Procurement chiefs want new guidance on performance-based contracts

The government's top acquisition chiefs are urging the Office of Management and Budget to revise guidance on performance-based service contracts. In a March 9 memo, OMB Deputy Director Sean O'Keefe mandated that agencies use performance-based techniques on at least 20 percent of all service contracts worth more than $25,000 in fiscal 2002. Members of the Procurement Executives Council, an interagency council of top acquisition officials, have asked OMB to amend this directive so that it applies to service contracts worth $100,000 or more.

"We made the suggestion to raise the threshold," said Paul Denett, director of administration at the Interior Department and a member of the Council. "We haven't heard back from [OMB] one way or the other." According to Denett and other officials, service contracts worth less than $100,000 should be exempt from the performance-based target because they are already subject to a unique set of procurement rules. Under the 1994 Federal Acquisition Streamlining Act, procurement officers may use simplified acquisition methods on contracts of $100,000 or less. These methods allow contracting officers to bypass parts of the formal solicitation process and expand the use of streamlined procurement techniques. Performance-based contracting is not considered a simplified acquisition method, according to a federal official who requested anonymity. "Contracts using simplified acquisition procedures are easy things to do," said the official. "Performance-based service contracting is defined as more difficult to do." With performance-based contracting, agencies describe the end results the government needs and leave it up to the vendor to figure out the best way to meet those requirements. A 1998 OMB study found that agencies were slow to award performance-based contracts because procurement officers weren't familiar with the process. New performance-based procurement goals should take effect at the $100,000 contract threshold so that contracting officers are able to use simplified acquisition techniques on smaller contracts, Denett said. OMB has not changed the $25,000 performance-based threshold but would not rule out revising it in the future, an OMB official said. "The policy stands unchanged from the March 9 memo, but it is not fully developed," said the official. It is unclear that raising the performance-based threshold to $100,000 would affect how agencies meet OMB's target. Since O'Keefe's memo states that 20 percent of all service contracting dollars, not 20 percent of all contracts, must be procured with performance-based techniques, agencies could conceivably meet this goal by making a certain number of contracts worth more than $100,000 performance-based. Leaving the threshold at $25,000 could have the added effect of helping small businesses compete for contracts under $100,000, according to contracting consultant Scott Stanberry, author of Federal Contracting Made Easy (Management Concepts, 2001). Since agencies are required to do more research before entering into performance-based contracts, they might discover that small businesses that could provide the same service at a similar cost, he said. "It could be to the benefit of small business," said Stanberry. "If agencies need to do research, maybe they would go the extra mile and purchase through a small business."

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