Awarding Contracts to Achieve Results

1. Awarding Contracts to Achieve Results Performance-Based Acquisition (PBA) Julia Wise, OMB, OFPP

2. Regulatory PBA* changes • 1991 - OFPP Policy Letter 91-2 • 1993 – GPRA • 1994 – FASA and OFPP Pilot Project for PBSC • 1997 - Changed the FAR to incorporate OFPP Policy Letter 91-2 and rescinded the policy letter in 2000 • 2001- Public Law 106-398, Section 821 – Added to the FAR a PBC preference and order precedence • 2004 – SARA PBC change (SARA signed 11-24-03) • Section 1431 and Section 1433 • treat certain performance-based orders and contracts as commercial items if certain conditions are met • report on these contracts and orders in FPDS • 2004 published an interim rule under FAR Case 2004-004 • 2005 published final SARA PBA changes. *PBA formerly Performance-Based Contracting (PBC). The PBA name change will be official when FAC 2005-07 is published.

3. Other PBA Changes • 1995 – OFPP Best Practices PBSC Guide • 2001 -OMB PBC goals • FY 2002 – 20% of eligible service contract dollars over $25,000 should be performance-based. • FY 2003 – 30% • FY 2004 and 2005 – 40% • 2002 - GAO Audits initiated on training and use of PBC • 2002/2003 - Seven Steps guide initiated and completed • 2003 – OFPP Issued Recommend. Report to improve the use of PBC • 2004/2005 – published proposed rule on 7/18/04 under FAR Case 2003-018 – final changes to be published next FAC 2004 - OFPP Issued a 9/7/04 memo highlighting changes – goals, reporting requirement, incentives, etc. www.acqnet.gov

4. What is PBA? An acquisition strategy used to structure all aspects of an acquisition around the purpose of the work to be performed. What problem are you trying to solve?

5. Myths PBC is a new trend in acquisition. PBC is very vague and unspecific. PBC is a contract type. PBC is the responsibility of the contracting officer. PBC is complex and not worth the time. PBC leaves us powerless. PBC equals no direction. Reality! First airplanes procured from the Wright Brothers using PB SOW. Outcome specific not process specific. Any contract type may be used. The SOW is focused on results. It is joint team effort – Program Manager needs to know the outcome and write the SOW in a performance-based manner. It forces us to work hard upfront to ensure the time invested is worth and results are achieved. Gives us power to achieve the outcome. Team can give outcome oriented guidance - what guidance but not how to guidance. Myths/Realty of PBA

6. Who is involved? PBA involves the entire acquisition team -FAR Part 1.102-3. Technical Community End-user Program Manager Quality Assurance Industry Roles/Responsibilities Legal Business/ finance Contracting

7. When is PBA used? (FAR 37.102) • PBC is used to the maximum extent practicable on eligible service contracts, orders, modifications, except on: • A&E, Construction, Utility services, Services incidental to supplies. • Additional exclusions in OFPP September 7, 2004 memo. • When determining contract type remember to use the following order of precedence - • FFP PBC or task order; • A PBC or task order that is not FFP; or • A contract or task order that is not PBC. Note: FAR 7.105(b)(4) requires rationale if PBC will not be used or if PBC is used on other than FFP basis

8. What makes it a PBA? (FAR 37.601) • Performance Work Statement (PWS) or Statement of Objectives (SOO) (2) Measurable Performance Standards (MPS) and method of assessing the standards • Performance Incentives, if applicable. - Negative or Positive - Monetary or Non-monetary (4) Quality Assurance Surveillance Plans (QASP)* *Note: QASP is no longer stated as an element because contract quality requirement is not unique to PBA. The type and extent of the contract quality requirement is depended on the acquisition.

9. Transitioning to PBA Acq. Plan Market Research • Use • PWS • SOO --- PWS Acq Plan Market Research Tight SOW PM creates Routine Tasks Rigid Gov’t Solution Awarded Empower Acquisition Teams to define outcome Evaluation Team Innovative Ktr Solutions Awarded Evaluation Team Organizational Change in service Of Performance Formal Systems Combative Strategy Share Information Collaboration Strategy QA Req Incentives QA Req Incentive Contracts Learning Bureaucratic Award Contract Contract Administration

10. Key Points for the PWS or SOO • Know the outcome desired. • Plan for the acquisition upfront. • Program Manager/team should conduct an analysis - Use the team to refine the requirement • Perform market research to understand • Commercial practices • Tasks needed to achieve results • Standards • Incentives • Similar acquisitions conducted by other agencies • Describe the outcome to be achieved to the contractor making sure that the contractor is allowed to solve the problem. • List specific tasks that must be performed to achieve the outcome. • Emphasis on the use of specified deliverables. • Establish specific standards. • Build in a validation mechanism for acceptance. • Team writes and reviews the PWS. • Consider the issuance of draft solicitations to refine the PWS.

11. Key Points for Developing MPS • Team should conduct market research on commercial MPS. • Team should know what they view as a successful outcome. • MPS should be measurable, meaningful, easy to apply and attainable. • Define your metrics - measure the contractor’s performance. • MPS should have a basis - commercial standards or Gov’t required standards so rely on commercial quality standards, if available. • When doing a SOO, have the contractor propose the MPS.

12. Key Points for Performance Incentive • Team should determine if it is appropriate upfront and cover it in the Acquisition Plan. • Payment is based on results not resources used. • Incentives can be monetary or non-monetary. • If a financial incentive, make sure money is committed to pay it! • Administer incentives – fairly, frequently. Monetary incentives may include Profit on Fixed price contracts, incentive fees on CPIF or FPIF contracts, award fees on CPAF Contracts or FPAF Contracts, etc. Non-monetary incentives may include Reduced oversight, revised schedules, positive performance evaluation, etc.

13. What is a QASP? The Quality Assurance Plan describes the strategy and methods the project will deploy to ensure two things that the project is being managed, developed, and deployed in a sound, reasonable way; and project's deliverables are of acceptable quality before they are accepted. QASP • Monitors the contractor’s performance specifying the surveillance schedule, methods, and performance measures, key processes, and deliverables. • Establishes clear criteria for specifically defining quality at each key checkpoint or for each deliverable. • Outlines roles and responsibilities for the key quality assurance evaluators. • Obtain agreement on the points in time that quality reviews will occur and how and to whom findings will be reported.

14. Why PBA? • To achieve results and improve business results because of PM/PS. • To increase customer satisfaction due to outcome and results achieve • To motivate contractors to offer their best value, innovative solutions and competitive prices. • To move away from tedious detailed specifications and use a PWS or SOO that states the Government problem. • To shift problem solving or “how to” risk to the contractor. • To improve communication with contractors because you are managing the contract relationship not the contractor. • To lessen contract administration because of QASP.

15. Managing a PBA • Good Contract Administration means you plan and train for it. It generally includes • A kick-off meeting to specify roles and responsibilities of CO, PM, COR/COTR, and QA specialist roles. • Use of a QASP to manage performance. • Contractor manages using the Quality Control Plan (QCP) • Government manages the contractor’s performance using the QASP. • Frequent performance assessments. • Annual past performance evaluations. • Communication Plan. • EVMS is a good tool to use to manage PBAs to • ensure the outcome is achieved. • ensure delivery of an acceptable product/service at the agreed upon price and time. • Accurate payment for work performed. • monitor the contractor’s performance. • avoid scope of contract “creep”!

16. FAR References • FAR 1.102, Statement of Guiding Principles – highlights PM role*. • FAR Part 2, Definition - new definitions*. • FAR Part 7 Acquisition Planning • FAR Part 10, Market Research • FAR Part 11, Describing Agency Requirements • FAR Part 16, Types of Contracts • FAR Part 37, Service Contracting – recognizes use of SOO when PWS is not suitable*. • FAR Part 46, Quality Assurance. – not listed because it is not stated as the only contract quality requirement that can be used per FAR*. *New FAR changes to be finalized in FAC 2005-07

17. PBA Resource Seven Steps to PBSA website: www.acqnet.gov -go to the Library to see vetted samples