State objectives, but let vendors measure results
- By Richard W. Walker
- Apr 01, 2003
Dick Fyne, the Veterans Benefits Administration's assistant director for loan management, says performance-based contracting is 'pulling us out of the Stone Age into the cutting-edge world of industry.'
Not long ago, an agency senior procurement executive decreed that his office was going to do performance-based services contracting.
When documents started coming in, the first lines read, 'This is a performance-based contract.' But the rest of it read like any other old statement of work'in contracting parlance, SOW'telling contractors how to do the job rather than spelling out the results expected.
Performance-based contracting is a brave new world for procurement managers: getting people to think in terms of outcomes and measures.
'It is really hard for very seasoned and experienced people who for years have been writing SOWs for federal services contracts to make that change happen and think in terms of very specific, measurable performance metrics,' said Ray Bjorklund, a vice president of Federal Sources Inc. of McLean, Va., who recalled the above scenario.
In a performance-based contracting approach, you propose a statement of objectives (SOO) instead of a statement of work. You're not telling the contractor how to keep the network running and what percentage of the time it should be up. You're just specifying the outcome'that you want users to be able to access the network when they need it.
'You don't care about uptime,' said Chip Mather, senior vice president of Acquisition Solutions Inc. of Chantilly, Va., and a former Air Force procurement official. 'You care about accessibility. The most important metrics by far are those that measure the achievement of results.'
How do you develop performance measures and metrics? The answer is a huge leap from old ways: You don't. You let the contractor propose them.
'The government is the least-capable organization to develop the performance measures and metrics,' Mather said.Unknown solution
Requiring a contractor to propose metrics and a quality assurance plan 'is especially suitable when using a SOO because the solution is not known until proposed,' according to the Seven Steps Guide to Performance-Based Services Acquisition. The guide, developed last year by a Commerce Department-led team of federal procurement executives and Acquisition Solutions, is available online at oamweb.osec.doc.gov/pbsc/index.html
With a statement of objectives, bidders 'are free to develop their own solutions, so it makes sense for them to develop and propose [performance measures and a quality assurance plan] tailored to their solution and commercial practices,' the guide says.
How do agencies evaluate proposed metrics? 'One underlying concept is that it's significantly easier to recognize a good idea than it is to invent one,' Mather said. A case in point is the Veterans Benefits Administration, which two years ago outsourced its portfolio loan servicing contract using a performance-based approach.
In 2000, guided by Acquisition Solutions and PriceWaterhouseCoopers LLP, VBA officials decided to rewrite a poorly performing loan servicing contract and emphasize performance objectives in a new contract vehicle.
After extensive research, including interviews with leaders in the home mortgage industry, officials defined their performance objectives. In their request for a task order proposal, officials asked bidders to state how they would meet VBA's objectives and to propose performance indicators.
The contract finally went to Countrywide Home Loans Inc., which proposed the definitive performance incentive: The contractor gets paid only when the loan performs.
Knowing the objectives was a key to understanding how to evaluate industry proposals, said Wendy Bitner, task order project manager for VBA.
Says the Seven Steps Guide: 'Performance metrics are negotiable and, wherever possible, address quality concerns by exception, not inspection. Also, when contractors propose the metrics and the quality assurance plan, these become true discriminators among the proposals in best-value evaluation and source selection.'
'We had to get into a whole different mind-set,' Bitner said. 'But it's been extremely successful for us. I can't ever imagine writing an instructional statement of work again.'
Gaining an intimate knowledge of industry practices in developing an SOO was crucial for VBA.
'With our knowledge of what we had to have and industry's experience and knowledge of what works in the performance-based world, when the two married together, it ended up in a win-win situation,' said Dick Fyne, VBA's assistant director for loan management.