Report: Agencies’ use of performance-based contracts is limited

Agencies need better guidance to meet the performance-based contracting goals in President Bush's management agenda, according to a new report by the General Accounting Office.

In March 2001, the Office of Management and Budget issued a memorandum directing agencies to use performance-based techniques on at least 20 percent of all service contracts worth more than $25,000 in fiscal 2002. According to the Office of Federal Procurement Policy, performance-based contracts should clearly describe the government's required results, set performance standards, detail how the contractor's performance will be evaluated and outline incentives for achieving or falling short of goals.

In the report (GAO-02-1049), GAO examined 25 contracts from the Treasury, Energy and Defense departments, NASA and the General Services Administration to gauge how well agencies used performance-based measures. The watchdog agency found that all of the contracts included at least one of the elements of performance-based contracting, and nine included all four of the attributes outlined by the Office of Federal Procurement Policy. But those nine contracts covered services whose outcomes were easily measured, such as custodial services, building maintenance and advertising, according to GAO.

"These types of services lend themselves to performance-based contracting because measuring and specifying outcomes for them is relatively straightforward," the report said.

Other agreements, such as a dormitory management contract at Treasury and an Air Force housing maintenance contract, could easily have incorporated performance-based measures, but did not, GAO found.

In these cases, the agencies "did not enable the contractor to develop and implement better or more cost-effective ways of doing business using performance-based contracting," the report said. "As a result, they missed out on an opportunity to achieve better outcomes with their spending for services."

Agency officials told GAO they needed better guidance on performance-based contracts, in particular how to use them in complex situations, such as contracting for space shuttle services. GAO also discovered that agency officials needed a better yardstick for determining which contracts should be performance-based.

For performance-based contracting to become more widely used, GAO recommended that the Office of Federal Procurement Policy clarify its current guidance and work with agencies to assess if they know how and when to use performance measures.

Office of Federal Procurement Policy officials said they were reconsidering participation goals for fiscal 2003, given the results of GAO's study. The agency is also developing new guidance on performance-based contracts.