Performance-based contracting ‘not working,’ industry leader says

Acquisition experts from the public and private sectors told a government acquisition panel Tuesday that performance-based contracts - which include incentives for good work - need to be overhauled.

"Performance-based contracting is not working," said Janice Menker, director of government acquisition policy for Concurrent Technologies Corp. She said agencies call some contracts performance-based, but they lack incentives and statements of work.

Menker joined Henry Kleinknecht, the program director for procurement management at the Defense Department's Office of the Inspector General, in telling the Services Acquisition Reform Act Advisory Committee that performance-based contracts were not being implemented properly. The advisory committee, which includes representatives from both the public and private sectors, was formed by the 2004 Defense Authorization Act and is charged with examining service contracts.

Kleinknecht said performance-based contracts did not produce the promised savings, because they were not effectively implemented. He also said there was a large number of sole-source contracts, which were awarded without competition.

In fiscal 2004, $41.66 billion worth of procurements were noncompetitive, he said, and Defense typically paid higher prices when items were bought through sole-source awards. The Government Accountability Office has also revealed problems with oversight on Defense service contracts.

According to the Office of the Inspector General at the General Services Administration, more than half of Federal Technology Service contracts surveyed were awarded without proper competition. In slides prepared for the panel, the inspector general's office also pointed out that contracts have been rapidly growing in size in terms of dollar value. Multiple award schedule contracts grew from $5.5 billion in 1997 to $32.5 billion in 2004, according to the prepared slides. At the same time, the number of contracting personnel has shrunk.

Terry McKinney, also a program director in the Defense Inspector General office, said he opposed efforts to preselect certain contractors for awards prior to a full-blown competition, a process that is explicitly allowed in the Federal Acquisition Regulation.

"I'm not a fan of downselect at all," said McKinney, adding he believes everybody should get a fair chance to compete.

The Project on Government Oversight, a nonprofit watchdog group, told the panel that service contracts need more oversight, and that there are significant differences between the public and private sectors, including government acquisition uses taxpayer dollars and for many goods and services the government is the only buyer. POGO also advocated the increased use of full and open competition.

Several speakers pointed to the lack of data about the use of service contracts and performance-based contracting.

Marilyn Glynn, acting director of the Office of Government Ethics, said she is concerned about the increasing use of contractors to perform work that was formerly done by government employees, particularly because contractors are not subject to the same ethics rules.

Contractors, especially consultants, frequently have as much influence on public policy decisions as do government employees, but their financial holdings and relationships are not examined and they are not subject to direct punishment from the government for violating ethics guidelines.

Glynn said she knew of one contractor who used government computers to view porn in full-view of other employees but was allowed to continue working for the agency.

Marcia Madsen, the panel's chairwoman, said some issues might be addressed by a new working group, which she announced on Tuesday that will examine the definition of inherently governmental functions and how contractor employees are being used.

She emphasized, however, that she does not want the working group to examine the issue of job competitions between contractors and federal employees or the 1998 Federal Activities Inventory Reform Act.

"I hope we stay away from these subjects," she said.