Procurement office seeks input on contract incentives

The Office of Federal Procurement Policy (OFPP) has launched an effort to revamp the way federal agencies use incentives in contracts for goods and services.

OFPP is examining the way the federal government develops incentives for contractors in hopes of finding more effective ways to do contracting. Last week, OFPP sent out a call for innovative contracting ideas in the Federal Register.

To date, contracts have focused on whether or not contractors followed government rules in providing services and goods, rather than if they provided the services and goods in a satisfactory manner, according to an OFPP official.

For example, technical support contracts are often structured on a "level of effort" basis, in which a specified number of workers are paid to do a particular job.

"Those are usually cost reimbursement contracts. We typically provide a fee that's based on the estimated costs to complete the work," the official explained. "Well, such a setup does not encourage companies to provide more efficient proposals, which would cut the contract price. The higher their estimated cost, the higher the fee they are going to get."

With a shift to performance-based contracting, the paradigm changes.

"As opposed to trying to measure the process, we measure the outcome," the official said.

Incentives are critical in performance-based contracts. For example, agencies can agreed to pay contractors extra money if they exceed quality standards or finish a job before its deadline.

But more money is not always the solution, the OFPP official said, because some contractors, such as hospitals and universities, are non-profits, and thus not concerned about profitability.

"The incentive we develop for them will be different than the incentive we develop for a defense contractor," the official said. "We have to think, 'What would motivate the university to do our research?' "

The comment period for sending in ideas and suggestions to OFPP about how the government can develop and apply incentives in contracts closes on Dec. 26. Send suggestions to skaufman@omb.eop.gov.