12.3 Unique IT procurements

12.3.2 Performance-based IT procurements

Performance-based contracting (PBC) is a procurement method that structures all aspects of the procurement around the purposes of the work to be performed instead of describing the manner by which the work is to be performed. PBC allows agencies to acquire products and/or services via contracts that define what is to be achieved, not how it is done. PBC gives suppliers the freedom to bring new approaches to the project. When a contract is based on performance, all aspects of the procurement are structured around the mission of the project, rather than the manner in which it is to be done. The procurement seeks to elicit the best performance the private sector has to offer, at a reasonable price or cost, by stating the project's objectives and giving suppliers both latitude in determining how to achieve them and incentives for achieving them.

The SOW will provide performance standards, rather than spell out what the supplier is to do. PBCs normally contain a plan for control and a plan for quality assurance surveillance. In addition, the contract typically includes positive and negative performance incentives. This is accomplished through clear, specific, and objective contract requirements and measurable outcomes, instead of dictating the manner by which the work is to be performed or broad and imprecise statements of work. PBC describes the work in terms of the results to be achieved and looks to the supplier to best organize the workforce to achieve those results. 
Additional suggestions for preparing the PBC-based SOW include:

  • Express desired performance outputs in clear, concise, commonly used, easily understood, measurable terms.
  • Do not include broad or vague statements, overly technical language or detailed procedures that dictate how work is to be accomplished.
  • Structure the SOW around the project's objective(s) or purpose of the work to be performed; (i.e., what is to be performed rather than how to perform it). (Example: instead of requiring that the lawn be mowed weekly or that trees be pruned each Fall, state that the lawn must be maintained at a height of 2-3" or that tree limbs not be allowed to touch utility wires or buildings.)
  • Performance requirements should enable assessment of work performance against measurable performance standards; rely on the use of measurable performance standards and financial incentives in a competitive environment to encourage competitors to develop and institute innovative and cost-effective methods of performing the work.

The most important element of a PBC, and what distinguishes it from other contracting methods, is the results that are desired. Many procurements are directed by the agency in the form of exact specifications or requiring "key personnel" to be assigned to a service contract. Attempts by the supplier to suggest alternative ways of approaching the work are usually rejected with the suspicion that the supplier is trying to reduce costs to increase profits resulting in an inferior outcome. The key attributes of PBC are-outcome oriented; clearly defined objectives; clearly defined timeframes; performance incentives, and performance monitoring. By describing requirements in terms of performance outcomes, and not requiring detailed specifications, agencies can help achieve the following objectives:

  • Maximize performance-allow a supplier to deliver the required service based on its own best practices and the customer's desired outcome;
  • Maximize competition and innovation-encourage innovation from the supplier base using performance requirements;
  • Minimize burdensome reporting requirements and reduce the use of contract provisions and requirements that are unique to the state;
  • Shift risk to suppliers so they are responsible for achieving the objectives in the Statement of Work through the use of their own best practices and processes; and
  • Achieve cost savings through performance requirements.