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By Steve Kelman

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Has Obama administration dropped the ball on performance-based acquisition?

I have always believed that, for improving government management, continuity is a real virtue. Of course, views are by no means unanimous about how best to improve government management -- there is a philosophical split between the "flog them to submission" crowd and those who believe in inspiring the government workforce. But compared with contentious policy areas such as taxes, Medicare or the war in Afghanistan, there's a lot more overlap between administrations about management questions.

Continuity is a virtue for two reasons. First, real management change takes time -- hit-and-run management improvement missions are almost sure to fail. Second, there exists a (not totally unjustified) cynicism among the career workforce about "flavors of the month" that political appointees introduce assembly-line fashion into the agencies they are chosen briefly to run. This cynicism itself reduces employee buy-in and thus the chances that an initiative will actually succeed.

On the day I started my job as administrator of the Office of Federal Procurement Policy – under President Bill Clinton -- I asked my predecessor Al Burman what his three most important priorities as administrator had been. I then promised to do my best to continue to work on them.

One of the three was performance-based acquisition -- an effort Burman had inaugurated in 1990 to structure contracts for services around the goals to be achieved by the contractor, rather than telling the contractor how to do the work but not holding them responsible for any performance standards. This was a sensible approach. What the government cares about is achieving results, not how the contractor gets there. Requiring the contractor to do things a certain way but then not requiring that the results be attained seems (excuse my language) sort of ass-backwards. And if you set up performance standards but allow the contractor to determine how to get there, you open the way for innovative and/or cost-saving ways to reach the goal.

I continued Al's efforts – extracting a pledge from agencies to convert a number of existing contracts to performance-based (and documenting significant cost savings and equal or better performance comparing before and after) and rewriting the part of the Federal Acquisition Regulation on contracting for services to promote performance-based principles. The George W. Bush administration continued the effort, including performance targets for percentage of contracts that were performance-based. That may be a little hard to measure, but the sentiment was the right one, and the area got significant OFPP attention.

Surprisingly, after three administrations in a row promoting performance-based acquisition, the Obama administration has been close to silent on this. This is particularly strange given the administration's focus on performance measurement in government in general. With contractors so important in delivering many programs, one would think that promotion of performance-based contracting would be a high administration procurement priority. The administration also has not (as of yet) taken up the fight to re-introduce share-in-savings contracting, the most-dramatic form of performance-based contract. To be fair, though, it has embraced procurement contests, another variant of performance-based contracting.

Apparently the administration is not promoting this issue on the grounds that the problem has been solved -- that performance-based contracting is now institutionalized in the federal government. I think that anybody who knows what's going on in the agencies would regard that belief, to put it mildly, with skepticism.

Yes, there is more performance-based acquisition than in the past, but it is far from institutionalized. There are a bunch of practical problems, including training staff to develop performance metrics, evaluating proposals with different performance metrics and negotiating metric change in mid-stream (in a sole-source environment). And there are some larger systemic problems, outlined in a report on the topic a while ago from ASI Government, which promotes performance-based acquisition in government, involving governance of these contracts and post-award contract management.

Performance-based acquisition has been the flavor of a decade for three administrations. Especially in an environment where cost savings and performance improvements are crucial, we need to continue it into a fourth.

Posted on Jun 01, 2011 at 7:27 PM


Reader Comments

Fri, Jun 17, 2011 David Bodner

Looks like I'm late to the table. Working in the trenches for 25 years, count me on the skeptical side. PBSA does SOMETIMES work. Right now, I'm working on something I actually believe in. However, I don't think it'll ever be more than a niche, regardless of the official statistics. The reasons aren't easy to describe, but they're similar to the difficulties we have in implementing meaningful performance standards for employees. A big factor is that work (or even desired outcomes) can rarely be accurately predicted. Change happens too fast for the contracting process (or the personnel process) to manage. Mr. Livingstone is wrong: training isn't the issue. The folks out there are pretty smart, and, frankly, PBSA concepts aren't that difficult to understand. I hope the Mr. Kelmans, Burmans, and Livingstones of the world can look outside of themselves and see the deep-seated frustrations expressed by our anonymous poster. His is not simply a thoughless pot-shot I see so often. The theory of PBSA is sound. In a vacuum it's great. But, we have a real environment we have to deal with.

Fri, Jun 10, 2011 Stan Livingstone Washington DC

The cited Washington Technology article from the prior post mentions a study on why it’s hard to make PBA work. Some of the reasons include difficulty in measuring performance, agencies being nervous about performance expectations, difficulty in specifying desired outcomes, and agencies often lacking the knowledge and skills needed to negotiate and put complex contracts in place. I don’t disagree. These are all reasons why we need continual training and education of the workforce including providing more practical hands on experience.
As the services become more complex in nature, the buying team is faced with greater challenges as opposed to buying simple things – how to define requirements so that industry can apply innovation and create a competition of solutions, establishing expectations, measuring performance, etc. It takes considerable experience and expertise to do it right. Yet we often put together an acquisition team of government personnel lacking the training, experience, guidance and other resources to conduct it properly. It’s handicapped from the start in terms of achieving optimal results. For example, the mentioned obstacles of difficulty with measuring performance and defining desired outcomes can largely be overcome by conducting market research if the team knows how – the team becomes educated in the marketplace by talking with industry. They learn how industry views success, how requirements are defined, what are market motivators, and how performance is measured. In short they learn how to define needs and measure progress. But conducting proper market research is a skill that needs developed through training and experience. By the same means, it takes experience and expertise to sit down with offerors and negotiate a comprehensive, meaningful, and mutually beneficial performance agreement that works.
Until we have experienced and knowledgeable people that truly understand how to both award and manage complex PBA projects, it will only partially work. We are just part way there now and that’s why more encouragement is needed.

Thu, Jun 9, 2011 Vern Edwards

Interesting. What we call "performance-based contracting" (PBC) started out as a program in the Department of Heath, Education, and Welfare for contracting for educational technical services. See, e.g., "Supplementary Educational Centers and Services; Guidance Counseling, and Testing," 39 FR 28997, 29004, August 13, 1974: "Local education agencies seeking to secure technical assistance often find it advisable to arrange for services to be provided under a performance contract. Through the development of performance specifications, the local education agency introduces another aspect of accountability into project management. Emphasis, as the term ‘performance contracting’ implies, is placed upon the goals attained, output—rather than solely on the procedures used, inputs." The Air Force picked up on the idea and issued the first official performance-based statement of work preparation guidance in 1979 -- AFR 400-28, "Base Level Service Contracts." That regulation became the basis for OFPP Pamphlet No. 4, "A Guide for Writing and Administering Performance Statements of Work for Service Contracts," issued in 1980, which is still the most comprehensive and detailed guidance ever issued by the government about performance-based contracting, although no longer considered official. By 1992, the Air Force had given up on 400-28. They could not make it work. But OFPP persisted. Al Burman issued his policy letter, "Policy Letter on Service Contracting" on April 15, 1991, 56 FR 15110. Al directed the issuance of an implementing Federal Acquisition Circular within 120 days. The FAR councils did not issue a proposed rule to implement Al's policy letter until August 1, 1996, 61 FR 40284. Why so long? Because they didn't want to do it and couldn't agree on how to do it. It took until August 22, 1997 for the councils to issue a final rule, 62 FR 44813. In the meantime, forcefully touted by Al's successor, Steve, PBC became a cottage industry for training and consulting firms, who developed a vested interest in saying that PBC "works." (The "report on the topic" Steve mentioned in his blog post is actually an article in NCMA's Contract Management magazine written by one such training/consulting firm.) We are now in 2011, and Al says "successful change encounters bumps and takes time." I'll say. Performance contracting in education died in the 1970s, considered unsuccessful. It has been 32 years since AFR 400-28 and almost 20 years since Al's policy letter, and PBC still hasn't taken hold. In my experience as a government contract negotiator, contracting officer, chief of a contracting office, and senior acquisition staffer, I have never encountered a more unworkable policy. I'm sorry, because I both respect and like Al and Steve, but they haven't thought deeply enough about their ideas.

Thu, Jun 9, 2011 Al Burman

Steve raises a good point about the need to continue to promote a good idea. Anyone with any experience in government recognizes that successful change encounters bumps and takes time. And what can be more important in government stewardship than holding firms accountable? One can't develop useful measures to do this? That's certainly not been my experience either in working with agencies on performance-based projects or in the accounts the SARA panel heard from a variety of witnesses. Challenges exist, including having the time and the right mix of people to do the job well. And performance-based acquisition techniques can't be used for every kind of service. Nevertheless, it is one of those good government tools that has shown enough promise and good results for any administration to continue to encourage its use.

Wed, Jun 8, 2011

Low visibility? Well, I seem to remember Al Gore making somewhat of a big thing about reinventing government. He went on the Jay Leno show to talk about the things the Clinton Administration was doing in that regard. I remember something about breaking an ashtray. Remember that? And I remember PBC being an integral part of the reinvention effort. Government contracting does make headlines. Not as big as the debt ceiling, but I remember a lot being written about contracting reform during your tenure. The Washington Post, The Los Angeles Times every now and then. Why is it that people who have never done a thing -- like developing service performance metrics and writing a performance-based work statement -- are so quick to claim that it can be done and to urge people to do it? Have you written one? Do you know how? Have you ever tried to teach anyone else to do it? Your position that performance metrics can be renegotiated assumes that they can be established in the first place on something other than an arbitrary basis. How do you know? Have you ever done it? Do you think it can be done for all contracts? If not, which ones do you think it can be done for? Study after study, by institutions as prestigious as Rand and the GAO, have found that contracts labeled "performance based" were commonly mislabeled.On April 11. Washington Technology published an article about why PBC is hard to do, citing an IBM Center for the Business of Government blog which gave six reasons. http://washingtontechnology.com/articles/2011/04/04/upfront-performance-based-contracts-ibm.aspx One of your successors at OFPP, Angela Styles, expressed to Congress her doubts as to the meaning of the term. Clearly, the implementation has been nowhere near successful. In private conversations, senior agency officials roll their eyes at the mere mention of PBC. Yet you continue to tout it, like someone who believes in astrology. Where does that confidence come from? It strikes me as delusional. Let me throw you a bone: It works for janitorial services. Sometimes. Maybe. You can have the last word. I know that nothing will change your mind. You're committed, and not open to evidence or argument. PBC is going nowhere, because it has nowhere to go.

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