• on Aug 12th, 2013 in Finances: Cost & Revenue | 6 comments

    Performance-based contracting lets government agencies acquire services using contracts that define what is to be achieved, not necessarily how the work is done. The idea is that contractors have the freedom to define how they will achieve the objectives, which allows them to use innovative approaches. The government benefits by receiving best-value products and services.

    Procurement professionals believe performance-based contracting makes acquisitions better by helping government procurement officials be good stewards of taxpayer dollars — which government contracting is all about. At first glance, it might appear that performance-based contracting transfers a large share of responsibility from government to contractor by requiring the contractor to come up with the actual solution to meet the government agency’s metrics. However, the government procurement official’s responsibilities are not less, they are just different. Performance-based contracting has four attributes: a statement of objectives that describes the desired outcome, measurable performance metrics, a quality assurance plan to monitor the contractor’s performance, and incentives to encourage better performance. Government officials need to be educated in methodologies and metrics to ensure success.

    The U.S. Postal Service uses performance-based contracting for some of its contracts, but not all. A recent Office of Inspector General audit found that the Postal Service does not have adequate controls to oversee performance-based contracts and it does not track this method in its data systems. Thus, it does not always take advantage of the benefits of performance-based contracting. Although officials did not track these contracts, our audit identified six performance-based contracts with incentives valued at $602 million. We also identified two additional contracts that could have been awarded as performance-based contracts but were not, even though postal policy encourages their use because of the potential benefits, such as cost reduction and revenue generation.

    The Postal Service has worked to streamline and improve its procurement process to create a more business-like approach to purchasing and to reduce purchasing costs. The performance-based contracting approach gives the Postal Service an opportunity to further the goals of streamlining and reinvention because it gives contractors more latitude for determining methods of performance, with more responsibility for performance quality.

    What do you think is the best way for the Postal Service to monitor contract performance? How should the Postal Service determine what to monitor and how frequently? What other ways could the Postal Service improve the procurement process?

  • on Sep 24th, 2012 in Delivery & Collection | 3 comments
    The U.S. Postal Service recently reported that its third quarter delivery service performance results marked “all-time record service performance” across all mail categories. In particular, the Postal Service had significant improvement in delivery performance for its commercial mail products in First Class and Standard Mail. Periodicals’ on-time performance topped 80 percent for the first time since 2010, a major improvement over the 46 percent score from earlier this year. The improved service performance in the third quarter occurred while the Postal Service was in the process of consolidating 46 facilities, which some mailers feared would affect service. But initial reports suggest service has not been overtly disrupted by the consolidations, although the real test could come during the fall and holiday mailing seasons. The Postal Service recently completed this first phase of its network rationalization plan, and is now on a break from consolidation until 2013 after the election season. Postal officials have attributed the improvement in service performance to diagnostic tools that show “pinch points” and help managers to act on that information to reduce cycle times. The Intelligent Mail Barcode full-service data, which identifies many potential problems, is also helping and employees are doing outstanding work often under difficult circumstances. It will be important for the Postal Service to maintain strong service performance as volumes pick up during the fall mailing season and election mail is added to the mix. Further, the second phase of consolidations could begin in February 2013 and could have an impact on service. Finally, mailers report that they are not solely concerned with service scores but that the Postal Service delivers the mail as promised. What has been your experience with service over the past few months? Have you been affected by the consolidations? Are you concerned about phase two of the network consolidation plan?
  • on Feb 22nd, 2011 in Labor | 35 comments
    [dropcap style="font-size: 60px; color: #9b9b9b;"] A [/dropcap]sk postal employees about the Postal Service’s Pay-for-Performance (PFP) program and you’ll hear a wide range of opinions as to why they think the program is not working. Many believe the program is unfair and can be subject to manipulation, The IBM Center for The Business of Government, Dr. Carl DeMaio, president of the Performance Institute, Dr. David Norton, president of the Palladium Group and co-founder of the Balanced Scorecard Collaborative, and organizational performance guru Jay Schuster cited the Postal Service’s PFP program as a model because it links individual contributions to organizational success. According to Postal Service officials, the PFP program’s foundation is a balanced scorecard of objective, independently verifiable measures of service, employee engagement, and financial performance. Performance indicators are measured at national, district, business unit, and individual levels. In its 2010 Comprehensive Statement of Postal Operations and Annual Report, the Postal Service stated the PFP program continued to drive organizational achievement as measured by a 2.2 percent increase in Total Factor Productivity (TFP) in 2010 compared to 2009.This marked the ninth year of positive TFP growth since 2000. The current PFP program evolved over a 12-year period and became the only basis for annual salary increases and lump sum awards for executive and administrative employees beginning in 2004. In implementing its PFP program, the Postal Service joined the ranks of many private sector firms where pay for performance is a standard feature for management and executives. In September 2010, many readers commented on our blog about the Postal Service’s PFP program. Comments expressed various opinions and perspectives about the program. Some said the PFP program is “broken” because it’s easy for postal management to manipulate. Others say PFP would be a great thing if the goals were reasonable and within the control of the manager. Many suggested scrapping the program altogether for a variety of reasons. For example, some said established goals are unrealistic and are changed often throughout the year so you end up chasing a moving target; others that the reporting system has no accountability factor and results are falsified; and still others that the ratings are changed or manipulated even when goals are achieved so that you get less of a raise. The OIG plans to initiate a review of the Postal Service’s PFP program. We would like to hear more about your thoughts on the subject. This topic is hosted by the OIG’s Human Resources and Security Audit Team.

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