on Monday, March 25, 2002 - 03:44 pm:
I recently read in NCMA Magazine that you had published an
article(that I cannot locate) dealing with subject above. Would
you please send me the article or tell me your thoughts relative
to this issue?
As I understand the Letter to the Editor which referenced your
article, you felt that Performance Based Contracts are not
exactly the way to go and that Relational Contracts are much a
much better vehicle.
Your thoughts please, thank you.
Vern Edwards on
Monday, March 25, 2002 - 04:36 pm:
The article was "The Challenge of Service Contracting,"
published in the October 2001 edition of Contract Management
I have three problems with performance-based contracting, as
currently defined in FAR 2.101. First, the requirement for
specific, ex ante specification. Second, the requirement
for objective performance standards. Third, the requirement for
measurable performance standards.
Specific Ex Ante Specification
In my opinion, long-term (one year or longer), complex
(multi-function or multi-task) service requirements are too
complicated and ad hoc in nature to permit the development of
specific, ex ante (in advance) descriptions of requirements.
Thus, the appropriate contracting solution is to write the
statement of work in a manner that will enable the parties
cooperate to determine the government's requirements after award
on an ad hoc basis, rather than to specify them in advance. This
is the relational contracting approach.
Objective Performance Standards
Marketing research about service contract quality indicates that
customer assessments of service quality are highly subjective in
nature. See, for example, Service Quality: New Directions in
Theory and Practice, by Roalnd T. Rust and Richard L. Oliver
(Sage Publications, 1994). Given the subjective nature of
service quality00, I think that it is impractical and unwise to
require agencies to develop objective (i.e., not subject to
judgment) quality standards. It is essential that contracting
officers be allowed to terminate service contracts for
convenience when, in their judgment, the contractor cannot or
will meet its customer's subjective standards. That, too, is a
relational approach to contracting.
Measurable Performance Standards
Assuming that the policy makers have used the word "measurable"
literally, that means that they want agencies to specify
standard units and numerical scales for the measurement of
service quality. While this may be possible for some service
requirements it is difficult or impracticable for the most
important ones, even when agency personnel have received
training in how to develop constructed scales. Thus, we see
performance work statements which set measurable standards for
the timeliness of contractor-submitted reports, but not for the
quality of the reports. The requirement for measurability leads
to the establishment of performance standards for the more
trivial aspects of performance.
Relational contracting theory recognizes the impracticability of
ex ante specification of long-term, complex service
requirements and the need for an ad hoc, cooperative approach to
contracting. My article cites several references to more
extended discussions of those ideas. If you send an email to me
with your fax number I will send you a copy of the article. I
wrote a related article, "The Service Contracting Policy Mess,"
which appeared in the November 2001 issue of The Nash &
Cibinic Report. I will send you a copy of that, as well.
A relational approach to contracting is generally
results-oriented, but it does not entail the ex ante
specification of specific requirements or the ex ante
development of objective and measurable performance standards.
Rather, it may well rely on ad hoc, post award specification and
subjective, nonquantified standards.
McWms on Tuesday, March 26, 2002 - 09:32 am:
Does using "relational contract"
specifications limit the type of contracts (fixed price, cost
type, etc.) that can be employed?
Vern Edwards on Tuesday, March 26, 2002 - 10:57 am:
No. But the use of a firm-fixed-price contract will necessarily
limit the ad hoc nature of the relationship.
However, one way to deal with that problem is to negotiate what
I call a "manage to budget" contract. The parties agree to a
contract budget (in effect, a ceiling price) and then work
together to decide how to spend the money, with advance
agreements about significant costs and rates as discussed in FAR
Rose McWms on Tuesday, March 26, 2002 - 12:51 pm:
Thanks Vern. Your "manage to
budget" contract would appear to dovetail nicely with using Cost
as an Independent Variable (CAIV); do you agree?
Vern Edwards on Tuesday, March 26, 2002 - 01:34 pm:
You bet. That's a good idea.
Vern Edwards on
Tuesday, March 26, 2002 - 02:42 pm:
Think about a "manage to budget"
contract with a share-in-savings incentive and an award-term
Instead of a clear, specific Performance Work Statement with
objective and measurable performance standards and a
fixed-price, the contract would include a Statement of
Service Functions and Objectives and a budget amount set by
the government. Price competition would be based on proposed
advance agreements about direct and indirect cost rates.
After award, the parties would work together on an ad hoc basis
to identify requirements, specify performance threshold and
objective standards (Rose, that's your CAIV), set priorities,
allocate budget, schedule activities, make adjustments and
assess results. In this kind of relationship the parties would
share risk, rather than allocate it in advance.
If the contractor is able to deliver the required results under
budget, then it gets to share in the savings and receives an
award-term extension. The contractor's share in savings would
vary depending on whether it met the threshold or objective
standards, with a higher share for meeting objectives. If the
contractor does not deliver the required results, then the
government would have the option to terminate the contract
without cause (for convenience), with settlement determined on
the basis of an advance termination settlement agreement
proposed and negotiated prior to contract award. The
government's decision in this regard would turn on the question
of whether the thresholds and objectives were, in hindsight,
realistic and whether the contractor performed competently and
in good faith.
This kind of contract would require the utmost in
professionalism and business acumen on the part of all parties,
including both contracting and noncontracting personnel.
In the right hands -- knowledgeable, competent, mature -- this
would work very well. And I believe that it would be easier to
implement and would produce better results than the current
emphasis on writing, ex ante, clear, specific, objective
and measurable performance work statements.
If anybody would like to try this and can get the support of
their management (contracting and technical) to give it a try, I
would be happy to help write their Statement of Service
Functions and Objectives, their share-in-savings provision,
and their award-term provision, at no charge. I am also willing
to come to your office to brief your decisionmakers (contracting
and technical) about the concept if they will agree to show up.
on Tuesday, March 26, 2002 - 04:15 pm:
The fatal flaw in your proposal is the necessity for "the utmost
in professionalism and business acumen on the part of all
parties ... knowledgeable, competent, mature".
What's needed is active, engaged, flexible and knowledgable
contract/performance management of the contract after it is
In my experience most of those who generate the contract
requirements and are the contract users want to either award the
contract and forget about it, turn things over to the contractor
without any real oversight and beat the contractor up if results
aren't what they want (even if desires were unclear); or the
users really want a personal services contract so they can treat
the contractor as direct employees without civil service
protections and tell them what to do on an ad hoc basis.
There are exception to this where you have real program managers
on real programs, but these tend to occur in environments so
overblown with bureaucracy and risk avoidance that they would
never try your approach even if they understood it.
Anon2U on Tuesday, March 26, 2002 - 10:40 pm:
Anon 4:15Pm is right in my
No one in my organization has the time to administer that
complicated a contract. We mostly award IDIQ labor hour and let
the program offices calculate the hours worked and sign the
invoices. One large contract like you are discussing might
require a full time administrative contracting officer (or
We are cradle to grave. I have 9 contracts plus do simplified
Acqs, BPAs, and extra details. Its so nice to be needed :>)
Vern Edwards on Wednesday, March 27, 2002 - 12:21 am:
Anonymous and Anon2U:
Should I take your comments to mean that you won't be calling me
any time soon?
DSWms on Wednesday, March 27, 2002 - 08:43 am:
Thank You so much for responding to my question in such a timely
manner. I thought I had included my EMAIL address but being a
first time "chatter" I may not have done everything just so.
Joel Hoffman (I know you know him)and I work together and he
suggested I write you because he knew you would be very
responsive and very helpful.
FAX: (256) 895-1247
Vern Edwards on Wednesday, March 27, 2002 - 08:53 am:
DSWms and Mike:
I'll fax the articles to you this afternoon. I prefer to fax
them so you can see them in the form in which they were
Anonymous2 on Wednesday, March 27, 2002 - 11:36 am:
Anonymous and Anon2U note an
attitude that is all too common. I believe it may be a common
confusion between the receiving agency's responsibility when
buying commodities, easily specified items (possibly simple
services) and that when entering into a more complex
relationship. Differences are covered in various training
courses and literature without seeming to soak in to the level
of understanding for management and even the acquisition people
in some agencies. I want to say it is only in those
inexperienced agencies where complex service contracting is new
or rare. That desire hasn't proven to be sound.
Continued attempts to do complex contracting with simple
outlooks and inappropriate tools is expensive and wasteful. I
don't know what the solution might be. Current training and
education certainly has little effect at the problem's source. I
believe that is the agency management level. Anonymous' comment
that the attitude is "award the contract and forget about it,
turn things over to the contractor without any real oversight
and beat the contractor up if results aren't what they want
(even if desires were unclear); or the users really want a
personal services contract so they can treat the contractor as
direct employees without civil service protections and tell them
what to do on an ad hoc basis" is not uncommon in my first and
second hand observations.
Training and testing the contracting professionals will do
little good as long as their masters remain ignorant of basic
cause and effect rules in contracting. One of those is that you
get out of a contract the quality you put into your share of the
work. Does anyone support the idea that proven capability in
acquisition basics should be an absolute requirement for
promotion in management? With increasing dollars going to
outsourceing that seems a reasonable requirement. I saw no sign
of that in the Services Acquisition Reform Act 0f 2002 language
on Wednesday, March 27, 2002 - 11:48 am:
For the manage-to-budget idea ..
Interesting. Would Sections L and M look any different (other
than price, as you mentioned)? Seems as though flexibility would
be a key discriminator (but how to demonstrate?) as well as past
performance managing to cost/schedule. Would the Statement of
Service... look similar to a Statement of Objectives? Would you
recommend an escape clause for the contractor to exit the
contract (letting my imagination run wild .. what if the Govt
wasn't active, flexible, mature)?
Vern Edwards on
Wednesday, March 27, 2002 - 12:38 pm:
Some preliminary responses:
Statement of Service Functions and Objectives
1.1 Agency Mission and Organization
1.2 Performance Context
1.3 Performance Budget
1.4 Government-Contractor Relations During Performance
2.0 Scope of Service Functions
(Brief, general descriptions of the kinds
of tasks that the contractor will have to perform)
3.0 Applicable Documents
4.0 Government-Furnished Property, Facilities and Services
5.0 Required Reports and Deliverable Data
RFP Section M
Evaluation would be based on a "due diligence" approach and
would include factors such as: organizational experience,
organizational past performance, organizational factors and
resources (including subfactors such as accounting system,
personnel system, and key personnel qualifications), and price
(based on proposed advance agreement on salaries, labor rates,
fringe benefits, and other costs).
RFP Section L
The proposal instructions would describe the manage to budget
approach and request the information relevant to the evaluation
factors. Offerors would not be asked to submit technical
proposals that describe a "proposed approach."
Mike Wolff on
Thursday, March 28, 2002 - 09:14 am:
Thanks for the fax - it was very enlightening. The service
contracts I deal with are for maintenance to real real property.
Do you agree with Ralph Nash's comment that these type of
contracts "do not fit [your] description of service contracts"?
Vern Edwards on Thursday, March 28, 2002 - 09:42 am:
You're welcome. No, I don't agree with Ralph entirely.
For the benefit of other readers, Ralph Nash wrote a response to
my article in The Nash & Cibinic Report in which he
stated that while relational contract theory applies to
professional, administrative, and management support services,
he does not think it applies to maintenance, repair, and
rebuilding or alteration of equipment and real property. I don't
I think that relational contract theory applies to any long-term
(one year or longer), complex (multi-function or multi-task)
contract, including contracts for supplies. (The original
articles about relational contract theory discussed long-term
But I believe that Ralph was not referring to the kinds of
long-term, complex maintenance and repair contracts that we
often see today.
What do you think about John's comments?
on Thursday, March 28, 2002 - 12:17 pm:
Who is John and where are his
Mike Wolff on
Thursday, March 28, 2002 - 01:29 pm:
Anon 3/28 12:17 - John is John
Cibinic, and his comments are in response to Vern's article
referenced in the posts above.
I do agree with John that a CO ultimately has to make a proper
business decision about whether perfomance based contracting is
applicable to the procurement they are working on; however, I do
agree with you that OMB is putting undue pressure to make
everything performance based. (Just as they are obsessed with
calling everything a Commercial Item.)
I am a little concerned with John's discussion regarding
specifications. I am concerned with his example about using
funtional specs (or performance based specs for that matter) in
security services for a Government installation. I know this is
only an example, however guard/security services is an example
of one area where I think we should be prescriptive. I also want
to get more info. on his statement that "the contractor's
proposal should not be made a part of the contract
requirements." If anyone has a copy of the article,
"Performance-Based Contracting: Incorporating the Proposal in
teh Contract, 14 N&CR 47) I'd appreciate it if they would e-mail
or fax it to me.
Frequently I find that people discuss performance based
contracts vs. prescriptive based contracts as if they are
mutually exclusive. In reality, at least with the contracts I
deal with, I find that a blending of the two approaches works
Vern Edwards on Thursday, March 28, 2002 - 09:02 pm:
I didn't like John's idea about security services, either. Last
year an agency asked for my input to an S.O.W. for security
services and I told them that I didn't think a pure
performance-based S.O.W. for security was a good idea. Should
the government let a contractor decide whether or not to arm the
guards, or let the contractor select the method of inspecting
the persons and personal belongings of government employees and
visitors? I don't think so. Sometimes the government has to tell
the contractor how to do the job, or at least provide a list of
formerfed on Friday, March 29, 2002 - 08:13 am:
Thanks for faxing the articles. I really like the concept. The
only potential pitfall is the lack of actual experience in
crafting performance thresholds and objective standards might
result in less than an ideal situation. For example, a
contractor might find themselves in a situation where its to
their advantge to keep costs low and share in a large potential
savings than delivering top performance. I think too often
enough thought doesn't go into formulating these factors, and
that people with the expertise and experience aren't involved.
Consequently, what motivates and doesn't motivate is a gamble.
Of course, you advocate making adjustments and that would work
with the right contractor. I hope someone takes you up on your
offer to help so it can be tried.
Vern Edwards on Friday, March 29, 2002 - 08:51 am:
That's the kind of problem that the parties will have to discuss
openly under a relational contract--the tradeoff between
performance and cost.
There are several possible solutions to the problem that you
have identified. Share-in-savings might in addition to other
sources of profit or fee, such as award-fee. Also, the
award-term incentive might offset the loss of some profit.
But you are right--this type of contract would require knowledge
and know-how on the part of both parties. As John Cibinic said,
"Therein may lie the rub."
Isn't it a shame that so many people (including some Anonymouses
in this thread and the Administrator of OFPP) think that the
government's options are limited because it doesn't have enough
contracting officers who are capable of negotiating and
administering complex deals? I wonder if they are right.
formerfed on Friday, March 29, 2002 - 09:19 am:
Your question made me think about how many contracting officers
I know capable of doing this. I know several with the abilities
and knowledge, but they got promoted to positions where they now
couldn't afford to do it. Another group of contracting officers
are in such demand and so overworked, their management would be
reluctant to free them up. That leaves a very small remainder.
This also reminded me of the prior thread on training and the
question is why are there so many contracting officers who
aren't capable of doing what's really important?
Vern Edwards on Friday, March 29, 2002 - 10:16 am:
I often hear that contracting officers are overworked. This is
the kind of claim that you have to take at face value, since we
don't have any empirical data on which to base an analysis.
If the claim is true, it might be due to any or a combination of
(1) Drastic cuts in the 1102 workforce during the 1990s, which
have left many offices understaffed.
(2) The clericalization of 1102 work which has resulted from
office automation and the reduction of contracting clerical
support. Contracting officers and contract specialists are
required to spend too much of their time doing clerical work,
such as preparing announcements for FedBizOps and completing
various forms, such as SF279 and DD3350.
(3) Poor contracting process design and management, which
absorbs needlessly large amounts of time and energy, not only by
contracting folks, but by requisitioning offices, too, and which
is due to contracting officer incompetence. Witness the
Finlen Complex, Inc. decision, B-288280, October 10, 2001,
and the more recent Kathryn Huddleston and Associates, Ltd.,
decision, B-289453, March 11, 2002.
(4) Poor office management by many of those promotees you
mentioned, who got promoted because they were good contracting
officers, but who don't have a clue about how to manage people.
I'm sure that others could identify other causes.
Mike Wolff on
Friday, March 29, 2002 - 10:29 am:
One reason COs don't have time to
try these complex methods is because they are too busy dealing
with nuisance protests. The current system makes it way too easy
to protest. Even when you have an airtight award, if you get a
protest you still have to respond to it. Even if you win 100% of
your protests, you cannot help but get a little conservative.
Win or lose, protests eat up a lot of time. I believe that
losing protesters should be required to reimburse the Government
for reasonable administrative costs incurred to defend against
the protest, and to pay for court costs if the protest is to
GAO. This may stop some of the ridiculous protests that we
Vern Edwards on Friday, March 29, 2002 - 10:33 am:
I'm surprised to hear this. Protests are way down in
number from what they were in the late 1980s and early to mid
1990s. The reduction in numbers has been dramatic and
anon29 on Friday, March 29, 2002 - 10:35 am:
Why do you think capability to do
serious contracting well is really important? According to one
economic theory the only indicator of importance is money
willingly spent. "Good" things suffering lack of cash are just
posturing, not important.
If great skill in effective contracting (or teaching, child
care, nursing and any number of other "worthy," low paid
careers) were really important the public and their elected
representatives would put the cash behind the importance.
Instead, as you say, those who can leave and cannot afford to go
back to effective contracting. Isn't this like teaching? The
great classroom teacher either vows eternal low pay and career
ceiling unless they leave to become administrators in the system
or leave it entirely. A contracting person who can leaves, those
who cannot or suffer from some strange and rare dedication stay
and cope with poor tools and overwork. Those conditions lead to
increasing population in the field by those who can't.
Perhaps the only real importance here is obligating funds on
time. An acquaintance, a "conservative" editor of a national
magazine that helps form public opinion, surprised me with such
a view. I mentioned being pleased with how effective and
professional a contracting organization I was working with
seemed. He discounted the idea of effective contracting with a
view that federal contracting was nothing more than a mechanism
for taking money from people and businesses that had earned it
and passing it to those who fed at the government's table. The
real purpose was to keep constituents thinking they were getting
something from Washington, the jobs and dollars in local
contracts announced so proudly.
Perhaps it is just the obligation flow that is really important.
Which contracting officer or agency will be in more trouble:
(a) failed to obligate before expiration because requirements
were still unclear and contract would be ineffective
(b) perfect obligation record with long history of problematic
and failed contracts
Vern Edwards on Friday, March 29, 2002 - 11:05 am:
If you think that great classroom teaching doesn't pay well,
you'd better think again. That may be true for grade school
teachers, but as for the university level and the private
sector, you are way off the mark. I'm a classroom teacher and
I'm paid very well. At least I think I am. Do you know something
that I don't?
Your views are deeply cynical. Of course, that alone doesn't
invalidate them. But it seems clear to me than not everyone
shares them, since a great deal of energy and money is and has
been invested in improving the government's contracting
processes. While it is true that many think that obligating
money is a key objective, it is also true that many think that
spending them it is important.
Democratic government is a complex, cumbersome institution that
pursues many conflicting objectives, e.g., full and open
competition and socio-economic set-asides. Conflicting
objectives make it hard to optimize government performance. But
the only way to get rid of the conflicts is to submit to
government by people like the Taliban.
I am no glossy-eyed optimist; but I'm no cynic, either, and I
don't buy your cynical views.
Vern Edwards on Friday, March 29, 2002 - 11:07 am:
I'm getting worse at typing all
the time. I had meant to say that many think that spending the
money well is important.
Mike Wolff on
Friday, March 29, 2002 - 11:09 am:
Up until approximately 1992, the office I work in primarily
procured through sealed bidding, and from 1992-approx. 1997 we
procured through negotiated contracts, but made award to the low
responsible offeror, with only a handful of "best value"
procurements being done. We now do approximately 90+% of our
procurements as "best value" awards - usually only evaluating
price and past performance. This obviously opens the door to
more protests than simply awarding to the low offeror/bidder.
Vern Edwards on Friday, March 29, 2002 - 11:21 am:
I agree that the tradeoff process approach opens the door to
more protests, but are more people going through the door? I
really thought that nuisance protests were way down in number.
Are you folks experiencing high levels of nuisance protests?