GSA pushes agencies to use more performance-based contracts

Before signing on to use the General Services Administration's procurement services, agencies will need to answer a simple question: Why can't this buy be performance-based?

If an agency fails to justify to GSA contracting officers why a deal should not use this methodology, then the deal will be written with a statement of objectives, performance measures and contractor incentives, said Robert Suda, assistant commissioner for GSA's Federal Technology Service.

GSA wants 50 percent of all the contracts it sets in fiscal 2005 to be performance-based. The requirement will help agencies maximize the value of their buys, Suda said.

'We will have some aggressive goals in the IT Solution Center and FTS business units to do performance-based contracting,' he said at a recent panel discussion sponsored by the Industry Advisory Council. 'We are going back to the agencies and focusing on performance-based contracting first. The Defense Department also is pushing this type of contracting.'

DOD has a goal to base 50 percent of eligible services contracts on performance by the end of next year, DOD procurement chief Deidre Lee said.

GSA's decision to advocate performance-based contracting follows a September Office of Federal Procurement Policy memorandum requiring agencies to use this type of contracting on at least 40 percent of all contracts worth $25,000 or more.

OFPP also penned a new definition of what constitutes a performance-based services contract: 'If more than 50 percent of the requirement is performance-based, as measured in dollars, the services action may be coded as a performance-based services acquisition.'

The biggest challenge agencies will face in meeting these goals is moving from a traditional contracting environment to one that puts more risks on contractors while offering more rewards, said David Drabkin, GSA's deputy associate administrator for acquisition policy.

'We have to learn to manage risk by using a cost vehicle that includes an award fee,' he said. 'After we have some experience, we will move toward a fixed-price performance-based environment because we will be better at accounting for the risk in the project.'

In the short term, Drabkin said the cost of performance-based contracts for the government could increase. Why? Because agencies must demonstrate to vendors that the government can accurately determine the price of a service, he said.

'OMB recognized this difficulty, and that is why it has revised the test for what is a performance-based contract,' Drabkin said.

The potential for increased profits should provide incentive for vendors to support the use of the contracts, he said. Drabkin suggested tying all profit to meeting performance goals.

'The difficult job is sitting down at the table and making sure the only way you get profit is by performing at least well,' he said. 'I've said this to a number of companies, and they agreed.'

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