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Chapter 21 - Performance-Based Contracting and Service Level Agreements

21.2 Elements of PBCs

21.2.3 Defining performance needs and incentives

When preparing a PBC, be creative about how the contract can best accomplish the agency’s business needs. Below are some guidelines:

  • Think creatively.
  • Avoid rewarding suppliers for simply meeting contract requirements.
  • Recognize that developing clear, concise, objectively measurable technical performance incentives will be challenging and may take additional planning time.
  • Create a proper balance of objective incentives—cost, schedule and technical.
  • Ensure the performance incentives focus the supplier’s efforts on the most important objectives.
  • Make performance incentives challenging and attainable.
  • Ensure that incentives motivate the supplier to follow measurable quality control processes.
  • Consider linking on-time delivery to technical performance by establishing delivery targets based on project goals and metrics. You can then monitor performance success by looking at how these objectives were met by the supplier.
  • Encourage open communications and permit suppliers to comment on the performance-based work statement.
  • Identify the magnitude of technical, cost and schedule risks and create mitigation solutions.
  • Consider procurement history—factors that contributed to past successes and failures in meeting goals and fulfilling needs.
  • Be sure to include incentives for quality, even though they might be difficult to describe.
  • Consider including socio-economic incentives.
  • Use clear, objective formulas for determining technical performance incentives.
  • Include incentives for overhead cost control.
  • Involve users, program, technical, procurement and financial staff in incentive planning.
  • Make sure that incentives are closely related to the performance objectives.
  • Keep the focus on performance; limit other requirements.
  • Keep the structure and administration as simple as possible.
  • Remember that subjective evaluation has its place in encouraging and recognizing outstanding performance.
  • For Cloud Services/Software as a Service (SaaS) contracts, the SLA requirements will need to align with your agency business continuity needs in serving your stakeholders, including the public, if applicable. Contractual remedies for non-performance should be strong and in the best interest of the commonwealth.