Over the past 12 months articles have discussed the virtues of Performance Based Contracting (PBC), but may have led the reader to believe that PBCs are neither well understood nor used. This is not entirely true since forms of PBCs have been extensively used by both the Defence and civil sectors since the late 1990’s in a range of acquisition and support contracts. So why the confusion?
I believe that one of the reasons may be the various definitions and labels given to this type of contract. For example, in the US and Canadian defence sector they are called Performance Based Logistics (PBL) contracts. In the Australian defence sector we call them PBCs while the UK defence sector use both these terms but also use Contracting for Availability and Contracting for Capability. Alternatively, large elements of the civil sector use another term, Vested Outsourcing. So what is a PBC?
While there are a variety of PBC definitions available in looking at all these I believe they can all be combined as follows:
Performance Based Contracting is an outcomes-oriented contracting method that ties a range of monetary and non-monetary consequences to the contractor based on their accomplishment of measurable and achievable performance requirements.
In looking at this definition some may argue there is no difference to conventional contracts that apply rewards or sanctions to the contractor based on their performance. While this may be true from an overview, the contract types differ in their application. To highlight these differences I offer the following five key characteristics of a PBC:
- Requirements focused on the contractual outcomes, and not how the work is performed
- Set of indicators tied to the outcome
- Achievable performance standard for each indicator
- Defined process to collect, analyse and report data for the selected indicator
- Range of monetary and non-monetary consequences, either rewards or sanctions for the contractor, based on performance
If we can settle on a definition and key characteristics for a PBC that are industry agnostic and without branding or proprietary marking, I believe this will go a long way on the road to making PBCs more accessible and hopefully better understood and used.
 http://www.defence.gov.au/dmo/Multimedia/Next_GPBSC-9-5978.pdf, http://www.defence.gov.au/dmo/Multimedia/asd_pbc_v2-9-5979.pdf, http://principlesandpractices.org/wp-content/uploads/2013/04/PerformanceBased.pdf, http://www.acquisition.gov/far/01-07/html/Subpart_37_6.html, http://www.who.int/management/resources/finances/Section2-3.pdf, http://www.whitehouse.gov/omb/procurement_guide_pbsc, http://www.des.wa.gov/services/ContractingPurchasing/PoliciesTraining/Resources/Pages/performancedBasedContracting.aspx, https://www.uspsoig.gov/blog/maximizing-performance-based-contracting, http://www.acquisition.gov/sevensteps/library/DOEpb-contracting.pdf
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What form of contract do you use for this type
In my personal experience from the Aerospace and Defence sector, these type of contracts (Performance Based Contracts or PBCs), were initially used in the support of equipment from repairable items such as engines, radars, etc. all the way through to whole platforms such aircraft and vehicle fleets. However, this was in the late 1990’s and early 2000’s. These were typically large and sophisticated contracts that had dedicated contract managers and performance managers.
Since then, and in order to try and get the benefits that PBCs offer in our smaller contracts we have created what we refer to as “PBC Lite”, reflecting a lighter approach to our performance measures design and payment methodology. For example, we have recently introduced these into our services contracts for consultancies and legal support.
Additionally, and again acknowledging the benefits of PBCs, we are beginning to introduce PBCs into our acquisition contracts which typically use Earned Value Management (EVM) and Liquidated Damages (LDs) as their performance management framework.
I would be pleased to provide more information should you need it.