Performance Based Contracting Slide 1

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 Invitation to Bid (ITB) Invitation to Negotiate (ITN) Most Appropriate for Specific Commodities Performance Based Contracts Evaluation Factor 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 Total cost of ownership company Quality of goods/services Risk Assessment of the proposed solutions Proposed Technical Performance Availability and cost of technical support Financial Stability Past Performance Cost of training Cost/Price Slide 8

Making a Contract Performance Based Step 4 Monitoring Step 3 Contract Management Incentives Step 1 Planning Understanding Achievement Goals Step 2 Acquisition Strategy Making Performance Based Partnerships Slide 9

Step I: Planning Understanding Achievement Goals Primary Goals “The primary goal of Performance Based Contracting is the achievement of the BEST VALUE for 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 Skills Abilities Contract Law Current Leverage 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