Comments

Any view or opinion represented in the blog comments are personal and is accredited to the respective commentor / visitor to this blog.

Feel free to challenge me, disagree with me, or tell me I’m completely nuts in the comments section of each blog entry, but I reserve the right to delete any comment for any reason whatsoever (abusive, profane, rude, marketing, or anonymous comments) – so keep it polite, please.

2 Responses to Comments

  1. Alice Simington says:

    Hello, I came across your blog while researching performance based contracting. I work in the development aid sector and increasingly institutional donors/governments are contracting this way, rather than through grants. I’m looking for advice on how to build in risk to budget development of large scale multi-annual contracts, in contexts (fragile countries) where the context is unpredictable and variable. If you could put me in the direction of any consultants/guidelines on this, I would be most grateful. Regards, Alice.

    • Hi Alice,

      Firstly, my sincere apologies for taking so long to get to you. That said, you have asked a very interesting question regrading the management of risk in Performance Based Contracts (PBCs) both from risk to performance (delivery) and price (budget). It is something that is rarely discussed since it is more complicated than more simple and traditional PBCs.

      However, that does not mean it cannot is is not done. In fact my colleagues and I have spent the past few years working on these type of ‘sophisticated’ PBCs. Those PBCs where due to the context you could not possibly fixed price the outcome; that is (1) the final outcomes are not 100% known at the start of the contract, (2) the ability to achieve the desired outcome is not always guaranteed given the context and (3) the budget (mainly the risk / management reserve) may vary along the way.

      The key to success for these type of contracts is (1) the ability to change the need and therefore the performance measures overtime (e.g. at the start the goal could be to establish a facility, while in later stages the goal could be to increase the capability and capacity of the facility); (2) that the performance measures are more qualitative using ‘word pictures’ as opposed to quantitative (e.g. 98%) since in our experience where there is not absolute clarity in the outcome qualitative measures they are more easily understood as part of a performance discussion between buyer and seller; and (3) the use of basis of payment that includes an amount of risk that can be used by the contractor, but which is (a) only accessed under certain conditions and with approval from the buyer and (b) there is an incentive not to spend all the risk (e.g. what is known as pain-share / gain-share – that is where unspent (or indeed overspend) risk is shared between buyer and seller, say 50% to the buyer and 50% to the seller).

      I would be pleased to discuss this with you further. Please just email me and I can provide some more information including some recommendations. Hopefully this helps you better understand this approach.

      Regards
      Andrew Jacopino

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