Federal agencies are to shift even more of their contracts to a system where the contractor determines how to meeta set goal instead of following a detailed list of instructions laid out by government officials.
Agencies are to make 50 percent of their service contracts performance-based instead of specification-based during the coming years, according to a memo issued last week by Federal Procurement Policy Administrator Paul A. Denett.
“We feel like 50 percent is a realistic goal for fiscal year 2008,” said Rob Burton, deputy administrator of the Office of Federal Procurement Policy.
The 50 percent benchmark is the “most ambitious” in procurement history, according to Burton.
During fiscal 2006, the performance-based approach was applied to contracts worth 40 percent of the money spent by the government on services.
Some agencies, such as the Department of Defense, exceed the 40 percent goal in 2006, said Burton.
While all the data is not in for fiscal 2007, it appears as though the 45 percent goal set for fiscal 2007 will be met.
More than half of all government procurement is for services, noted Burton.
The approach could bring down the costs of contracts if done properly, Burton added, by reducing the number of modifications, and reducing the time, money and labor devoted to spelling out how the services will be provided in specification contracts.
The decision “fits with the shift that’s taken place from [research and development] toward production with some big systems,” such as the Joint Strike Fighter program, said Paul Nisbet, the principal analyst with aerospace research firm JSA Research Inc.
Investors generally prefer performance-based contracts, Nisbet said, because when incentives are provided, “margins improve with performance,” increasing earnings and stock prices, Nisbet said.
