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By N2H

Performance Based Contracting

Performance based contracting is a new way of contracting whereby the contractor is told what problem the buyer has and  it is up to the contractor to come up with  a bid detailing the proposed solution to that problem. Performance based contracting tries to prevent the buyer from detailing what the proposed solution to a problem is and how the proposed solution to the problem will be carried i.e. it describes the problem but not how the problem is to be solved. This type of contracting has various benefits such as better competition among contractors in providing the best solution; project focus is more on results than the process of accomplishing those results, less frequent but more meaningful supervision.

Performance based contracting tries to give the contractor or the seller the flexibility to innovate or come up with creative solutions to a problem. It involves three steps these are establishing measureable performance standard, establishing a performance work statement (PWS) and finally developing a performance assessment plan. (Chen 2006)

One can begin establishing the performance standards by defining performance requirements summary (PRS). A performance requirements summary describes a high level definition of the desired outcome, from the high level definition of the desired outcome; objectives associated with the outcome are defined indicating the buyers acceptable quality level (AQL) that must be achieved by the contractor

A performance work statement (PWS) can be established by describing the performance standards that the deliverables need to meet.  It is a document that will include the scope of work to be done, established performance requirements, special requirements that the buyers have indicated they want and deliverables. This document should not contain statements describing how all this is to be achieved it should be left to contactor to come up with innovative ways to achieve the goals. (Chen 2006)

A performance assessment plan describes clearly the methods that will be used in assessing the contractor’s performance. The plan also describes the conditions under which the assessment will be done so that both parties can agree on the reliability of the assessment and results. In performance based contracting, the solution to a buyer’s problem is not known until the contractor proposes it. One can therefore ask the contractor to come up with performance metrics and a quality assurance plan. The quality assurance plan should describe the objectives that the contractor wants to accomplish, the roles and responsibilities of various members of the projects team and the methods that will be used to assess the contractors performance against established performance standards.

The buyer should then assess the contractor’s proposed solution, their quality assurance plan and the performance metrics that they have come up with and see if the proposed solutions and metrics measure up to solving the buyer’s problems

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