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Chapter 21 - Performance-Based Contracting and Service Level Agreements

21.1 Performance-based contracting

21.1.0 Performance-based contracting

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 and gives the supplier the freedom to bring new approaches to the project. The procurement seeks to elicit the best performance the supplier 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.

A statement of work (SOW) should 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 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.