Chapter 25 - IT Contract Formation

25.7.3 Requirements for promoting supplier performance

Section 2.2-2012(E) of the Code of Virginia states: "If VITA, or any executive branch agency authorized by VITA, elects to procure personal computers and related peripheral equipment pursuant to any type of blanket purchasing arrangement under which public bodies, as defined in § 2.2-4301, may purchase such goods from any vendor following competitive procurement but without the conduct of an individual procurement by or for the using agency or institution, it shall establish performance-based specifications for the selection of equipment."

All IT contracts should promote excellence in supplier performance. Measuring a supplier's performance as part of the contract, combined with the agency's management of the supplier's performance will provide greater value for the Commonwealth and taxpayers. In order to emphasize excellence in supplier contract performance, VITA recommends that all IT contracts include the following:

• Agency and project performance expectations and objectives.

• Procedures for systematically gathering and using ongoing performance data on supplier's performance during the term of the contract.

• An issue resolution and/or escalation process with defined time frames.

• Built-in incentives/remedies attached to supplier performance.

• Distinct and measurable performance metrics

• Clear enforcement provisions, including penalties and incentives, to be used in the event that contract performance metrics or other contractual provisions are not met.

During contract negotiations, work with the supplier on establishing partnering programs and measurable goals for reducing administrative burdens on both parties while ensuring supplier performance and value. Include negotiated goals into the contract. Always make agency satisfaction with the supplier's performance an on-going measurement during the term of the contract.

The type of performance data needed will be determined by the type of procurement. For instance, a contract for maintenance support will require a service level agreement with monthly reporting on supplier's service performance in order to tie remedies to payment via a percentage discount. A solution and implementation driven procurement should include sequential milestones or deliverable submissions and gear remedies to on-time delivery and/or acceptance criteria. For a contract with a Value Added Reseller (VAR) or for an off the shelf IT commodity procurement, availability and delivery may be performance drivers. Please refer to Chapter 21 of this manual, Performance-Based Contracting and Service Level Agreements, for a more in-depth discussion and valuable guidance.

If the agency's procurement is a "high-risk contract" as defined in § 2.2-4303.01, then the solicitation and resulting contract must include distinct and measurable supplier performance metrics and clear enforcement provisions, including clearly outlines penalties and incentives, to be sued in the event that contract performance measures are not met. The following language should be customized for your project and be included in the solicitation and contract documents for high-risk contracts:

"(Your agency name) has developed a set of supplier key performance indicators ("KPI") relating to Supplier's performance under this Contract and which are attached hereto and incorporated by reference as Exhibit XX. Supplier agrees to be bound by and perform its obligations under this Contract pursuant to the KPI. The remedies for Supplier's failure to meet the KPI are set forth in Exhibit XX.

Supplier and (Your agency name) agree to meet within 30 calendar days of the Effective Date of this Contract to set forth the methodology and designated personnel of each Party to provide, collect, monitor, and report the KPI performance data and mutually agreed-to incentives and remedies. Supplier agrees to provide to (Your agency name) a report of its performance against the KPIs no less than once every six (6) months throughout the Term of this Contract. Supplier's report must include a comparison of its KPI performance against the agreed-to targets and, in the event of any shortfall by Supplier, proposed remediation measures. Supplier will report its KPI performance for the Contract in aggregate and for each order or SOW over $1,000,000. Any instances of Supplier non-compliance will be recorded in Supplier's Contract file and shared with Contract stakeholders. Supplier further agrees that any degradation or failure of Supplier's performance obligations may result in failure to renew the Contract, termination for convenience of the Contract or termination for breach of the Contract. VITA will have all rights and remedies available at law."

The objective of the KPI is to provide a reference to determine whether the procurement was successful by having discrete, quantifiable and measurable performance measures for suppliers. The metrics below are examples and should be customized to the agency's specific procurement type and goals:

"EXHIBIT XX
Key Performance Indicators

(For goods/product-type procurements)

• All orders delivered on time as specified in the order or SOW.
• 100% match in the quantity, quality, and condition between products/goods listed on the order or SOW and the products/goods delivered to VITA/Authorized User.
• No more than XX percent (XX%) of the goods delivered in a calendar year are deemed defective or do not pass Acceptance Testing.

(For services-type procurements)

• Supplier achieves overall satisfaction level of XX percent (XX%) from all Authorized Users each month of the Term.
• Supplier maintains service uptime of at least XX percent (XX%) of the time each month.
• Supplier responds to all instances of unplanned downtime of services within one (1) hour.
• Supplier meets all milestone Deliverables for all Authorized Users each month of the Term.
• For Supplier-hosted Licensed Services, Supplier meets all Reporting Requirements of the Term."

Agencies should consider the following questions and integrate them into the contract from what was included in the solicitation and negotiated, if applicable, with the supplier:

• What does the project need (product specifications, service turnaround, etc.) to satisfy the end user(s)? "What would the successful project look like?"

• How quickly must the supplier correct each failure? What are the agency's remedies if supplier does not correct the failure within the specified time?

• What measurement and enforcement tools and processes will be implemented to ensure that performance can be measured and enforced?

• What financial or other incentives or remedies are needed by the agency?

• Does the agency have the ability to get out of the contract without penalty if the supplier is not meeting its service level obligations?

• How important is it to the agency for the supplier to provide "transition services" while an agency is trying to procure a new supplier?