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?

Comments (6)

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  • anon

    Could eliminate the metrics and get them in the pocket or wallet. Impose a higher than normal "tariff" and professional insurance to cover them in the event of liability and tort events. And make the duration of the contract very short-term!!

    Nov 25, 2013
  • anon

    How about performance-based delivery? Carriers know the best way to do their jobs. Overall, when given the freedom and accountability to do the job to the best of their ability, I believe the job would be performed more efficiently and productively.

    Aug 13, 2013
  • anon

    Customer service number is always busy. No one ever answers and then it hangs up on you. I went in person to 2 different post offices to try and find my certified letter. Got the run around every time and loads of BS. No one will try to help find it or take any responsibility at all. They are totally inefficient, indifferent and unhelpful. I even spoke to a supervisor in Doraville, Ga. He said it was in the "Delivery Process" and would be delivered "Soon". Today is August 13th. It was mailed on June 24th. I paid $11.00 for certified mail with delivery conformation. I got no delivery no conformation and a lost certified letter. No one could give a damn less. What a rip-off and scam! Maybe they will finally shut down because of this kind of crap. Hope so.

    Aug 13, 2013
  • anon

    All contracts should have a process where OIG and Legal have the option to vet and required sign off before RFP is realized. Too late and expensive to fix after contract award. Only way to get performance based in line

    Aug 12, 2013
  • anon

    When Postal Contractors violate their contract are they fined or punished for their actions? Does the USPS inspect and audit these contractors? If an individual witness's a contractor's wrongdoing while processing or transporting the mail, I guess you would advise them to report the action. Does the USPS compensate or pay a finders fee for reporting the wrongdoing. The consequences can be very harmful to that individual's livelihood.

    Aug 16, 2013
  • anon

    The point is to make requirements with performance based specifications. These specs must be well defined and easily measured with realistc metrics tracked and over a statistically significant time period. Not snap shots; but trend data analysis to ensure performance is realizable and consistent.

    Aug 16, 2013

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