Contract Management: Guidance Needed for Using Performance-Based Service Contracting

GAO-02-1049 Published: Sep 23, 2002. Publicly Released: Oct 23, 2002.
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Federal agencies spent $136 billion dollars in 2001 acquiring services ranging from clerical support and consulting services to information technology services, such as network support, and management and operations of government facilities, such as national laboratories. To achieve greater cost savings and better outcomes with this spending, Congress and the administration have encouraged greater use of performance-based contracting. Under this approach, the contracting agency specifies the outcome or result it desires and leaves it to the contractor to decide how best to achieve the desired outcome. Most of the 25 contracts GAO reviewed exhibited at least one or more performance-based attributes, but there was a range in the degree to which they exhibited these attributes.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Federal Procurement Policy As part of the office's effort to reexamine performance-based contracting, the Administrator of the Office of Management and Budget's Office of Federal Procurement Policy (OFPP) should clarify existing guidance to ensure that performance-based contracting is appropriately used, particularly when acquiring more unique and complex services that require government oversight.
Closed – Implemented
OFPP issued a report entitled "Performance-Based Service Acquisition: Contracting for the Future," in July of 2003. The report focused on three areas of change: (1) modifying the Federal Acquisition Regulations (FAR) to give agencies flexibility in applying PBSA; (2) modifying reporting requirements to ensure that PBSA is applied appropriately; and (3) improving the quality, currency, and availability of guidance regarding use of PBSA. The report contained six recommendations for PBSA reform and OFPP has endorsed these measures. The agency has also committed to an action plan for their swift adoption and made the report accessible through their webpage. OFPP has also provided a web link to "The 7 Steps to Performance-Based Services Acquisition Guide," a document developed by an inter-agency working group focused on improving agency understanding of PBSA principles and practices. In addition, OFPP and Congress have completed or have in process other actions to establish better guidance to help agencies understand and apply performance based services acquisition approaches. Changes to the FAR are being finalized in 2005 and Congress included provisions in the Services Acquisition Reform Act of 2003 (SARA) to provide for better guidance and incentive to promote performance based services contracting. Also, in November 2004, the Office of Management and Budget's (OMB) federal procurement policy office established a web-based acquisition center of excellence to share knowledge and best practices for performance-based services acquisitions.
Office of Federal Procurement Policy Because of the growing importance of performance-based contracting to the executive branch, the Administrator of OFPP should work with agencies to periodically evaluation how well agencies understand performance-based contracting, how they are applying it to services that are widely available in the commercial sector as well as more unique and complex services, and what results they are achieving--both in terms of outcomes and cost savings.
Closed – Implemented
The intent of performance-based contracting for services is for agencies to contract for results, describing their needs in terms of what is to be achieved, not how it is to be achieved. Since GAO's 2002 report, OFPP, an interagency working group, and the civilian and defense acquisition regulations councils have completed or have ongoing actions that are responsive to this recommendation. First, OFPP led an interagency working group to establish a broader understanding of performance-based contracting. In July 2003, OFPP issued a report on the results of the working group, "Performance Based Service Acquisition: Contracting for the Future." In part, the report focused on modifying the Federal Acquisition Regulation (FAR) to give agencies flexibility in applying performance-based contracting. In July 2004, those FAR changes were initiated with the publication of proposed rulemaking. According to the Federal Register information, there are two sets of proposed amendments to the FAR. Proposed rule changes to 48 CFR Parts 2, 7, 11, 16, 37, and 39 (under FAR Case 2003-018) are intended to help agencies make better progress implementing performance-based methods and address their difficulties in applying these methods effectively. In particular, the proposed amendments are to provide agencies with procedures and rules they can better understand when it comes to buying services in more complex situations, and also to establish clear criteria on which services contracts should be labeled as performance-based. Under FAR Case 2004-004, proposed changes to 48 CFR 2, 4, 12, 37, and 52 further amend the FAR to implement sections 1431 and 1433 of the National Defense Authorization Act for Fiscal Year 2004. The changes would treat performance-based contracts or task orders for services as commercial items if certain conditions are met, and requires agencies to report on performance-based contracts or task orders awarded using this authority. It also amends the definition of commercial items to add specific performance-based terminology and to conform to the language added by section 1431. Overall, the proposed amendments add definitions, broaden the scope of performance-based acquisition, and give more flexibility in using this approach to contracts and task orders of varying complexity. Further, in response to GAO's report, OFPP issued a memorandum in September 2004 to all civilian agencies on increasing use of performance-based service acquisition. It included a new oversight mechanism and instructions for reporting and querying the Federal Procurement Data System to assess agency PBSA performance.

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