Performance-Based Contracting in the Air Force: A Report on Experiences in the Field


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This makes it easier for both the contractor and inspector to understand and administer the contract requirements. Selecting the most appropriate surveillance method for the effort involved is important. Careful selection of appropriate surveillance methods enables the government to determine the amount of resources and associated costs needed to perform the surveillance task. Agencies should discuss the surveillance methods to be used with the contractor to confirm that they are fully understood. Whatever form of surveillance used, agencies should take care to ensure that no undue interference with contractor operations occurs.

Agencies also should avoid relying on cumbersome and intrusive process-oriented inspection and oversight programs to assess contractor performance. The Department of Commerce included the contractor on a grounds maintenance contract as a partner in implementing the contract monitoring and reporting requirements. This resulted in a continuing dialogue between the two parties about contract performance focused on results.

Surveillance must be performed as stated in the QAP for the covered contract. It includes scheduling, observing, documenting, accepting service, and determining payment due. QAEs must be fully qualified to meet the major responsibilities of the position: maintaining complete and accurate documentation, a good relationship with the contractor, and thorough knowledge of the contract requirements.

Experience and training are essential for effective surveillance. The QAE should be identified with a letter of assignment that includes a copy of the contract and surveillance plan. It should include cautions against making legal interpretations, imposing tasks not in the contract, supervising contractor employees, or waiving contract requirements.

A copy of the letter should be provided to the Administrative Contracting Officer. Ideally, the QAE should be dedicated full time to quality assurance activities. If this is not possible, the QAE aspect of the individual's job should be a critical element in their performance appraisal. Contractors should be briefed on surveillance requirements and responsibilities at a post-award conference. Surveillance should be comprehensive, systematic, and well documented. Reviewing and discussing the contractor's plan for maintaining an acceptable quality level under the contract is important.

In many cases, contractors are required to submit a Quality Control Plan to the government prior to the post-award conference. One way to document surveillance is through use of a surveillance checklist. See Appendix 11 for a sample. Techniques include inspections, correspondence reviews, customer surveys, and audits. The extent of surveillance is determined by the surveillance schedule established in the QAP.

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It should be systematic and sufficient to fairly evaluate the contractor's total performance throughout the performance period. Where surveillance results show good performance consistently, the amount of surveillance should be adjusted accordingly. This saves the government money, reduces oversight burdens on the contractor, and recognizes the contractor's achievement of performance.

Agencies should select contract types that are most likely to motivate contractors to perform optimally. PBSC encourages and enables the increased use of fixed-price contracts and incentives to encourage optimal performance. Fixed-price contracts are appropriate for services that can be objectively defined in the solicitation and for which risk of performance is manageable. For such acquisitions, performance-based statements of work, measurable performance standards and surveillance plans are ideally suited.

The contractor is motivated to find improved methods of performance in order to increase its profits.

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Cost-reimbursement contracts are appropriate for services that can only be defined in general terms or for which the risk of performance is not reasonably manageable. To the maximum extent practicable, PBSC methods should be used for these contracts. Where possible, they should include specific incentive provisions in addition to the award fee to insure that contractors are rewarded for good performance, as well as quality assurance deduction schedules to assure satisfactory performance. When acquiring services that previously have been acquired by contract, agencies should rely on experience, knowledge, and historical data gained from the prior contract to incorporate PBSC methods.

Where appropriate, conversion from cost-reimbursement to fixed-price arrangements should be accomplished. On average, prices for these contracts fell by 21 percent in nominal dollars. In addition, a considerable amount of staff time will be saved due to decreased contract administration. In situations where the entire contract is not conducive to PBSC, many tasks nevertheless may be defined in performance-based terms. In these situations PBSC methods should be used to the maximum extent possible.


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A cost-reimbursement level-of-effort term contract could be converted to a fixed-price completion contract defining as much of the requirement in performance-based terms as possible. A labor-hour arrangement could be used for the remainder of the requirement that could not be sufficiently defined or to accommodate unpredictable spikes in workload. The contractor used past history compiled by EPA to determine the amount of work it could expect. To provide additional flexibility for an emergency or crisis, quantity options fixed price per hour were included.

Agencies also should consider breaking up large umbrella contracts experiencing cost overruns or performance problems. This will often enable the use of PBSC for large portions of the umbrella contract. The amount of money saved, the improved performance, and the reduced contract administration effort often can outweigh the added cost of awarding and administering multiple contracts. Agencies should award more performance-based task orders competitively when they use task order contracts. They should define their requirements in such a manner that performance-based task orders can be fixed-price.

Good contract administration is essential to the success of PBSC, and requires the cooperation of both program and procurement offices. Cooperation is needed to identify any organizational barriers to fostering teamwork. Such cooperation should be instilled and reinforced at the executive levels of management in the agency. The Customs Service has bi-weekly meetings between technical and procurement personnel to discuss procurement issues, including PBSC.

A primary benefit of the PBSC method is that it enables agencies to shift their emphasis from processes to outputs. The focus has shifted from process to outputs. PBSC streamlining extends to the entire acquisition process. It includes requirements definition, proposal preparation, and contract administration. On a billion dollar procurement the streamlined process reduced procurement administrative lead time by 66 percent, cut program staff by 75 percent, and drove costs down by nearly 40 percent.

The program team was pared from the typical people to a cross-functional team of 20 people. Draft requirements were shared with industry, and when the RFP was issued, contractors were given just one month to respond, which was sufficient due to their prior input. Simple performance requirements, competition, and collaboration were used to create relationships and incentives that produced extraordinary results. Traditionally, contracting parties have relied on claims and litigation to resolve disputes.

However, this is often costly and time-consuming. In the interest of economy and efficiency, expeditious and less confrontational resolution procedures are increasingly being utilized. Communication and openness throughout the procurement process greatly reduce conflicts. The OFPP Pledge Program recognized the value of such procedures by including an agency commitment to institute an informal, timely conflict resolution mechanism for resolving pre- and post award issues.

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Partnering is a technique for preventing disputes from occurring. Under this concept, the agency and contractor, perhaps along with a facilitator, meet after contract award to discuss their mutual expectations. The parties mutually develop performance goals, identify potential sources of conflict, and establish cooperative ways to resolve any problems that may arise during contract performance.

Within the Department of Defense DOD , the Army Corps of Engineers has implemented a partnering program with its contractors and has achieved improved cost, schedule, and performance goals. DOD believes the use of partnering in its contracts improves relationships and communication between government and industry. Contracting parties that have participated in partnering have experienced the following results: more timely performance, better cost control, significant reductions in paperwork, and fewer disputes. Some agencies have established an ombudsman to help resolve concerns or disputes that arise during the acquisition process.

Typically, an ombudsman investigates selected complaints and issues nonbinding reports, with recommendations addressing problems or future improvements deemed to be desirable. The ombudsman helps firms to resolve problems they encounter on existing AMC contracts.

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Working directly for the commander, the ombudsman is able to cut through organizational "red tape" and improve the command problem-solving process. The success of the ombudsman program at Headquarters AMC prompted the establishment of ombudsman programs in all of the subordinate AMC buying commands. The AMC-wide ombudsman program is a positive force in the timely resolution of problems presented by contractors.

It contributes to an increased level of sensitivity in the command for handling contractor problems, and results in the solution of most problems presented without the need for expensive and time-consuming litigation. NASA also established an ombudsman program to improve communication between the agency and interested parties. The NASA ombudsman hears and works to resolve concerns from actual and potential offerors, as well as contractors, during the pre- and post award acquisition phases. ADR means any procedure or combination of procedures used voluntarily to resolve controversies without resorting to litigation.

Examples of ADR include conciliation, facilitation, mediation, and mini-trials. ADR can provide an effective and less expensive method for resolving contract disputes. Agencies should include an agreement to utilize ADR in their contracts. The Navy has used ADR techniques since , and it has been able to resolve issues and controversies in almost 99 percent of the cases in which ADR was used.

The hearing on this matter was completed within six hours, and a decision was rendered the next day. There is no single correct method for conducting ADR. Each situation is different and the ADR technique and procedures must be tailored to a particular situation and the needs of the parties.

The Army has established an acquisition reform working group that meets periodically with industry to discuss upcoming procurements and the use of ADR. The DLA has established agency-wide guidelines which include consultation with ADR specialists to determine which of the numerous ADR techniques would be appropriate for resolving each dispute situation. These documents can provide useful guidance to agencies in implementing the use of ADR techniques.

A model agreement is provided at Appendix The best practices included in this document are a first step at providing practical guidance for implementing a performance-based approach to service contracting. The use of these methods should lead to more cost-effective acquisitions, better value, and greater competition. They should have the net effect of shifting some of the manageable performance risk from the government to the contractors.

Contractors will be given more latitude for determining methods of performance, with more responsibility for performance quality.

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The government should experience fewer cost overruns, schedule delays, and performance problems. By using PBSC methods, agencies have an opportunity to further the goals of streamlining and reinvention. The PBSC process requires agencies to re-evaluate their workload to determine what really needs to be done and how best to do it.

Once a requirement has been subjected to this process, future performance-based contracting will be easier, and agency needs will be better defined and manageable. The following checklist is provided as a guide that may be used to aid in developing a performance-based solicitation, contract or task order, and to assist in determining whether an existing solicitation, contract or task order may be appropriately classified as performance-based. This checklist is not intended to usurp contracting officer discretion or authority regarding how to structure an acquisition.

However, the more an acquisition departs from adherence to the checklist, the less likely the agency will achieve the benefits of improved contractor performance and lower price that PBSC can provide. This checklist contains minimum required elements that must be present for an acquisition to be considered performance-based.

To be effective, these elements must be communicated to potential offerors in time to be considered when developing their proposals. It also contains additional PBSC components important to ensuring the Government obtains the benefits of PBSC and "other considerations" that are not performance-based contracting methods per se but that nevertheless so directly affect the success of PBSC that they are included.

This document is but one tool to assist in developing and assessing PBSC, and it is purposefully not detailed or explanatory. The categories of services on this list are PBSC targets of opportunity with high payoff potential in terms of savings and improved mission support. The list is intended as a guide, and not to be all-inclusive or restrictive. Services not on the list also may be well-suited to PBSC, especially if they are recurring.

The following services have been acquired successfully, frequently and historically by agencies using PBSC methods. Fixed price contracts should be the rule when contracting for these services. The following services have been acquired successfully, but relatively recently, using PBSC methods and PBSC templates have been developed for these services by government-wide working groups. Thus, fewer examples exist. Parry, Contracting Officer, This synopsis is for information and planning purposes only and does not constitute a Request for Proposal.

The purpose of the RFC is to afford industry an opportunity to comment on any perceived issues with regard to the privatization initiative and to allow the Government to receive the benefit of industry comments. The Government believes industry feedback is important, and is receptive to any and all ideas from industry which would result in limiting unnecessarily constraining requirements, realizing cost savings, or highlighting potential technical or contractual problem areas associated with the initiative.

Any comments provided should not be viewed as a vehicle for presenting a specific approach or product intended to be proposed but as an opportunity to improve an eventual solicitation package. Comments are solicited regarding the following:. Washington, D. The contractor should have in his possession a copy of the VAUB minutes.

There is no specific format for these minutes, but they should conform to the standard form in AFR Minutes should adequately describe and document actions taken by VAUB. The contract is required to develop a vehicle priority list for VAUB approval. Verify approved priority list. This alternative dispute resolution ADR agreement is entered into by Name of organization and Name of organization to establish a procedure to resolve a dispute that has arisen during the performance of contract Contract number and date.


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Binding or nonbinding arbitration can be added to this agreement if the parties want the neutral advisor to write a decision in the event that they fail to negotiate a settlement. If this is desired, the following paragraph can be added to the agreement with appropriate alteration depending on whether the arbitration decision is to be binding or nonbinding.

Skip to main content Skip to footer site map. Deidre A. Appendix 5 lists references used in compiling this document. Organization Analysis Organization analysis involves reviewing the agency's needs and identifying the services and outputs required from the contractor. Work Analysis Work analysis involves further analyzing the required outputs by breaking down the work into its lowest task level and linking tasks in a logical flow of activities. Performance Analysis and Standards Performance analysis assigns a performance requirement to each task, which involves determining how a service can be measured and what performance standards and quality levels apply.

Directives Analysis All potentially relevant agency directives should be screened to determine which should be utilized, either in whole or in part. Data Gathering Agencies should provide the contractor an estimate of the workload to be performed and the items and services that the government will furnish to the contractor for the performance of the contract.

Cost Analysis Estimated costs must be computed for each service or output based on available data. Incentives Incentives should be used when they will induce better quality performance and may be either positive, negative, or a combination of both. Content Agencies should identify only those outputs that are essential and should be a part of the PRS. Style Agencies should write the PWS using precise terms and clear, concise wording.

Method Agencies should use an interdisciplinary team approach in developing the PWS, and include, at a minimum, the contracting officer and a technical representative. Content A good QAP should include a surveillance schedule and clearly state the surveillance method s to be used. See Chapter 4 for best practices that are equally applicable to the QAP. Method Selecting the most appropriate surveillance method for the effort involved is important. Acceptable surveillance methods include: Percent Inspection: This is usually only the most appropriate method for infrequent tasks or tasks with stringent performance requirements, e.

One hundred percent inspection is too expensive to be used in most cases. Random Sampling: This is usually the most appropriate method for recurring tasks. With random sampling, services are sampled to determine if the level of performance is acceptable. Random sampling works best when the number of instances of the services being performed is very large and a statistically valid sample can be obtained. Computer programs may be available to assist in establishing sampling procedures. Periodic Inspection: This method, sometimes called "planned sampling," consists of the evaluation of tasks selected on other than a percent or random basis.

It may be appropriate for tasks that occur infrequently, and where percent inspection is neither required nor practicable. A predetermined plan for inspecting part of the work is established using subjective judgment and analysis of agency resources to decide what work to inspect and how frequently to inspect it. Customer Input: Although usually not a primary method, this is a valuable supplement to more systematic methods.

For example, in a case where random sampling indicates unsatisfactory service, customer complaints can be used as substantiating evidence. In certain situations where customers can be relied upon to complain consistently when the quality of performance is poor, e. In all cases, complaints should be documented, preferably on a standard form. QAE Requirements QAEs must be fully qualified to meet the major responsibilities of the position: maintaining complete and accurate documentation, a good relationship with the contractor, and thorough knowledge of the contract requirements.

Surveillance Requirements Contractors should be briefed on surveillance requirements and responsibilities at a post-award conference. Extent The extent of surveillance is determined by the surveillance schedule established in the QAP. Fixed-Price Fixed-price contracts are appropriate for services that can be objectively defined in the solicitation and for which risk of performance is manageable. Cost-Reimbursement Cost-reimbursement contracts are appropriate for services that can only be defined in general terms or for which the risk of performance is not reasonably manageable.

Previously Acquired Services When acquiring services that previously have been acquired by contract, agencies should rely on experience, knowledge, and historical data gained from the prior contract to incorporate PBSC methods. Partnering Partnering is a technique for preventing disputes from occurring. Ombudsman Some agencies have established an ombudsman to help resolve concerns or disputes that arise during the acquisition process. Alternative Dispute Resolution ADR ADR means any procedure or combination of procedures used voluntarily to resolve controversies without resorting to litigation.

Box N. Performance standards i. If the acquisition is either critical to agency mission accomplishment or requires relatively large expenditures of funds, positive and negative incentives tied to the Government QA plan measurements. Additional PBSC Components An historic workload analysis is performed, or the workload is estimated if historic data is unavailable, to aid in determining the performance requirements and standards, Government QA plan, and incentives.

Process-oriented requirements e. The marketplace and other stakeholders are provided the opportunity to comment on draft performance requirements and standards, the Government QA plan, and performance incentives.

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If the size of the requirement justifies the resource expenditures, potential offerors are given the opportunity to learn more about the "as is" operation to facilitate their ability to develop intelligent proposals. Multi-year contracting authority is used where available. Experience and lessons learned from predecessor acquisitions are used to convert recurring requirements to PBSC. Other Considerations Past performance evaluations are based on the results of contract QA measurements and incentives, and QA plans are consistent with past performance factors.

For recurring requirements that have been converted to PBSC, the effects of conversion are measured e. Informal conflict resolution methods are utilized e. An umbrella-type contract that has demonstrated significant performance problems, cost overruns, or has included an amount of work that is too great or diverse to be effectively managed by either the Government or the contractor, is broken up into multiple contracts. Nontechnical "blue collar" support, e. Operation and maintenance of facilities.

Administrative and clerical support, e. Computer maintenance. Aircraft maintenance and test range support. Transportation, travel and relocation services. Medical services. Telephone call center operations. Software maintenance and support. Environmental remediation. Software development. Management support. Studies and analyses. DeLanoy, Joseph M. McDade, Jr. Garrett Contract Management , February Farris P. Michael Canavan Federal Publications, Inc.

Linn Old Frederick Road Mt. Allan V. Burman President, Jefferson Solutions, L. William S. Coleman, Jr. Therefore, the use of established FBOP classification, discipline, and inmate record keeping procedures will be necessary, Comments, whether supportive or critical, are earnestly solicited regarding every aspect of the proposed initiative. Replies are not mandatory. Replies will be separated from, and have no bearing on, subsequent evaluation of proposals submitted in response to any resulting formal Requests for Proposals. The use of comments received from industry to complete final statements of work and resulting solicitation documents will be at the discretion of the FBOP.

Any subsequent solicitations will be synopsized prior to its release. Eligibility in participating in a future acquisition does not depend upon a response to this notice. The Government does not intend to pay for the information solicited and will not recognize any costs associated with submission of the RFC. Proprietary information is not being solicited. Information considered proprietary, if any, should be identified as such. Responses to this synopsis must be submitted in writing to the Contracting Officer at the above address no later than May 7, F-5 5. The parties agree to present their positions on this dispute to a mediation panel consisting of a neutral advisor, Name , and two principals with full authority to settle the dispute, Name , representing Name of organization , and Name , representing Name of organization.

Following the presentations, the panel will enter into negotiations to arrive at a fair settlement of the dispute. During this ADR proceeding, the principals will have full authority to alter the procedure or to schedule additional meetings as they find necessary to reach a settlement of the dispute. This ADR proceeding will be held from Date through Date at Location [ or at a location to be determined by mutual agreement of the parties].

They will also permit interviews of two key personnel for a period of no longer than four hours each. On Date , each party will send the following documents to the neutral advisor and the two principals: A position paper summarizing the arguments of the party. This paper shall not exceed Number pages, excluding charts and tables. All documents that are relevant to the dispute. The parties will cooperate in selecting documents to avoid duplication between the submissions of each party. A list of the issues to be determined by the panel. The parties will make every effort to submit a joint list of issues in the order that is most logical for presentation to the panel.

A list of witnesses and participants in the ADR proceeding. The ADR proceeding will be conducted using the following procedures: Each party will make an opening statement of no longer than 1 to 2 hour s. The first statement will be made by the proponent of the major elements of the dispute. Each issue will be discussed using a round table discussion technique. Each party will make its key employees and consultants available to participate in this discussion. In the discussion, the proponent of the issue will make a brief presentation of its position on the issue. The other party will then make a brief presentation of its defense.

The neutral advisor will then moderate a discussion -- calling on participants from each side as they request to address the issues in question. There will be no side discussions and no participant will speak until called on by the neutral advisor. The goal of this discussion is to fully develop all information relevant to the determination of the facts of the dispute and the precise position of each party.

All participants will refrain from statements that are unduly argumentative or contentious. The proceedings will not be recorded and witnesses will not be sworn. However, all participants will be expected to be forthright in their statements and to be fully open and honest in their dealings with each other. Attorneys may participate in the discussion and may call on other personnel when necessary to ensure that they contribute their knowledge to the discussion.

Attorneys will not cross-examine witnesses of the other party. The parties may, by mutual agreement, waive these statements. Following the proceedings described in Paragraph 4, the principals and the neutral advisor will meet to negotiate a settlement that is fair to both parties. The principals may conduct these discussions with or without the neutral advisor. The principals may also request the neutral advisor to present his views on any issues or to propose resolution of one or more of the issues in dispute.

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Performance-Based Contracting in the Air Force: A Report on Experiences in the Field Performance-Based Contracting in the Air Force: A Report on Experiences in the Field
Performance-Based Contracting in the Air Force: A Report on Experiences in the Field Performance-Based Contracting in the Air Force: A Report on Experiences in the Field
Performance-Based Contracting in the Air Force: A Report on Experiences in the Field Performance-Based Contracting in the Air Force: A Report on Experiences in the Field
Performance-Based Contracting in the Air Force: A Report on Experiences in the Field Performance-Based Contracting in the Air Force: A Report on Experiences in the Field
Performance-Based Contracting in the Air Force: A Report on Experiences in the Field Performance-Based Contracting in the Air Force: A Report on Experiences in the Field

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