At a minimum, there are four elements of performance-based contracting:
- Statement of work (SOW): a written document describing the technical, functional and/or service requirements and customer expectations in terms of measurable outcomes rather than by means of prescriptive methods.
- Measurable performance standards: written definition of what is considered acceptable performance to determine whether performance outcomes are met.
- Quality control plan: a written document describing how the supplier's actual performance will be monitored and measured against the contractually established performance standards.
- Incentive plan: written procedures addressing how met and unmet contractual performance standards will be resolved, escalated, remediated and/or remunerated. Incentives may be linked to price or fee adjustments. While not mandatory, incentives can be used, where appropriate, to encourage performance that will exceed the established performance standards.