than fixed-priced, can help DOD focus on results rather than a contract's technical specifications, said Chip Mather, senior vice president of Acquisition Solutions Inc., Chantilly, Va. "I've seen it work. It can be miraculous," he said.

Gansler wrote that the new practices will force contracting officers to become "more sophisticated customers." Performance-based payments will focus on the contractor fulfilling "meaningful and measurable technical progress and meeting program schedule commitments," he wrote.