This session is sponsored by the

Federal Acquisition Institute

The primary organization providing knowledge and support to the federal civilian acquisition

workforce.

For more information about FAI, please visit our website at www.fai.gov

Performance Based Contracting for Services: A Survey of NIGP

Members

Dr. Larry L. MartinProfessor of Public Affairs

University of Central FloridaOrlando, Florida

GSA Training Conference

and Expo 2010

Presentation Overview

• Acknowledgments • The Survey• Study Disclaimers• What is PBC for Services?• Study Findings • Major Conclusions

• Dr. Clifford McCue Professor of Public Administration Florida Atlantic University (Boca Raton, Florida)

• Ms. Tina M. Borger, CPPO, Director of Research & Technical Resources, NIGP (Herndon, VA)

• Mr. Mamoon Allaf, Ph.D. Candidate University of Central Florida (Orlando, FL)

Acknowledgements

Survey• NIGP Membership as of December 1, 2008

• Survey was conducted in 2009

• On-Line Survey Using “Survey Monkey” • Responses: 614

Survey Respondents by Type of Government

Type of Government # %

US Federal 10 (2.5%)

US State 125 (31.0%)

US Municipal 109 (27.1%)

US County 84 (20.8%)

US Other Local 37 (9.2%)

US College/University 19 (4.7%)

Canadian

Total

19 (4.7%)

403 (100%)

Study Disclaimers• Exploratory study • Not a random sample• Low response rate• Not all respondents answered all

questions• Some respondents appeared to have

problems with Survey Monkey

What is Performance-Based Contracting (PBC) for Services?

• Federal Approach (Federal Acquisition Regulation)• Governmental Accounting Standards Board (GASB) SEA Reporting Approach• The Composite Approach• A Mixed Approach • A Different Approach

Federal Approach

The purpose of PBC for services is to: “ensure that required performance quality levels are achieved and that total payment is related to the degree that services performed or outcomes achieved meet contract standards.”

FAR Sub Part 37.601 - General

What is Performance-Based Contracting (PBC) for Services?

GASB SEA Approach

•Output (the quantity of service provided)•Quality (the quantity of service provided that meets a quality standard)•Outcome (the results, accomplishments or impacts of service provision)•Any combination (output, quality, outcome)

What is Performance-Based Contracting (PBC) for Services?

The Composite Approach

“A performance-based contract is one that focuseson the outputs, quality and outcomes of service

provision and may tie at least a portion of a contractor’s payment as well as any contract

extensions to their accomplishment .”

What is Performance-Based Contracting (PBC) for Services?

Source: L. L. Martin & J. R. Miller (2006). Contracting for Public Sector Services. Herndon, VA: National Institute of Governmental Purchasing

A Mixed Approach

• One that encompasses some or all of the elements of the previous three approaches.

Another Approach

• One that is different from all the others.

What is Performance-Based Contracting (PBC) for Services?

Study Findings

N = 598

Study Findings Use PBC for Services by Region

Region Yes No

# % # %

Northeast 15 (42.9) 20 (57.1)

Midwest 22 (30.1) 51 (70.0)

South 77 (36.2) 136 (63.8)

West 40 (35.4) 73 (64.6)

Canada 6 (24.0) 19 (76.0)

Total 160 (34.9) 299 (65.1)

Presentation OverviewApproaches to PBC for Services

RESPONSE # (%)

US Government Approach 50 (28.6)

GASB Approach 9 (5.1)

Composite Approach 42 (23.9)

Mixed Approach 63 (35.8)

Different Approach 12 (6.8)

Total 176 (100)

Study Findings

N= 175

Study Findings Tie Compensation to Performance

by Region

Region Yes No

# % # %

Northeast 10 (66.7) 5 (33.3)

Midwest 20 (87.0) 3 (13.0)

South 60 (78.9) 16 (21.1)

West 36 (90.0) 4 (10.0)

Canada 5 (83.3) 1 (16.7)

Total 131 (81.9) 29 (18.1)

Study FindingsMethods Used to Tie

Compensation to Performance

RESPONSE # (%)

Milestone Payments 98 (69.0)

Fixed Price 92 (65.3

Fixed-Fee 86 (61.0)

Cost Reimbursement (with bonus payment)

n = 131

30 (21.3)

Study Findings

RESPONSE # (%)

Award Fee 24 (17.0)

Other Approaches 22 (15.6)

Revenue Enhancement 17 (12.1)

Share-in-Savings

n = 131

15 (10.6)

Methods Used to Tie Compensation to Performance

Study Findings

N = 170

Study FindingsUse Financial Penalties by Region

Region Yes No

# % # %

Northeast 9 (60.0) 6 (40.0)

Midwest 13 (56.5) 10 (43.5)

South 51 (65.4) 27 (34.6)

West 20 (50.0) 20 (50.0)

Canada 3 (50.0 3 (50.0)

Total 96 (59.3) 66 (40.7)

Study Findings

N = 168

Study FindingsAward New Contracts or Contract Extensions

Based on Performance by Region

Region Yes No

# % # %

Northeast 8 (57.4) 6 (42.9)

Midwest 9 (39.1) 14 (61.0)

South 30 (39.9) 47 (61.0)

West 11 (27.5) 29 (72.5)

Canada 2 (33.3) 4 (66.7)

Total 60 (37.5) 100 (62.5)

Study FindingsBarriers to Increased Use of PBC for Services

RESPONSE # (%)

Lack of trained procurement staff 230 (38.5)

Lack of understanding on part of top administrators

166 (27.8)

Lack of understanding on part of contractors

152 (25.4)

Study FindingsBarriers to Increased Use of PBC for Services

RESPONSE # (%)

Lack of appropriate services 108 (18.1)

Lack of understanding on part of elected officials

103 (17.2)

Lack of legal authority 71 (11.9)

Study FindingsBarriers to Increased Use of PBC for Services

RESPONSE # (%)

Lack of regulatory authority 69 (11.5)

No impediments 62 (10.4)

Total Reporting 598

Study Findings

N = 412

Study FindingsFuture Use of PBC by Region

Region More Same Less

# % # % # %

Northeast 16 (45.7) 18 (51.4) 1 (2.9)

Midwest 30 (44.1) 33 (48.5) 5 (7.4)

South 97 (48.0) 97 (48.0) 8 (4.0)

West 57 (50.9) 47 (42.0) 8 (7.1)

Canada 11 (44.0) 14 (56.0) 0 (0.0)

Total 211 (47.7) 209 (47.3) 22 (5.0)

Major Conclusions

1. PBC for services continues to be an underutilized procurement strategy

2. Reasons for Underutilization - Lack of trained procurement staff - Lack of understanding of PBC on the part of

key decision makers - Lack of understanding of PBC on the part of contractors

Major Conclusions

3. No general approach to PBC for services - PBC is more of an umbrella term - A mixed approach is most common - The GASB approach is used the least

4 . PBC service contracts frequently tie payments to performance, but not to contract renewals or new contracts

Major Conclusions

5.Milestone contracting is the most common form of linking compensation to performance

6.A majority (60%) of governments use financial penalties

7. The future use of PBC for services is unclear: - More use (50.5%) - About the same (49.3%)