Confusion over the requirements of performance-based contracting may keep agencies from fulfilling a key procurement reform in President Bush's management agenda, an Office of Management and Budget official said Thursday. In a March 9 memo, OMB Deputy Director Sean O'Keefe told agencies to use performance-based techniques on 20 percent of all service contracts in fiscal 2002. But even if agencies report they have met the 20 percent goal, they may still fall short of the government's standards for performance-based contracting, according to Linda Oliver, associate administrator of procurement law, legislation and innovation in the Office of Federal Procurement Policy. "I don't know if we will reach the [20 percent] goal once it has been checked," said Oliver at an outsourcing conference sponsored by the Potomac Forum, a Maryland-based training firm for federal and industry professionals. OFPP will review whether agencies are doing performance-based work by sampling contract information in the Federal Procurement Data System database. With performance-based contracting, agencies describe the end results the government needs; vendors must figure out the best way to meet those needs. Procurement officers are responsible for coding eligible contracts as "performance-based" in the Federal Procurement Data System. But many contracting officers are unaware of the government's requirements for performance-based contracts, said Oliver. "You can think you are doing performance-based contracting and not meet the standards that have been set up," she said. The Procurement Executives Council, an interagency council of top acquisition officials, has set standards for performance-based work, Oliver said. To qualify as performance-based by the council's standards, 80 percent of the dollars in a contract award must meet the four criteria of performance-based service contracts set out in the Federal Acquisition Regulation. Under the FAR, such contracts must:
Describe contract requirements in terms of results, not methods of work.
Use measurable performance standards and quality assurance surveillance plans.
Include performance incentives where appropriate.
Specify how payment will be reduced if services are not performed or do not meet requirements.
The remaining 20 percent of the dollars in a performance-based contract can be exempt from these requirements, according to a council official. "We are trying to allow agencies to get credit for doing performance-based work when not all the dollars spent [on a contract] meet performance standards," the official said. OMB will step up efforts to inform agencies about these standards, according to Oliver. At present, the standards are not listed on the Web sites of the Procurement Executive Council or OMB, although they may be found in amendment four to the reporting manual for the Federal Procurement Data System. OMB plans to release a guidebook on performance-based contracting in the next few months to help contracting officers learn how to write performance-based contracts. The Pentagon released a similar training guidebook in January. OMB has also resolved some details about how the 20 percent goal will be implemented, according to an official familiar with the process. The agency will apply the 20 percent target only to service contracts worth $100,000 or more, said the official. O'Keefe's March 9 memo applied the 20 percent goal to contracts worth $25,000 or more. Members of the Procurement Executives Council urged this revision so the performance-based directive would not conflict with existing guidance on procurements less than $100,000. The March 9 memo also restricts the 20 percent target to "total eligible service contracting dollars." OMB will exempt architecture and engineering and construction contracts from the performance-based goal, the official said.
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