Seven Steps to PBA FAQs, General

General Questions about Performance-Based Acquisition

Q1 What is performance-based acquisition?

A1 "Performance-based acquisition" (PBA) means structuring all aspects of an acquisition around the purpose of the work to be performed with the contract requirements set forth in clear, specific, and objective terms with measurable outcomes, as opposed to either the manner by which the work is to be performed or broad and imprecise statements of work. The use of the word "acquisition" rather than "contracting" reflects the broader scope (from mission planning to contract performance management) and the broader community (including program offices) that are a necessary part of the process.

Q2 What are the elements of a performance-based acquisition?

A2 Federal Acquisition Regulation (FAR) Subpart 37.6 defines the mandatory elements as follows: (1) a performance work statement (PWS), (2) measurable performance standards and the method of assessing contractor performance against performance standards; and (3) the use of performance incentives when appropriate.

Q3 What are the goals for performance-based acquisition? What are "eligible services?"

A3 As established by Office of Federal Procurement Policy (OFPP) Memorandum dated 7/21/2006, agencies should apply PBA methods on 40 percent of eligible service actions over $25,000 (including contracts, task orders, modifications, and options) awarded in FY2006, as measured in dollars. This is the same goal that was established for FY2005 and FY2006. The Department of Defense has a goal of 50 percent. "Eligible services" exclude architect-engineer services acquired in accordance with 40 U.S.C. 541-544, construction, utility services, and services that are incidental to supply purchases. (These exclusions are detailed in FAR 37.102). "Eligible services" for reporting purposes (although use of performance-based acquisition is not "precluded") also exclude research and development; professional medical services (not facility-related); and tuition, registration, and membership fees. (These exclusions are detailed in an OFPP Memorandum dated 9/7/2004.)

Q4 What services should be acquired using performance-based acquisition?

A4 Performance-based acquisition is the preferred method for acquiring services. The Federal Acquisition Regulation (FAR) requires that, when acquiring services--including those acquired under supply contracts--agencies must use performance-based contracting methods to the maximum extent practicable, except for architect-engineer services, construction, utility services, or services that are incidental to supply purchases. In a September 7, 2004 memo, the Associate Administrator of the Office of Federal Procurement Policy (OFPP) suggested other categories that may not be appropriate for PBA: Research and development, tuition for training, and professional medical services.

Q5 Does the Federal Acquisition Regulation (FAR) require a particular contract type required for an acquisition to be considered performance-based?

A5 No. FAR Subpart 37.102 does establish a general order of precedence as follows: (1) a firm-fixed price performance-based contract or task order, (2) a performance-based contract or task order that is not firm-fixed price, and (3) a contract or task order that is not performance-based. So, contract type, which addresses the risks between the parties, is not determinative of performance-based status.

Q6 What if I have a question or a comment?

A6 Use our "Ask the Expert" feature or provide us "Feedback." Michael Jackson is the GSA point of contact for questions about the guide (Michaelo.Jackson@gsa.gov). He also helps to lead an OFPP-sponsored interagency team of volunteers to make sure the guide is accurate and current. This team is supported by the contractor partner that helped write the original guide, Acquisition Solutions®, Inc., under a competitively awarded task order.

Q7 Where can I find samples and examples?

A7 The Seven Steps team has vetted samples and examples, some with helpful hints, and included them in the Seven Steps Library. We have also identified other websites with significant collections of samples and examples that you can explore. They are in the Links Library.

Q8 How were the samples and examples selected?

A8 The Seven Steps team reviews documents submitted by agencies and searches FedBizOpps for newly-listed performance-based solicitations. The criteria used to select documents for posting can be found in FAR Subpart 37.6, where the mandatory requirements of performance-based solicitations and contracts are discussed. The team hopes that our samples and examples are "food for thought" and provide a foundation from which to work. Because (by definition) performance-based acquisition is based on the purpose of the work to be performed and desired outcomes, no one sample is likely to be an exact match for an agency to utilize without tailoring - each agency has a unique mission. There may be some "boilerplate language that can be copied and pasted, but the team hopes to provide a launch capability by providing samples and examples it has reviewed and approved as meeting the FAR criteria for a performance-based acquisition. Samples of both the statement of objectives (SOO) approach and the performance work statement (PWS) approach are included.

Q9 Where can I take a class in performance-based services acquisition?

A9 There are a number of firms that provide training, and several organizations that offer classes for private industry and/or Government employees. Please click on the "Training Sources" button on the front page of the guide for more information.

Q10 Why is "contract type" not part of a CO's responsibility in the Roles and Responsibilities matrix?

A10 The ultimate decision on contract type is the CO's, but until the contract is awarded offerors can propose contract types they think are appropriate, based on the risks they perceive to be present.

Q11 Why aren't time-and-material, level-of-effort, or term type contracts excluded from the eligible service dollars? Although I realize it is always better to define requirements to the maximum extent practicable, there are times when the Government only requires best effort for a certain period of time.

A11 The Government needs to be careful whenever a requirement is not defined. However, in a time-and-material, level-of-effort, or term type contract, you can still incorporate aspects of PBA to measure performance, and in fact, should be doing this for proper administration. Traditional T&M and Labor-Hour contracts are generally structured around staff hours, not results.

Q12 Is there a dollar threshold for contract solicitations when it becomes mandatory or required to include a Performance Requirements Summary (PRS)?

A12 No, there is not a dollar amount where use of a PRS become mandatory. It depends more on the type of requirement and the type and level of surveillance required to ensure the contractor is meeting the performance standards. We've seen it used more in requirements for recurring services than for other types of efforts (e.g., development of human resources software system). One of the things that will come into play is the type and level of the quality assurance plan proposed by the offerors. If their quality control plan seems pretty complete (and if they do what they proposed), then the level of surveillance performed by the Government could be reduced (in fact, that's a great incentive for the contractor!). If a PRS is going to be the surveillance tool, it's really helpful to create the PRS and PWS together because it gets the Government's IPT thinking about how they're going to determine whether or not the contractor hit the mark. It's easy to say "The contractor should do this." But if "this" can't be measured in a meaningful way, then (a) perhaps it doesn't need to be done (i.e., it does not contribute to success), or (b) it's totally subjective (which is tough for the contractor to accept as a measurement technique).

Two other points: (1) One of the instructions you can include in the solicitation is that the quality assurance surveillance plan should not be overly burdensome; and (2) consider conducting market research (See FAR Part 10) and ask the vendors what they would suggest for your type of requirement. They can offer some great insight.

Q13 Where can I find more information on using a QASP?

A13 For more information on Quality Assurance Surveillance Plans (QASPs) see Steps 5 and 7 of the Seven Steps Guide. One of the most important tools the Government can use to monitor performance-based acquisitions is the QASP. As stated in FAR 37.604, either the Government or the contractor (offeror) can write the QASP. There are some excellent samples within the Seven Steps Guide - click on "Samples and Examples," from the homepage and scroll down to Step 7. If you're unsure what to measure, conduct market research with companies who do they type of things you're getting ready to do and find out how they measure and manage performance to ensure success.

Q14 Is it possible to use a performance-based contract to acquire an end item?

A14 Yes, though performance-based acquisition is primarily focused on services. Many acquisitions that involve system development (software or weapon system, for example) have a deliverable at the end of the contract term, but the work of developing the system is all services. These types of acquisitions should be performance-based.

That being said, there are two aspects of end products that are very appropriate for the application of PBA. The first deals with the services component of end products. On-time delivery, post-delivery support (e.g., installation, maintenance, repair, etc.) can all benefit from performance-based measurement and monitoring.

Perhaps even more important is the basic premise of PBA: We should not be buying 'end products,' but rather the results of the products. This is especially true for information technology. We are not buying financial management software, for example, we are buying the results of that software - clean audits, closing the books within xx days of the end of a period, the ability to run ad hoc inquiries, etc. Following this line of thinking, we can change the 'end product' to outcomes that measure the underlying reasons/ objectives for which the product was being acquired. Another example is "software as a service" (SAAS), where instead of paying a software license fee, the agency pays for the results the product enables. Buy results, not things.

Q15 Why do performance-based acquisitions?

A15 Several laws have been passed and policies have been issued that require agencies to use a performance-based approach when acquiring services, to the maximum extent practicable. The Government Performance and Results Act of 1993 makes agencies accountable for money spent on programs - PBAs enable agencies to gather the data needed for the annual report to OMB, and they help focus the role of the projects on agencies' strategic goals. More recently, the President's Management Agenda (PMA) set out 5 important Government-wide initiatives, one of which is performance-based budgeting. Again, agencies must demonstrate what they have accomplished with funds provided by Congress and OMB, linking the requirement for program results and mission objectives to the expenditure of funds. In the PMA, it is clearly stated that programs that do not accomplish their mission will not be funded. Congress and OMB are looking very hard at program results, doing what they can to prevent large-scale failures from recurring.

Q16 Can a Cost Reimbursement/Award Fee/Incentive type of contract be performance-based?

A16 Yes! The FAR does not limit performance-based acquisitions to any contract type, though it clearly states that fixed-price PBAs are preferred. Incentive and award-fee contracts are particularly well-suited for PBAs because the incentives for excellent performance are built into the contract. The alternative would be to create an incentive plan, which is also a well-established practice.

Q17 Is there any particular statement of work or specification type which is inherently performance-based?

A17 Of the four types of requirements statements described at FAR Part 11, any of the first three (function; performance; or essential physical characteristic) can be used in a PBA. The fourth type, detailed design-oriented documents, are not considered to be performance-based.

Q18 What are examples of functional, performance, essential physical characteristic, and detailed design-oriented specifications?

A18 A functional specification is the broadest possible definition of the Government's minimum requirements, describing the work requirement solely in terms of the Government's ultimate objective (i.e., what should the product do?). A functional specification does not mandate an approach to be used by the contractor. Consider the 'cross the river' example. The Government may require the contractor to provide a means to get a given mix and amount of traffic across the river. It is a functional specification, because the contractor selects the means (bridge, ferry, causeway, maybe even waders for pedestrians). If the Government specifies a bridge to carry that mix and amount of traffic, but leaves the details to the contractor (suspension or draw, stone or steel, two-lane or four) the specification is a performance specification. If the Government specifies that it needs a bridge and further specifies interface requirements and known customer preferences, e.g. gray, steel, drawbridge meeting all applicable statutory and regulatory requirements, then the specification is considered to be an essential physical characteristic. If the Government provides a complete drawing package for the bridge, then the specification is detail/design.

Q19 A PBA requires performance standards. Where in the solicitation/contract should they placed?

A19 It is essential to have performance standards in a PBA. Performance standards describe the minimum required level of performance, failing which, the objective of the contract cannot be met. Performance standards in an award fee plan, on the other hand, may be used to describe performance above the minimum acceptable level, which would make a contractor eligible to earn some or all of the award fee pool, at the discretion of the Government. Performance standards may also be stated in the Quality Assurance Plan (QAP) and the Quality Assurance Surveillance Plan (QASP); both of these documents can be drafted either by the Government or by the contractor. Contractor-proposed performance standards give the Government an excellent tool to help discriminate among offerors.

Q20 What kind of criteria are used for performance standards?

A20 Performance standards are generally based on four categories: Cost control, quality, customer satisfaction, and timeliness. Some examples are: performance capabilities, accuracy, size, capacity, repeatability, numbers of complaints, reduction in time to resolve issues, etc.

Q21 What is the difference between outcome and output measures?

A21 An outcome measure is an assessment of the results of a program activity compared to its intended purpose; an output measure is the tabulation, calculation, or recording of activity or effort and can be expressed in a quantitative or qualitative manner.

Q22 How much detail is needed in a performance work statement or statement of objectives?

A22 That question has been answered quite well by Robert J. Wehrle--Einhorn, Associate Professor of Government Contract Law and Contract Management, Air Force Institute of Technology (AFIT), in an article he published in the National Contract Management Journal.

"The basic reason for preferring performance--based specifications in contracting for supplies is to avoid over--specifying the government's contractual requirements. The policy is intended to limit the involvement of government employees and to provide contractors maximum flexibility in meeting the government's actual needs. As long as the government's need for an item is defined well enough to be capable of fulfillment, how to fulfill that need is entrusted to the contractor. In contrast, the basic reason for preferring performance--based specifications in contracting for services is to avoid under--specifying the government's contractual requirements. Unlike a supply contract, the risk is that in the absence of a performance--based standard for a service, the government will fail to define its need well enough to be capable of fulfillment. In that event the government may be obligated to accept whatever service it receives, or to make changes in the work requirements (with increased contractor compensation) in order to acquire the services it actually needs. Thus a performance-based approach actually seeks to enhance government control over the contractor's activities in performing the contract, principally by avoiding broad and imprecise SOWs, which by their nature impair or even preclude effective management of contract performance."

Q23 Can R&D be performance-based?

A23 Yes. The Federal Procurement Data System describes six stages of R&D. Stages 4-6 can be amenable to the use of PBA; stages 1-3 are typically more difficult since by the very nature of R&D, the outcomes are not known. See the OFPP Policy Letter of September 7, 2004 for more information.

BASIC RESEARCH
APPLIED RESEARCH AND EXPLORATORY DEVELOPMENT
ADVANCED RESEARCH
ENGINEERING DEVELOPMENT
OPERATIONAL SYSTEMS DEVELOPMENT
MANAGEMENT AND SUPPORT

Q24 What's wrong with level-of-effort contracting?

A24 Nothing, when used appropriately. However, when used inappropriately, several things:

(a) it provides no incentive for contractors to be innovative; (b) it's uneconomical for the Government because it hires a marching army of contractors for a term of employment, instead of contracting for a job to be completed; (c) it may foster a personal services environment wherein the Government is perceived as the employer, who supervises the efforts of the contractor employees; (d) it can contribute to a breakdown of project discipline. (When the Project Office becomes concerned with how to keep the contractor busy, unplanned and often unnecessary extras may be added to the contractor's tasking); (e) it creates the opportunity for unnecessary enrichment of the labor skill mix, thereby driving up labor costs; and, (f) it requires the Government to perform extensive surveillance because, absent clearly stated contract objectives, the contractor must receive continual clarification from Government technical representatives.

Q25 How does PBA work with Integrated Product Teams (IPTs)?

A25 Exceptionally well! IPTs recognize the need for swift and harmonious interaction and communication between Government and contractor. Consequently, the management and functional processes of both Government and contractor are customized to complement each other so as to benefit the project's objective. That customization of processes must still be effected within the framework of acquisition laws, regulations, and policies. Moreover, the principles of PBA, i.e. incentivizing results (outcomes or outputs), not best efforts (inputs), by shifting cost risk and quality responsibility to the contractor, still apply.

Q26 Can a task order contract be performance-based?

A26 Yes. The ID-IQ contract would need to include language that says some/all task orders issued against this contract may be performance-based. Even though the overall work statement at the contract level may be broad and imprecise, individual task orders can be written with precise, definitive performance work statements or statements of objectives, including performance standards and incentives. The indefinite quantity/indefinite delivery basic contract promises a minimum dollar amount, not a minimum quantity of hours. Each individual task order would then be written with its own incentive structure and/or pricing arrangement, including contract type, matched to its requirements. Furthermore, multiple contract awards would require submission of competitive proposals.

Q27 What about "term" vs. "completion" task orders?

A27 Term vs. Completion Form: A completion form task order would describe the scope of work by stating a definite goal or target and/or specifying an end product. This form of task order normally requires the contractor to complete and deliver the specified end product (e.g., a final report of research accomplishing the goal or target) within the estimated cost, if possible, as a condition for payment of the entire fixed fee. However, in the event the work cannot be completed within the estimated cost, the Government may require more effort without increase in fee, provided the Government increases the estimated cost. Conversely, the term form is probably not a good fit for PBA. It describes the scope of work in general terms and obligates the contractor to devote a specified level-of-effort (LOE) for a stated time period. Under the term form, if the contractor does not complete the task within the specified LOE, he may complete the task if the Government adds additional funding and additional fee. There is no incentive for the contractor to control cost.

Q28 What level of effort will the Government need to perform surveillance on PBA's?

A28 Surveillance levels, along with frequency of meetings and/or reports, relate to the amount of risk undertaken by the project at hand, along with how the risks are distributed, planned for, and mitigated between the Government and the contractor. The amount of Government resources devoted to surveillance on PBAs should be substantially reduced from the usual level-of-effort type contracts. The traditional intense level of oversight and surveillance should not be as prevalent in PBA because the contractor will have assumed increased accountability and responsibility for the integrity of his processes. The Government can effect greater oversight via a Quality Assurance Surveillance Plan (QASP), which relies increasingly on evaluating contractor-generated internal data.

Q29 Should ongoing contracts be transformed to be PBAs?

A29 Yes, if the contractor is amenable, via a bilateral contract modification. Consideration must be given to the potential for increased costs, for both the Government and the contractor. While transforming the contract will help reach agency goals, the cost of doing so mid-stream may not be the best use of limited funding.

Q30 Does PBA apply to subcontracts?

A30 Currently, there is no plan to require that our prime contractors write performance-based subcontracts. However, one would expect prime contractors under performance-based contracts to write performance-based subcontracts in order to avoid carrying performance risk alone.

Facilities Maintenance Questions

Q30.1 How can we reasonably expect to do fixed-price performance-based contracting in facilities maintenance when maintenance requirements are so dynamic?

A30.1 These types of contracts include buying a combination of firm-fixed-price, and indefinite quantity/indefinite delivery products and services with fixed unit prices. An example of how the typical facilities maintenance products and services would fit into each area is detailed below: a. Firm-Fixed-Price: This might include such items as maintenance management, Preventive Maintenance (PM), Predictive Testing and Inspection (PT&I), and Trouble Calls.

b. Indefinite Quantity/Indefinite Delivery (Fixed Unit Prices): This would include items we perform frequently, and where job content can be easily defined. We may not know when, where, and how much of the product we'll need. Some good examples are maintenance paving, painting, roofing, etc., where unit prices have been pre-negotiated, and simply ordered as needed.

c. Time-and-Materials: This may be used as a line item to supplement a basic fixed-price effort, including those jobs that tend to be unique in nature and where the job content cannot be defined until the requirement arises. These jobs are ordered as needed through the negotiation of the types and amount of each labor required [at fixed rates including labor rates, overhead, general and administrative (G&A), and profit], and materials and "special equipment" required to complete the job at hand. The only variable is the quantity of each. However, for negotiating purposes we would tie each to standards in the PWS, e.g., R.S. Means Maintenance and Repair Handbook, or other industry accepted standard. Therefore, the answers to the questions are:

PBAs can be done for dynamic facilities maintenance programs because we shift reasonable cost risk to the contractor; a contractor is rewarded for becoming more effective and efficient. For example, we realize our PM and PT&I programs change as we improve approaches, better technology becomes available, old equipment is replaced by new, new facilities and equipment come on line, etc. However, (a) we would require the contractor to accomplish our changing requirements within the fixed-price proposed, as long as the overall program (PM and PT&I) workload is within a reasonable range, e.g., + 10% of the work that was originally included; and (b) if the contractor is truly improving the way maintenance is performed, i.e., finding efficiencies, he has the opportunity to realize increased profit margins in the firm, fixed-price portion of the contract. For example, if a contractor prepares his proposal for Trouble Calls based on an average of 10,000 calls per year, improves scheduled maintenance so that calls drop to 8,000 per year, then its cost basis goes down while the price the government pays is fixed. It's a win-win situation where the contractor realizes bigger profits, the Government gets an improved maintenance program, and we can revise the PWS to reflect the improved program at the next renewal to realize long term cost reductions.

Q30.2 Isn't this an unreasonable risk to put on contractors?

A30.2 No, in fact it's done every day, all across the world by other federal and state agencies, and private industry. We believe truly good companies will welcome the infusion of increased price competition for defined products and services while less effective and efficient companies will be rated less favorably.

Q30.3 Won't we merely end up with an administrative nightmare where we're processing contract modifications continuously?

A30.3 No, we should not be processing modifications continuously if we do our jobs well. The idea is to build quality into the contract as opposed to performing compliance inspections. As long as we do a good job defining the objectives (which is no easy task, especially the first time around), which includes specifying reasonable cost risks contractors will be expected to absorb, we should not be spending lots of time modifying the contract. To the contrary, in-house administrative workload and costs should decrease since contractors will be expected to complete the work defined in the PWS with minimal intervention by the government.