Performance-based Acquisition

Introduction

Procurement is generally defined as a process of acquiring goods, works or services from an external source.  The acquisition process is on a contract basis. Procurement contracts are agreements meant to ensure that the goods or services procured are of the best possible cost and meets the needs of the purchaser. Some of the elements of a contract are quantity, quality, time and location. Entities have predefined processes intended to promote fair and open competition for their businesses while minimizing the risk of collusion or fraud. According to the US Defense Acquisition University (DAU), performance based acquisition is a wider concept covering procurement and logistics supply to satisfy the purchaser (Acquisition-Central, 2005). It also involves the most favorable design, testing, contracting and deployment of goods and services.

The government’s procurement strategy outlines a number of critical strategic objectives, including the objective to achieve optimum value for investment and provide high quality services that are constantly improved (Whitehouse, 2013). Contract management is part of the procurements responsibilities. It ensures that the supplier honors their negotiated contract terms. This is where the actual monetary saving are missed or achieved. This article refers to two-million dollar procurement for the purchase of vehicles for the fleet of trucks and cars to be used by the U.S Department of Homeland Security, Customs and Border Protection. These vehicles are meant to be used for off-road driving on dart roads in Arizona. As a contracting officer, the procurement department will examine the type of contracts and performance based acquisition. We will also point out the pros and cons of sealed bidding contracts and negotiated contracts. The responsibilities of the contracting officer will also be discussed. Lastly, the department will create the requirements for the vehicle purchase.

Types of Contracts

There are various types of contracts the government may consider in its procurement process based on the scenario and its advantages. This includes Government-wide Acquisition Contracts (GWACs), cost reimbursement, fixed price, letter, and time & materials. Emphasis during choice should be on the mutual financial performance, both for the U.S Department of Homeland Security, Customs and Border Protection, and the contractor.

A fixed-price contract allows a contractor to offer goods or services for a non-negotiable price. This contract is usually not adjusted unless there are amendments or provisions such as defective or economic pricing and change in a contract are set in the agreement. The agency can only negotiate a fixed-price contract when reasonably accurate cost estimations and specifications are available. When a contactor enters into a fixed-price contract with the agency, the risks that might arise from escalating costs are transferred to the contractor. Fixed-price contracts separate revenue and cost. A fixed-price contract would be the most suitable type for the fleet of trucks and cars to be used by the U.S Department of Homeland Security, Customs and Border Protection.

A cost reimbursement contract provides for compensation of certain expenses incurred by a contractor during the contract period. Such costs depend on the terms stipulated in the contract. In contrast to the fixed-price contract, this contract directly links revenue and cost. A contractor is expected to account for all expenses incurred during the contract execution.

A time and materials (T&M) contract is characterized by the power of the agency to procure the contractor’s direct labor, instead of procuring the result of such an asset (Compton, 2010). This contract poses the lowest risk on the government as compared to the other two contract types. This is subject to the fact that the agency cannot be invoiced in the event of any interruptions.

An indefinite quantity/ indefinite delivery (ID/IQ or IDIQ) contract provides for an indefinite quantity with stated limits of supplies or services during a fixed period. This type of contract requires that the agency orders the contractor to meet at least a contractual minimum quantity of services or supplies. The contracting officer in charge establishes a reasonable maximum quantity for the contract in total.

A Government-wide Acquisition Contract (GWAC) combines procurement across a number of the federal government agencies (GovWin, 2010). The primary advantage of a GWAC contract is that the contract administration for all the participating agencies is centralized by the agency that signs and accepts the contract. GWAC is less costly, more convenient and is faster than having each contracting agency issue its own contract. GovWin (2010)  pointed that as of April 2013, three agencies run GWACs include National Institutes of Health (NIH), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

Lastly, a letter contract is a preliminary written contractual tool that permits a contractor to commence work prior to the formal finalization of the agreed contract terms (Compton, 2010). Letter contracts are usually used when an agency’s needs are urgent. This allows work to begin immediately and along the negotiation of an ultimate contract. It is not limited to any type of contract. That is, it may be a cost-reimbursement or a fixed-price contract.

Performance-Based Acquisition and Requirements

According to Acquisition-Central (2013), Performance-based acquisition (PBA) is a concept of structuring all elements of an acquisition. PBA is characterized by specific and clear objectives with measurable results. The inclusion of the word acquisition rather than contracting portrays the broader scope and community that are critical elements of the process. The key elements of PBA include a performance work statement (PWS), measurable performance standards, use of performance incentives, and well established method of evaluating the performance with reference to the performance standards. These elements are highlighted in Federal Acquisition Regulation (FAR) Subpart 37.6 (Acquisition-Central, FAQ, 2013). Performance-based acquisition is the most proffered method for service acquisition in government agencies. It includes supply contracts. The U.S Department of Homeland Security, Customs and Border Protection (DHS) must use apply performance-based contracting approach to the highest practicable scope. Performance standards are based on timeliness, quality, cost control and customer satisfaction.

A performance-based acquisition approach requires that the underlying agency to create an integrated project team. The project team will then outline the needs or reasons behind the procurement of the vehicles. PBA demands that both public and private sector solutions are examined in the process of finding a solution to the prevailing problem. Acquisition-Central (2013) also emphasizes that a PBA requires the development of a statement of objectives (SOO) or a Performance Work Statement (PWS). The project team is also required to decide how to manage or measure performance. PWS is a statement that reflects the functional, technical and performance traits of the DHS requirements. SOO is an alternative to a PWS. It summaries the primary outcomes, goals or both as incorporated in the PBA.  Acquisition-Central (2013) highkights a statement of work (SOW) indicates the government’s requirements or work to be accomplished.  Besides the measurable performance standards, a PBA contract should include Quality assurance surveillance plans (QASPs). QASP enables a contracting officer to meet the meet the agency’s obligations. The ultimate goal of a performance-based acquisition is to select the right contractor and manage performance. A PWS describes the acquisition in terms of the defined purpose. Its preparation establishes performance measures and standards for the procurement of the vehicles. SOO shall include the purpose, mission or scope, background, period and place of performance, any operating constraints, performance goals, outcomes and objectives.  For instance, the vehicles to be procured are intended to be used by the U.S. Department of Homeland Security, Customs and Border Protection in Arizona. These vehicles will be used for off-road driving on dirt roads in Arizona. They include trucks and cars and amount to two million dollars.

The Pros and Cons of Sealed Bidding Contracts and Negotiated Contracts

Sealed bidding awards based on price analysis in a public bid opening. In government acquisitions, sealed bidding was the most preferred; however, negotiation contracts are encouraged, especially in vague or complex acquisitions (Compton, 2010). Negotiation obtains the delivery schedule, fair and reasonable price. A negotiation contract also enables the purchaser to have controls over a contractor’s performance. It also wins the contractor’s cooperation. Negotiation needs the parties to be considerate, positive, keep the initiative, and listen well. The process might consume time and money where a common ground is not met. Sealed contracts must respond to the predefined requirement without considering exception. It is suitable in areas where discussion with contractors is not necessary.

The responsibilities of a Contracting Officer (CO)

A contracting officer facilitates the administration of the contract between the agency and a vendor. The CO can work on either side of the contract. The job scope and duties of this position may vary with an agency. Generally, a contracting officer is in charge of contract implementation and execution. A CO ensures that there is a seamless communication with the other party (Compton, 2010). Specific duties can include financial reporting; monitoring the progress of contract terms and maintaining files. The agency may hire a third party to take this role. The contracting officer ensures that the contractual relationship is closely managed for both parties to benefit from contract terms. Typically, some contracts cover a significant period, sometimes multiple years.

Furthermore, contracts are different in scope, terms and structure.  The contracting officer handles each contract as unique relationship with its own parameters and terms. A CO can be assigned to a negotiation once the contract terms have been agreed upon. Compton (2010) adds that the CO is responsible for ensuring that all the paperwork are signed and delivered to the appropriate people.  Once the contract is operational, a contract manager serves as the reference person for administration until the end of the contract (Compton, 2010). A CO is responsible for the contract status updates, which tracks progress towards the objective. Most often, the contracting officers is responsible for collecting receipts, tracking expenditures and liaise with the finance department to generate financial reports. Lastly, the CO also handles contract deviations if the contractor experiences a turnover of critical personnel.

Conclusion

The Department of Homeland Security must develop embrace Performance-based acquisition approach and a quality assurance plan to ensure the objectives, results and goals of the contract are achieved. QASP also appreciates the vendor’s responsibility to perform quality control obligations. SOO and PWS can be used as surveillance tools. The desired outcomes of a QASP does not depend on the methodology hence the DHS can take advantage of commercial approaches in developing plans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Acquisition-Central. (2013). FAQ. Retrieved May 3, 2013, from Acquisition-Central: http://acquisition.gov/sevensteps/FAQs_general.html

Acquisition-Central. (2005, August 19). Perfomance-based Acquisition. Retrieved May 3, 2013, from Acquisition-Central: https://acquisition.gov/sevensteps/library2.html

Compton, P. B. (2010). Federal Acquisition : Key issues and guidance. Vienna, VA: Management Concepts.

GovWin. (2010, October 18). Federal Contracting Basics . Retrieved May 3, 2013, from GovWin Network: http://govwin.com/knowledge/government-contracting

Whitehouse. (2013). Office of Federal Procurement Policy . Retrieved May 3, 2013, from Whitehouse: http://www.whitehouse.gov/omb/procurement_default