Definitions

This page provide a range of definitions that are used throughout the Performance Based Contracting (PBC) Blog.

Five Key Characteristics of a PBC are as follows:

1. Requirements focused on the contractual outcomes, and not how the work is performed
2. Set of indicators tied to the outcome
3. Achievable performance standard for each indicator
4. Defined process to collect, analyse and report data for the selected indicator
5. Range of monetary and non-monetary consequences, either rewards or sanctions for the contractor, based on performance

Performance Based Contracting (PBC) 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.

Availability – Providing users with material / services that are in a known state and ready to meet operational preparedness requirements. (see Availability Part 1 post).

Fully Mission Capable (FMC) – represents the status of a platform’s ability to undertake any mission without restriction to the user. (see Availability Part 2 post).

Not Mission Capability (NMC) – represents the status of a platform’s inability to undertake any mission regardless of restriction. (see Availability Part 2 post).

Partially Mission Capable (PMC) – represents the status of a platform’s ability to only under a subset of the required missions thereby restricting operations for the user. (see Availability Part 2 post).

Required Performance Level– this is the performance level the buyer expects delivered by the seller and should be the design point for the sellers solution (e.g. to make sure consistent ensure delivery of this level of performance to the buyer the seller needs an amount of staff, spare parts, vehicles, etc.). This typically represents the level where the buyer would pay the seller all (100%) of the performance fee against this performance measure. (see Setting the Performance Levels (Part 1) post).

Minimum Performance Level– this is the performance level where the buyer receives no value from the service being delivered by the seller noting this point may not be ‘0’ performance (e.g. the buyer’s requirement may specify a minimum number (level) of emergency vehicles required each day as opposed to the minimum number being 0 vehicles). This typically represents the level where the buyer would not pay the seller any of the performance fee (0%) against this performance measure. (see Setting the Performance Levels (Part 1) post).

Inflection / Elbow Performance Level– this is a performance level between the required and the minimum performance level and “shapes” transition from the minimum performance level to required performance levels. This can be a simple as a straight line between the two levels (e.g. linear), or as in the case for the Australian Department of Defence, this typically sits half-way between the minimum and required performance levels and represents the point where the buyer would pay the seller 80% of the performance fee against this performance measure. However, there are many ways of doing this. (see Setting the Performance Levels (Part 1) post).

Incentive Performance Level– this is a performance level above the required performance level where the buyer may pay the seller more than the performance fee (greater than 100%) against this performance measure. However, paying an incentive usually only occurs where the delivery of superior performance delivers added value to the buyer and will usually be limited to a specific amount. (see Setting the Performance Levels (Part 1) post).