Procurement experts tout performance-based pacts

Procurement experts tout performance-based pacts

Feds cite fear of failure, current management style as deterrents to acceptance of acquisition method

By Christopher J. Dorobek

GCN Staff

Agencies have been freed from restrictive procurement regulations, and now they have the opportunity to use performance-based contracts to focus on and improve results, procurement experts said recently.

'Incentives for results'that is the future for acquisition reform,' said Steven Kelman, a professor at Harvard University's Kennedy School of Government and one of the architects of procurement reform. He spoke at the recent Excellence in Government '99 conference in Washington.

The ultimate test of procurement reform will not be based on cost alone, Kelman said, but on whether the government can demonstrate better results at reasonable costs. Methods such as performance-based contracts can be important tools, he said.

The value of performance-based contracts was clearly illustrated in the reconstruction of the Santa Monica Freeway in Los Angeles, a major traffic artery that was severely damaged during the 1995 earthquake, he said.

The initial time estimate to fix the freeway was a year, but by using an innovative contract that included penalties if contractors missed the deadline and rewards if they improved on the deadline, the freeway was reopened in seven weeks, Kelman said.

Such incentives can be applied to information technology systems, which also have a habit of running over budget and behind schedule, Kelman said.

One big issue with performance-based projects is reworking the way the government manages projects, said Walter Howes, director of the Energy Department's Office of Contract Reform and Privatization. 'We manage by budget, not by value earned,' he said.

Because there is no system that can accurately collect data, there is no way to determine whether a project succeeds or fails. Therefore Energy has been working to establish a more flexible financial reporting system, Howes said.

'We have to build a financial reporting system that works,' Howes said. 'That's going to take some time.'

Energy is also working to link the incentives with agency goals, he said.

Another issue is that, despite the reforms, some contracting officials are wary of the risk involved with these contracts because of possible repercussions due to failure, said Coleen A. Preston, a former deputy undersecretary of Defense for acquisition reform and now a consultant with Preston & Associates of Arlington, Va.

'You have to remove the fear of people exercising their judgment,' she said.

Too often there is too much second-guessing of decisions, Preston said. 'The only real performance measure for procurement officials is whether they exert their judgment in an appropriate fashion,' she said.

'We have to recognize that different people will make different decisions,' Preston said.

Kelman said agencies need to look for targets of opportunity when selecting the projects they are going to use for performance-based contracting and choose projects that would be effective for such incentives.

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