OMB touts performance-based contracting

The Office of Management and Budget wants federal agencies to use performance-based service contracts more often after a pilot project found the technique saves money and improves contractor performance.

In a new report from OMB's Office of Federal Procurement Policy, OMB Director Franklin Raines calls on agency officials to convince managers to convert to performance-based service contracting. OMB reports that the approach cuts contract prices an average of 15 percent and makes agency managers happier with their contractors. In addition, contract audits decrease by 93 percent.

Raines has instructed his management and budget hawks to prod agencies that rely heavily on service contracts to start using performance-based contracting as much as possible. The government spends about $100 billion on services contracts each year, accounting for half of all federal contracts.

Under performance-based contracts, agencies, instead of coming up with specific process requirements, simply describe to their contractors the end results the government needs. It's up to the contractor to figure out the best way to meet the government's needs.

Government personnel benefit because they no longer have to micromanage their contractors. Performance-based contracts are typically fixed-price contracts, putting pressure on contractors to complete projects within budget. Other contracts tend to be cost reimbursement contracts, which means agencies must pay contractors for cost overruns. That in turn requires agencies to closely audit contractors to make sure the government doesn't get ripped off.

Performance-based contracting isn't all fun and games, however, the pilot project showed. As federal procurement professionals struggled to learn how to write performance-based work statements, develop performance standards and work out quality assurance plans, it took longer for them to award contracts. The average time from solicitation to award increased 24 percent, from 140 days to 173 days.

But as contracting officers gain more experience with performance-based pacts, procurement lead times will shrink, OMB argues.