Panel touts performance-based contracting

Federal buyers should develop incentives to get better results from contractors, a panel of contracting experts said Tuesday.

Speaking at the Excellence in Government '99 conference in Washington, experts from within and outside government said results-based incentives can get agencies a better return on their contract dollars.

"Performance ultimately comes down to what measures you use," said Colleen Preston, former deputy undersecretary of Defense for acquisition reform.

Steven Kelman, a public management professor at Harvard's Kennedy School of Government and former head of the Office of Federal Procurement Policy, offered four models for measuring contractor performance that can lead to better results.

• Share-in-savings contracts. Instead of being paid up-front, contractors are paid out of the cost savings they generate for agencies. For example, some agencies trying to cut their energy costs have entered into agreements in which contractors pledge to make the agencies more energy efficient. The contractor does not get paid unless savings materialize.
• Time-based incentives. Contractors bid on how long it will take them to complete a project. If they finish the job before the target date, they get extra money. If they finish the job late, they are penalized.
• Award term contracting. Contracting officials set up objective performance standards that the contractor is measured against periodically. As long as the contractor meets the standards, the contract is extended. This model allows agencies to develop long-term relationships with top-performing contractors, Kelman said.
• GPRA contracting. Named after the 1993 Government Performance Results Act, this model ties contractor performance to agencies' strategic goals. No agency has yet adopted this model, Kelman said. But the Department of Veterans Affairs, for example, could ask vendors to bid on how many days they could take off the veterans' claims handling process. A contractor would be paid more if it reduced the process by 60 days than if it reduced the process by 30 days.

"We manage by budget, not by value earned," Howes said. "We have to build a financial reporting system that works."

Preston said federal procurement offices must apply performance measures to themselves as well. She said new, alternative means of buying goods, such as government-wide acquisition contracts and indefinite delivery, indefinite quantity arrangements, are successful in the government because federal buyers can use them to get around bureaucratic procurement offices.

Federal managers "avoid procurement offices for the same reason they avoid the general counsel's office," Preston said. "It's seen as a roadblock or a hurdle to get through."

She said procurement offices should see themselves as service organizations, not compliance monitors. Procurement office managers should encourage their employees to try new methods that lead to better results, Preston said.