Panel finds performance-based contracts implemented poorly

A review of performance-based contracts at 10 agencies found the acquisition strategy was used poorly or not at all in more than half the cases studied, lending support to a federal acquisition advisory panel's recommendation that governmentwide quotas for such contracts be dropped.

Laura Auletta, designated federal officer for the Services Acquisition Reform Act Advisory Committee, reported Thursday to the panel on data gathered to inform its recommendations on the use of performance-based acquisition strategies.

The panel in March requested documents on 80 contracts or task orders from 10 agencies, based on a random selection of high-value transactions labeled as performance-based in the Federal Procurement Data System. Auletta said the panel has received 48 valid responses to date, and found that 38 percent of those contracts correctly applied performance-based acquisition methodologies while 23 percent included some aspects of the strategy but showed serious flaws in its application, and 40 percent were completely without performance-based characteristics.

Four of the reporting agencies indicated that requested contracts, which had been labeled as performance-based in FPDS, had been mislabeled. In some cases, agencies withdrew the performance-based status of those contracts and declined to provide information on them to the panel; those were counted among the 40 percent of noncompliant contracts.

In other cases, agencies asked that they be permitted to substitute a different contract for the one requested but the panel did not acquiesce, Auletta said, and analysis showed the requested contract to be non-performance-based.

All of the transactions that were examined had been counted toward an Office of Management and Budget quota for 40 percent of agencies' contract dollars to be in performance-based acquisitions.

Of those reported as seriously flawed, Auletta said most were honest attempts at implementing the strategy that displayed a poor understanding by the agency of how to use it. She said common problems were inability to define appropriate performance standards and metrics to assess contractor performance, failure to link those metrics to desired contract outcomes and confusion in assuring and monitoring quality.

The results show it is premature to say whether performance-based acquisition strategies can work in the federal government, Auletta said. At a previous panel meeting, debate centered on whether the group should recommend expanding the strategy through "stretch" goals that would force agencies to embrace it, or restricting it in light of accounts of failure.

Carl DeMaio, president of The Performance Institute, an Arlington, Va.-based think tank and a co-chair of the panel's working group that developed the recommendations, said the results supported the group's tentative recommendation to drop the quota.

"Does this raise the issue that agencies are gaming the system?" he asked. "Maybe." But he said it also showed the need for more training for contracting officers, and more time for implementation before a decision is made on whether the strategy, which has proven successful in the private sector, can work for the government.

"This panel is recommending that we get it right … that for five years we build a database and then we evaluate the data," DeMaio said.

He said the outstanding data could change the distribution of results but he was not optimistic that the overall picture would improve. Agencies that have not yet responded may be hesitating over contracts that reflect poorly, he suggested.

On the positive side, Auletta noted that some of the contracts -- especially some in information technology services -- showed very good use of the strategy. The contract review provides more concrete data than anything else the panel has seen on the topic, but was not designed to reflect statistical significance, she said.