FEDERAL
SECTOR REPORT
April 2004
IN
THIS ISSUE
IT Capital
Investments and Performance-Based Contracting
Links of the Month:
Acquisition and Performance-Based Contracting
Consulting Services
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(c) 2004 by the P2C2 Group,
Inc.
IT CAPITAL INVESTMENTS AND
PERFORMANCE-BASED CONTRACTING
A marriage made in Capitol
Heaven is the joining together of
information technology investments and performance contracting. The Capital Planning and Investment Control (CPIC)
process for Federal Information Technology (IT) makes Performance-Based
Service Contracting (PBSA) incredibly easy to define and implement.
Careful linking of CPIC and PBSA methodologies is a boon to both
government managers and contractors, because performance requirements
and desired outcomes become eminently clear.
The P2C2 Group carries out
projects in both
arenas--developing business cases (including Exhibit 300s) and
performance work statements. Most agencies treat CPIC and PBSA as two
separate business processes, but we believe that integration of the two
can save time, money, and headaches. CPIC and PBSA focus on results,
and the alignment of both can improve performance and simplify
reporting requirements.
Recap
on
Capital Planning and Investment Control
We have just
completed a series of
newsletters on developing Exhibit 300
business case summaries for the Office of Management and Budget (OMB).
So we will keep our recapitulation brief:
OMB has introduced a
rigorous process for justifying major
investments in information technology. This process is known as Capital
Planning and Investment Control (CPIC), and the most visible part in
the budget process is submission of the Exhibit 300 Business Case to
OMB. The Exhibit 300 is defined in OMB Circular A-11, Section 300, and
it is a highly structured format submitted to OMB in Extensible Markup
Language (XML) code. The basic OMB guidance and a blank Exhibit 300
format are available at
http://www.cio.gov/documents/s300.pdf.
OMB has already indicated
that it wants a performance-based
strategy for acquisition whenever feasible, and this is reflected in
the guidance for the Acquisition Strategy (AS) of the Exhibit 300. The
bulk of IT investment portfolios include requirements for service
acquisition--planning, implementation, integration, operation,
maintenance, and/or testing of systems and major applications. In this
article, we will concentrate on service contracting,
but the concepts are pertinent to all IT-related contracting.
Review
of
Performance-Based Service Acquisition
PBSA emphasizes that
contracts focus on results (rather than
"how"). PBSC contracts use measurable
performance standards, implement quality assurance surveillance plans,
establish procedures for reducing fees or prices when services do not
meet contract requirements, and include performance incentives when
appropriate.
Incentives may be positive
or negative. An award fee that is
pro-rated, based on scored measurement of performance, is an example of
positive incentive. A penalty for poor performance (such as reduction
in fixed price payments for deliverables) would be a negative incentive.
The core federal
guidance for PBSA is Section 37.6 of the Federal Acquisition Regulation
(FAR). For Defense agencies, this is supplemented by DFARS. PBSA is evolving
rapidly as a contracting methodology because the recently-enacted
Services Acquisition Reform Act (part of the 2004 Defense
Reauthorization Act) established a government-wide preference for the
use of performance-based service contracts. Certain service contracts
under $25 million will be treated as contracts for "commercial items."
This will authorize the use of simplified procedures for the award of
performance-based service contracts and apply to those contracts
existing waivers of requirements and certifications. Section 237.671 of
the Defense Federal Acquisition Regulation Supplement (DFARS), for
example, refers users to Section 212 (Acquisition of Commercial Items)
regarding procedures with performance-based contracting.
According to FAR Section
37.6, the contract may take the form
of a Performance Work Statement (PWS) or a Statement of Objectives
(SOO). The intent of both formats is the same--to focus on measurable
outcomes for the acquisition. This includes a quality assurance
surveillance plan and acceptable quality levels.
A SOO provides the
most flexibility to the contractor because
it simply frames the requirement as performance objectives: The
contractor is responsible for writing the Work Statement, meaning that
the contractor has considerably latitude in terms of proposing
innovative technical, management, and staffing solutions. See our
December 1999 newsletter for an introduction to SOOs:
http://www.p2c2group.com/dec99nws.html.
Making
IT
Portfolios and Acquisitions Work Together
CPIC and PBSA have
the same underlying goals: to enable
agencies to carry out their missions effectively and achieve measurable
results. In many cases, the planning for both can be tightly aligned,
and we will illustrate how to accomplish that by linking
performance-based contracting to OMB scores for the Exhibit 300. Our
January 2004 newsletter reviewed how OMB scores.
Acquisition documents
should be written so they work together
with CPIC plans to accomplish defined, measurable results. Following
are tips on how to align the two, using the framework of OMB scoring
for Exhibit 300s:
Acquisition Strategy (AI)
- Performance-based
contracting should be used whenever possible
-
Segment the work into well defined tasks which can be awarded
separately, as a means of limiting risk and tying performance to the
Performance Based Management System
-
Use several contractors under a multiple award contract, as a
means of avoiding a monopoly and emphasizing accountability for
performance.
-
Implement a standardized methodology for quality assurance
surveillance and record keeping so that the agency can document and
evaluate actual service performance.
Performance Goals (PG)
- The performance goals and
measures in the contractor's PWS or SOO should match those in the
Exhibit 300
-
The contractor should report performance in a manner
consistent with the measures identified in the Exhibit 300-so that the
agency can quickly and consistently report results to OMB
-
Where appropriate, the contractor may be required to maintain
the data that documents the metrics (subject to inspection, of course)
Risk Management (RM)
