Implementing Performance-Based Contracting in Procurement
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The Basic Principle:
Managing Results Through
Measurement
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Requires
: Competitive Solicitation
and a Written Contract
Options
: ITB, ITN, Other Entity Contract
$75,000 Purchase (Category 2)
Discretionary Procurement Method
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•
State Contract
–
Originated by the Department of
Management Services
•
University Term Contract
–
Procurement Specialist Initiated
•
Exceptions
–
Sole Source, Emergency, etc.
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•
Outcome orientation
–
Bids solicited based on expected results
NOT
Activities to be conducted
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Clearly defined objectives
•
Clearly defined timeframes
•
Performance incentives
•
Performance monitoring
•
Clear
•
Detailed
•
Concise
•
Specific
•
Measurable
•
Quantifiable
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Making a Contract Performance Based
•
Total cost of
ownership
•
Quality of
goods/services
•
Proposed Technical
Performance
•
Financial Stability
•
Cost of training
•
Qualifications of the
individuals within the
company
•
Risk Assessment of
the proposed
solutions
•
Availability and cost
of technical support
•
Past Performance
•
Cost/Price
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Understanding
Achievement
Goals
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Making Performance
Based Partnerships
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Incentives
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•
Financial Savings
•
Better Quality
•
Better Service
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More Innovation
•
More Flexibility
•
More Availability
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:
“Best Value” Definition
The outcome of any acquisition that ensures
customer needs are met in the most
effective, timely, and economical manner.
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1) Ask These Key Questions:
–
What are your departments Performance
Goals?
–
How will the contract/vendor support those
goals?
2) Derive Partnership Goals
3) Prioritize Partnership Goals
4) Assure/Assess the Compatibility of
these Goals
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•
Visit the with the vendor/provider
•
Document all communications
•
Keep your attitude friendly
•
Be assertive…but not antagonistic
•
Be honest when you don’t know the
answer and obtain an answer as soon as
possible
“
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•
Dollar Value of the Contract
•
Nature of the Services
•
Number of Clients Served
•
Prior Provider Performance and
Corrective Actions
•
New Provider or Change in Key
Executives
•
State or Non-State Contract
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1) Inhibiting Experimentation
2) Cutting Cost But Not Service
3) Stifling Overachievement
4) No Start-up Funds
5) Inhibiting Symbiotic Relationships
6) Risk Identification
-Contract Risk and Contract Management Risk
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What is Risk Management?
The culture, processes, and structures that are
directed toward the effective management
of potential opportunities and adverse
effects.
Why does it Matter?
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The main steps in a risk management process:
1.
Establish the context
2.
Identify the Risks
3.
Analyze and Quantify the Risks
4.
Evaluate and Prioritize the Risks
5.
Treat the Risks
6.
Monitor and Review
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•
Start Simple & Build
•
Monitor Performance Indicators Frequently
•
Take an Adaptive Approach
•
Encourage Collaboration with Contractors
•
Reward Contractors who Demonstrate
Well Defined Progress Consistently
Robert D. Behn & Peter A. Kant, “Strategies for Avoiding the Pitfalls of Performance Contracting,” Public Productivity and
Management Review, 22 (4), 1999, 470-89.
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The Contract Manager is the person
charged with the daily administrative
management of the contract. Primary
duties are to plan activities, manage risk,
monitor contractor performance and
exercise delegated authority.
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•
Establishing a Performance Baseline is
Vital to Setting Performance Expectations
•
Begin By Measuring Pre-Contract
Performance
•
Assure Goals are Measurable in a
Contracting Context
•
Borrowing
•
Benchmarking
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•
Mutuality
•
Best Practices
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”
•
What is to be done and what are the deliverables
•
Who is going to do it
•
When it is going to be done
•
Where will it be done
•
How it will be done and how can you tell when
it’s done
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There are 2 elements in Negotiating Contracts:
1) Skill of Negotiator
–
Know what to ask for
2) Leverage of the Buyer
–
Know your leverage
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Solicit Service Providers for:
1) Development of Performance Measures
2) Creation of Incentives
3) Referrals
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1) Create a Monitoring Plan prior to issuing an
Bid/ITN or Completing a Contract
2) Incorporate Measurement Principles in the
Monitoring Plan
3) Monitoring Plans should be tailored to the
intricacies of each contract
4) Riskier contracts are more complex and
should have more detailed Monitoring Plans
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Embrace a performance mindset in procurement by focusing on managing outcomes through measurement. Explore the basic requirements, procurement methods, and key attributes of performance-based contracts. Learn how to make contracts outcome-oriented with clear deliverables and milestones, and measure relevant factors for success. Monitoring progress and ensuring compliance are essential steps in the process.
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Presentation Transcript
Performance Based Contracting Slide 1
Adopting A Performance Mindset The Basic Principle: Managing Results Through Measurement Slide 2
Basic Requirements Procurement Level Requires: Competitive Solicitation and a Written Contract Options: ITB, ITN, Other Entity Contract $75,000 Purchase (Category 2) Discretionary Procurement Method Slide 3
Procurement Methods Procurement Method Most Evaluation Factor Appropriate for Specific Commodities Performance Based Contracts Invitation to Bid (ITB) Invitation to Negotiate (ITN) Low Cost (Not Flexible) Most Flexible (Best Value Approach) Slide 4
Other Procurement Methods State Contract Originated by the Department of Management Services University Term Contract Procurement Specialist Initiated Exceptions Sole Source, Emergency, etc. Slide 5
Making a Contract Performance Based Key Attributes Outcome orientation Bids solicited based on expected results NOT Activities to be conducted Clearly defined objectives Clearly defined timeframes Performance incentives Performance monitoring Slide 6
Making a Contract Performance Based Deliverables/Milestones Must Be: Clear Detailed Concise Specific Measurable Quantifiable Slide 7
Making a Contract Performance Based Measuring What s Relevant: Selection Factors Qualifications of the individuals within the company Risk Assessment of the proposed solutions Availability and cost of technical support Past Performance Cost/Price Total cost of ownership Quality of goods/services Proposed Technical Performance Financial Stability Cost of training Slide 8
Making a Contract Performance Based Step 4 Monitoring Step 1 Planning Understanding Achievement Goals Step 2 Acquisition Strategy Step 3 Contract Management Making Performance Based Partnerships Incentives Slide 9
Step I: Planning Understanding Achievement Goals Primary Goals The primary goal of Performance Based Contracting is the achievement of the BEST VALUEfor the Taxpayer This Includes: Financial Savings Better Quality Better Service More Innovation More Flexibility More Availability Slide 10
Step I: Planning Understanding Achievement Goals Best Value Definition The outcome of any acquisition that ensures customer needs are met in the most effective, timely, and economical manner. Slide 11
Step I: Planning Understanding Achievement Goals 1) Ask These Key Questions: What are your departments Performance Goals? How will the contract/vendor support those goals? 2) Derive Partnership Goals 3) Prioritize Partnership Goals 4) Assure/Assess the Compatibility of these Goals Slide 12
Step I: Planning Understanding Achievement Goals Relationship with Vendors A good vendor relationship will add greatly to the chances of success and satisfaction of a contract Visit the with the vendor/provider Document all communications Keep your attitude friendly Be assertive but not antagonistic Be honest when you don t know the answer and obtain an answer as soon as possible Slide 13
Step I: Planning Understanding Achievement Goals Criteria Assessment Dollar Value of the Contract Nature of the Services Number of Clients Served Prior Provider Performance and Corrective Actions New Provider or Change in Key Executives State or Non-State Contract Slide 14
Step I: Planning Understanding Achievement Goals Potential Pitfalls 1) Inhibiting Experimentation 2) Cutting Cost But Not Service 3) Stifling Overachievement 4) No Start-up Funds 5) Inhibiting Symbiotic Relationships 6) Risk Identification -Contract Risk and Contract Management Risk Slide 15
Step I: Planning Risk Management What is Risk Management? The culture, processes, and structures that are directed toward the effective management of potential opportunities and adverse effects. Why does it Matter? Slide 16
Step I: Planning Stages in Managing Risk The main steps in a risk management process: 1. Establish the context 2. Identify the Risks 3. Analyze and Quantify the Risks 4. Evaluate and Prioritize the Risks 5. Treat the Risks 6. Monitor and Review Slide 17
Step I: Planning Understanding Achievement Goals Avoiding Pitfalls Start Simple & Build Monitor Performance Indicators Frequently Take an Adaptive Approach Encourage Collaboration with Contractors Reward Contractors who Demonstrate Well Defined Progress Consistently Robert D. Behn & Peter A. Kant, Strategies for Avoiding the Pitfalls of Performance Contracting, Public Productivity and Management Review, 22 (4), 1999, 470-89. Slide 18
Step I: Planning Establishing a Contract Manager The Contract Manager is the person charged with the daily administrative management of the contract. Primary duties are to plan activities, manage risk, monitor contractor performance and exercise delegated authority. Slide 19
Step II: Acquisition Strategy Making Performance Based Partnerships Establishing a Baseline Establishing a Performance Baseline is Vital to Setting Performance Expectations Begin By Measuring Pre-Contract Performance Assure Goals are Measurable in a Contracting Context Slide 20
Step II: Acquisition Strategy Making Performance Based Partnerships Developing Performance Goals When developing Performance Goals, consider the future possibilities don t use past performance as a limiting factor Considerations: Borrowing Benchmarking Mutuality Best Practices Slide 21
Step II: Acquisition Strategy Making Performance Based Partnerships Detailed Scope of Work The Detailed Scope of Work describes what the contractor is to accomplish. It should address what, who, when, where & how. It is the foundation for the entire procurement What is to be done and what are the deliverables Who is going to do it When it is going to be done Where will it be done How it will be done and how can you tell when it s done Slide 22
Step II: Acquisition Strategy Making Performance Based Partnerships Contract Negotiation There are 2 elements in Negotiating Contracts: 1) Skill of Negotiator Know what to ask for 2) Leverage of the Buyer Know your leverage Slide 23
Step II: Acquisition Strategy Making Performance Based Partnerships Developing Performance Goals Solicit Service Providers for: 1) Development of Performance Measures 2) Creation of Incentives 3) Referrals Slide 24
Step III: Contract Management Contract Manager Role/Responsibilities Contract Manager interacts directly or indirectly with: Personnel in the Department Procurement Services General Counsel s Office Comptroller s Office Budget Office Slide 25
Step III: Contract Management Contract Manager Role/Responsibilities Defining precisely what is required to meet a need Carrying out the preparations for soliciting, analyzing, and awarding contracts Negotiating the contract and amendment(s) Overseeing and enforcing the providers performance of contract terms and conditions Slide 26
Step III: Contract Management Creating Incentives Payment Structures Should be Tied to Performance Elements Levels of Performance Should be Differentiated for Incentives Incentive Successes Should be Tracked Slide 27
Step III: Contract Management Skillset Requirements Knowledge Contract Law Current Leverage Skills Abilities Accounting Compliance Measurement Negotiating Change Adaptation Arbitration Mental Flexibility Communication Slide 28
Step IV: Monitoring Monitoring Principles A Metric of At Least 3 Measures Should be Used to Understand the Object Statistics Should Be used to Understand the Behavior of Occurrences of an Attribute Slide 29
Step IV: Monitoring Monitoring Principles 1) Create a Monitoring Plan prior to issuing an Bid/ITN or Completing a Contract 2) Incorporate Measurement Principles in the Monitoring Plan 3) Monitoring Plans should be tailored to the intricacies of each contract 4) Riskier contracts are more complex and should have more detailed Monitoring Plans Slide 30
QUESTIONS? Slide 31
