EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503


May 22, 1998


MEMORANDUM FOR AGENCY SENIOR PROCUREMENT EXECUTIVES AND THE DEPUTY UNDER SECRETARY OF DEFENSE (ACQUISITION REFORM)

{original signed by}
FROM: Allan Brown
Acting Administrator

SUBJECT: Performance-Based Service Contracting (PBSC)


PBSC increasingly is being recognized as a major Government management reform initiative. This memorandum is intended to apprise you of recent developments, offer a governmentwide structure for stimulating use of PBSC, and request PBSC-related reports and information.

Background

Section IV of the FY 1999 Budget describes the Administration's plan to focus on selected priority management objectives in 1998 and 1999. One objective, acquisition reform, relies on agency commitments to convert contracts to PBSC as the primary performance measure. The FY 1999 OMB Performance Plan, provided to Congress with the budget pursuant to the Government Performance and Results Act, establishes specific performance goals and objectives, one of which is to work with agencies to promote the use of PBSC. For their part, agencies identified over 1,000 contracts valued at over $20 billion which they have committed to convert to PBSC over the next few years.

The OMB Director will track the PBSC conversion initiative on a monthly basis. The reporting structure assigns OFPP lead responsibility, with primary reliance on the Resource Management Organizations (RMOs, OMB's budget organizations) to monitor progress of their respective agencies.

The OMB Strategic Plan for FY 1998-2002, contains the general goal of ensuring the execution and management of the budget, as well as programs, regulations, and policies. One of the objectives under this goal is to "achieve savings, improve quality and increase customer satisfaction in agency procurement programs." OMB committed to providing agencies guidance to fulfill this goal, using the dollar value of PBSC contracts as a measure.

PBSC Pilot Project

The governmentwide PBSC Pilot Project has been completed, and the report has been published. The participating contracts experienced an average price decrease of 15 percent in nominal dollars and improvement in customer satisfaction with contractor performance of over 18 percent. The findings clearly underscore PBSC’s benefits, which heretofore have been reported only anecdotally. This report provides additional support for the importance assigned PBSC conversions in the Budget and OMB’s and agencies’ initiatives. Many thanks go to the agencies and their staffs that participated in this successful project. A copy of the report is attached.

Categories of Services Conducive to PBSC

To assist agencies in converting to PBSC, the OMB Director instructed OFPP to identify services that are most conducive to PBSC methods. Accordingly, the attached list identifies services particularly appropriate for PBSC. It stems from the review of: agencies that have generated extensive experience with PBSC and developed and made available contract documents for these services; professional and technical services for which PBSC templates have been developed by interagency working groups; and Federal Procurement Data System classifications. Please use this list when identifying PBSC candidates.

Agency PBSC Conversion Plans

In response to the Director’s request, agencies developed plans which identified contracts for conversion to PBSC methods over the next few years. In addition, the 20 agencies which spend the most on service contracts proposed specific targets for FY 1999. These agencies will be requested by their cognizant OMB RMOs to provide quarterly progress reports on their conversion activities. The first submission will cover the first nine months of FY 1998, and will be due July 31, 1998. Subsequently, the RMOs will work with the agencies to identify and request selected converted contracts for review against the PBSC Solicitation/Contract/Task Order Review Checklist (Exhibit 3 of the Pilot Project report) to ensure they meet PBSC requirements.

PBSC Measurement Criteria

In addition to the numbers and associated dollars of contracts converted to PBSC, contract measurement criteria also will be required to effectively assess agency PBSC performance and become part of the quarterly reports. OFPP proposes the criteria used in the PBSC Pilot Project -- contract price and customer satisfaction with contractor performance (quality, quantity, timeliness, cost effectiveness, and overall). Agencies found the Pilot Project Contract Measurement Data Sheet (Exhibit 7 of the Pilot Project report) easy to use while providing sufficient information. Agencies may use alternative formats so long as they provide equivalent information. Any proposed alternatives should be provided to OFPP for review by June 19, 1998.

PBSC Best Practices Guide

We also plan to finalize the Interim PBSC Best Practices document. In order for the document to be as comprehensive and current as possible, we solicit your recent best practices and lessons learned. Please send any you may have to Stan Kaufman by June 19, 1998. Stan can be reached at 202-395-6810, fax 202-395-5105.

Attachments

cc:

PBSC Agency Points of Contact
PMC Members

May, 1998



TARGETS OF OPPORTUNITY FOR PERFORMANCE-BASED SERVICE
CONTRACTING (PBSC)


The categories of services on this list are PBSC targets of opportunity with high payoff potential in terms of savings and improved mission support. The list is intended as a guide, and not to be all-inclusive or restrictive. Services not on the list also may be well-suited to PBSC, especially if they are recurring. This list will be updated periodically to incorporate agencies' experiences.

The following services have been acquired successfully, frequently and historically by agencies using PBSC methods. Fixed price contracts should be the rule when contracting for these services.

The following services have been acquired successfully, but relatively recently, using PBSC methods and PBSC templates have been developed for these services by governmentwide working groups. Thus, fewer examples exist. Fixed price contracts should be the rule when contracting for these services.

The following services offer significant opportunities for using PBSC methods, but to date experience is limited to pilot projects and/or PBSC templates.