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Chapter 21 - Performance-Based Contracting and Service Level Agreements

21.2 Elements of PBCs

21.2.2 PBC success factors

PBC shifts the cost and performance risks from the customer to suppliers, while giving suppliers more latitude for determining the methods of performance and more responsibility for the quality of performance. Agencies that utilize PBC may find that many areas of contract disputes are eliminated. Since the supplier is responsible for methods and results, disputes over ambiguities in specifications and accountability for performance failures will likely be minimized. Agencies which develop quality control plans (QCPs) that allow the supplier to determine how the work will be done may significantly reduce the need for agency oversight of supplier performance. When designing a PBC the following factors can be critical to your success:

  • Provide clear strategic and program logic for the agency/project.
  • Clearly determine the scope of work and what performance measures will be used.
  • Define agency baseline and what level of performance is expected.
  • Include provisions for flexibility and incentives.
  • Canvass providers/suppliers to find out:
    • What measures would they propose?
    • What incentives would they want? How?
    • How would they want to report performance data?
  • Craft a performance-based statement of work for the contract that:
    • Includes mechanisms for measurement, reporting, monitoring and supplier feedback.
    • Defines a system for revisions and reconciling deviations in expected performance.
    • Considers a transition period “hold harmless” clause.
    • Monitors performance with regular reporting requirements.
    • Can be adjusted when needed.
  • Identify factors that might impact performance.
  • Devise corrective action plans for deviations.
  • Benchmark and compare.
  • Revise performance targets to continue to achieve progress.
  • Provide comparative performance data for suppliers; create a “race to the top” culture.
  • Communicate and reward success.