It's what's up front that counts

We aren't really trained to think in terms of outcomes. As we come up through the ranks, we're paid to find solutions and not look at outcomes.

'Commerce's Mike Sade

Henrik G. de Gyor

DOD's Deidre Lee says the job can't be left only to contracting people: 'Unless you've got the whole team ... you can't get there.'

Henrik G. de Gyor

DLA's Richard Cromley says agencies need to lay the groundwork, and resist the urge to 'go out and attack something right away.'

Courtesy of the Defense Logistics Agency

Performance-based can be very successful, but it's very difficult; the key is in the early stages

On paper, performance-based IT services acquisition looks like a piece of cake: You tell the contractors what you want and let them find the best way to do it.

In practice, though, there's a lot more to chew on. Even procurement insiders agree.

'It's a powerful system but it's really hard to do,' said Chip Mather, senior vice president of Acquisition Solutions of Chantilly, Va., and a 20-year veteran of the Air Force procurement trenches.

But he adds this caveat: 'What's harder is going back to the old system.'

The old system is still largely the current system: procurement officers write contracts that tell vendors not only what to do but how to do it.
'Traditionally, government services contracts have tended to emphasize inputs rather than outcomes,' the General Accounting Office said in a report last year on agency processes for performance-based contracting. 'For example, contracts have typically detailed the procedures and processes to be used in delivering a service, [the] amount and type of equipment, and time and labor to be used.'

Such long-established approaches, however, contradict the whole point of contracting with industry for services, said Steve Kelman, professor of public management at Harvard's John F. Kennedy School of Government and a former administrator of the Office of Federal Procurement Policy in the Office of Management and Budget.

Tapping expertise

'If we're going to try to tell contractors how to do their job, we're undermining the most important reason for contracting in the first place, which is that contractors have some knowledge and expertise that we don't have inside the government,' Kelman said.

Entrenched as they are, established procurement methods are starting to give way to the push for performance-based contracting.

'The [Bush] administration is clearly behind [performance-based services acquisition] and the Congress is behind it,' said William Woods, director of acquisition and sourcing management at GAO. 'I think it's here to stay.'

At the White House, an OMB interagency task force has recommended that agencies by 2005 to convert to performance-based approaches for at least half of the money they spend on services contracts.

The Defense Department has set its own 50 percent goal by 2005.

OMB doesn't make a distinction between IT and other services in setting the goals, but IT is widely considered to be an area ripe for performance-based contracting because industry's expertise exceeds that of government's in many areas of IT services.

In Congress, the Services Acquisition Reform Act of 2003, introduced earlier this year by Rep. Tom Davis (R-Va.), promotes greater use of performance-based contracting.

'Moving toward performance-based acquisition really is very central to making contracting work in the first place as a way for government to achieve its mission,' Kelman said.

It's also part of the vision of earlier legislative efforts, including the Government Performance and Results Act of 1993 and the Clinger-Cohen Act of 1996, he said.

Nothing new

'Performance-based acquisition is really just an application to contracting of the general idea of GPRA and the Clinger-Cohen Act, which say 'We're going to look at what sort of results we're achieving in the government,' ' Kelman said.

Certainly, there is nothing new about using performance-based attributes in services contracting.

In a recent interagency task force report, former OFPP administrator Angela Styles noted that performance-based contracting has been articulated in regulation, guidance and policy for more than two decades. But she described agency progress in applying performance-based techniques as only moderate.
In its report last year, GAO said that agencies had reported using performance-based methods for about 21 percent of their services spending in fiscal 2001. The congressional watchdog agency also said that its research raised questions as to whether agencies had a firm understanding of the method and how to take advantage of it.

Clearly, progress toward a performance-based world in government procurement is agonizingly slow.

What's so difficult about doing performance-based contracting?

Most procurement experts agree that making the transition from the deeply entrenched, traditional methods of contracting to a radically different type of contracting is a huge deal.

'It's cultural change to a large extent,' said an OFPP official, who asked not to be identified. 'It's very difficult to change from traditional contracting to performance-based contracting.'

Richard Cromley, acquisition lead for the Defense Logistics Agency's Business Systems Modernization project and chief of corporate contracting in the Office of Procurement Management at DLA's Defense Supply Center Philadelphia, said performance-based contracting requires careful planning and delineation of outcomes and requirements. This often runs against people's impulsive tendencies.

'It's very difficult to establish the performance-based aspect to contracting because [contracting staff] often want to go out and attack something right away,' he said. 'It's more comfortable to jump into a time-and-materials type of relationship, where you just start throwing resources at a vendor and say, 'We'll figure this out and just pay you for what you're doing.' '

There's no question that outcomes-based contracting requires a fundamental change in the way procurement officers think about buying IT services.

As Mather said, 'It's not buying IT. It's buying the results of IT.'

'We aren't really trained to think in terms of outcomes,' said Mike Sade, director of acquisition management at the Commerce Department. 'As we come up through the ranks, we're paid to find solutions and not look at outcomes.'

That will have to change if performance-based contracting is to gain more traction in government.

Procurement officials also must overcome aversion to risk, which works against innovation in contracting. 'We're rewarded for doing things well, not [for] trying new things,' Sade said.
But transformation of the procurement culture at government agencies can't just take place in the procurement shops, observers say.

It will have to reverberate through all parts of an agency, said Deidre Lee, director of procurement and acquisition policy at the Defense Department and currently on temporary leave as acquisition adviser on Iraq reconstruction.

'Sometimes when you use the word contract, people think, 'It's the contracting people who need to go do that,' ' she said. 'But unless you've got the whole team'the program management, management, the requirements folks'you can't get there. Contracting can't take a requirement, just flip a switch and make it into a performance-based mission need.'

Starts, but doesn't stop, at the top

Senior managers have to get involved in the process, Sade said. 'That doesn't mean they need to micromanage. But at some point they need to check in with the team and make sure they're focused on the outcomes.'
But leadership from the top isn't enough, observers say. Program managers'the mission leaders'also have to take charge.

'The contracting people cannot do this by themselves,' Kelman said. 'They don't know mission goals well enough. If the program people want to do this, it's not rocket science. The first time around, it takes some extra work. But it's not like this is beyond the ken of human ability. If it's not being done more, that suggests that there is not enough commitment from the program people to do it.'

Lee said program managers need to be trained in procurement techniques and noted that the Defense Acquisition University has incorporated performance-based acquisition into its program management training courses.

Getting to a performance-based world also means finding the right guidance and successful models.

In addition to setting goals, DOD has asked officials to detail how often these techniques are used and how much training the services are giving to program managers, said Dominic Cipicchio, deputy director of Defense procurement.

'The requirements community is not hearing the need for performance-based services contracting,' Cipicchio said. 'This is an effort to teach our people how to do this.'

In August, Defense officials asked the services to train 50 percent of acquisition employees by next September and 100 percent by September 2005, he said. DOD is developing an online training module and working with the Defense Acquisition University to incorporate performance-based lessons into existing courses.

Air Force CIO John Gilligan said that the private sector, which has made significant progress in using performance-based approaches, is a good place to look. 'You can point to a commercial analog and say, 'There's a model out there that's working so let's do it.' What you need is something that builds confidence,' he said.

The OFPP official agreed that models are crucial to making headway. 'In terms of better guidance, we should gather as many samples as we can,' the official said.

The official said OFPP's interagency task force, which has proposed changes to the Federal Acquisition Regulation to facilitate the use of performance-based acquisition, is gathering examples and models and will eventually post them on a Web site.

The most comprehensive and cutting-edge guidance currently available for government procurement managers is the Web manual Seven Steps to Performance Based Services Acquisition. To view the report, go to and type 170 in the box.

Developed by a cross-agency team led by the Commerce Department and Acquisitions Solutions Inc., Seven Steps assiduously takes the reader through the procurement-based process, contains a formidable library of governmentwide and agency guidance and offers links to other sites with an array of cases studies and contract examples and templates.

For many government leaders, performance-based acquisition is the glimmering light on the horizon.

'Make no mistake about it,' Rear Adm. Patrick Stillwater, program executive for the Coast Guard's Deepwater program, said recently at a conference on performance-based contracting. 'This is the right way to do business.'

But for Commerce's Mike Sade, the promise is both practical and noble.

'It promises more-innovative solutions, overall lower cost and higher profit to industry,' he said. 'Ultimately all three are in the best interest of the taxpayer. If you have all three of those things you have mission achievement.'


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