Case Study – Performance Based Contracting Offer Definition and Improvement Activity (PBC ODIA)

One technique becoming more common during tendering for high value and / or high complexity Defence equipment acquisition and sustainment is a multi-stage tendering process.  The later stage of this process takes one or more tenderer (potentially down selected from a larger group of tenderers) through interactive discussions between buyer and seller(s) to explore and refine both the needs and the solution(s) being offered.  This is critical where there is uncertainty in the exact buyer’s needs since a conventional procurement process would traditionally limit this interaction and exploration of need(s) and solution(s).  So why am I bring this up on a PBC Blog?

Many years ago, as part of a buyer procurement team acquiring a new capability, we specifically included a PBC element in the ODIA for two reasons.  Firstly, to allow the buyer better insight and therefore confidence of the seller’s proposed solution.  To do this, the buyer set the same 3 performance scenarios (one good, one poor and one bad performance scenario) and then had each of the sellers describe how they how manage these events and what consequences would occur be based on the PBC offered.  Secondly, to allow the seller a mechanism to discuss areas of ambiguity or uncertainty in the buyer’s need(s) since this can drive cost in seller’s solutions.

In this case one of the tenderers, well-known to the buyer and having a lot of experience in Defence PBCs, indicated that they thought the buyer’s PBC was not fair resulting in many ‘non-compliances’ with the buyer’s PBC clauses (i.e. in their tender response they stated, if selected as the preferred tenderer, they would not agree to specific PBC clauses).  Given the seller’s experience and no other tenderer had this concern the ODIA process asked this tenderer to describe their concerns based on calculation of the 3 performance scenarios.

The tenderer working through the performance scenarios highlighted a number of events that would result in the overall performance score being a negative number (i.e. be below 0%).  In this circumstance, regardless of whether the seller fixed the performance issue, the overall performance score was a negative number.  While I have seen performance management frameworks that are very sensitive to performance events, in this circumstance this was not one of those.

With both buyer and seller trying to understand how this was occurring we discovered that inside one of seller’s calculations of performance there was a simple mathematical error; a ‘-‘ instead of a ‘+’.  Once this error was fixed the seller’s concern disappeared.  Given this discovery the tenderer asked whether they could come back the next as part of their larger scheduled OIDA sessions for another PBC discussion.  The next day the tenderer came in with a simple response.  They now were happy with the PBC arrangement in the contract, had no non-compliances and thanked the buyer’s team.

While I have highlighted this as a seller’s misunderstanding, I have equally seen errors in buyer’s PBCs being identified by sellers; no one is immune to this.

In summary this case study highlights 2 lessons.  Firstly, it is important that no matter how experienced both buyer and seller are, they need to fully understand how the PBC will work, including what consequences apply, by testing it against at least 3 scenarios; one based on good performance (all ‘green’), one based on poor performance (mix of ‘green’ and ‘amber’) and one based on bad performance (lots of ‘red’).  Secondly, it provides the buyer and seller a mechanism for discussing aspects of the PBC that drive costs such as performance levels, business rules (e.g. performance exclusions), etc. including any misunderstandings.  By having an interactive dialogue we can only end up with a more successful PBC for both buyer and seller, who doesn’t want that outcome!

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