Are performance-based contracts worth the effort?

Why performance-based contracts are so hard to do

There's always a lot of talk in support of using performance-based contracts, in which vendors are paid according to the results they deliver. But the truth is performance-based contracts haven't caught fire in the federal market.

An IBM Center for the Business of Government blog by Katherine Barrett and Richard Greene identified six reasons performance-based contracts are so hard to make work.

1. It’s hard to measure performance.
2. Agencies are nervous about rigid performance expectations, even if they are for their contractors.
3. Too much pressure is put on vendors that might have long-term, friendly relationships with agency officials, who are, in turn, less likely to want to rock the boat.
4. A poorly negotiated contract can put financial strain on vendors.
5. It’s difficult to specify the outcome desired, and defining success can be elusive.
6. Agencies often lack the capacity and skills needed to negotiate these often-complex contracts.

Source: IBM Center for the Business of Government

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