Contracting for Capability — performance-based contracting for mission readiness and assurance

The Department of Defense (DoD) is pursuing war-winning capabilities that include better integration between planning, procurement, logistics, and support. They are demanding a well aligned and integrated supply chain to efficiently provide readiness down to the last tactical mile. Traditional procurement and service support models no longer meet requirements for battlefield readiness or Mission Assurance. The DoD expects performance-based contracting to deliver this integration.

What is performance-based contracting?
Performance-based contracting is the DoD’s preferred acquisition strategy for future major procurements, major modifications, and upgrades. This approach will maximize competition, innovation, and interoperability. Acquisition managers are required to use performance-based contracting for systems, subsystems, and spares that are procured beyond the initial contract award.

Moreover, the Government Accountability Office (GAO) is requesting more definite cost savings and performance details from programs. They will most likely require more stringent cost and performance tracking techniques, which will start earlier in programs. Government and contracting entities must be able to provide a business case that justifies the cost savings of traditional acquisition support. Companies contracting with the government will need to have sufficient cost and performance tracking systems in place.

How can we best provide performance-based contracting?
Making the supply chain perform so you can properly value, track, and assess sequencing and synchronization of core service missions across a foreign battlefield and wide supply base is a formidable task.

Successful implementation requires a shift away from linear movement along the supply chain. Rather, supply chain managers need to think about their value chain — every process, system, and stakeholder contributes to and is measured against the same end goal. All stakeholders understand the implications of failure at any point in the value chain against the all-or-nothing criteria of Mission Assurance.

To accomplish this direct accountability, a specific methodology has been developed: Contracting for Capability through Performance-Based Logistics (PBL). It is defined by three activities: 1) integration between acquisition and logistics for total system life-cycle, 2) incentives, and 3) performance goals.

Companies can provide different levels of responsibility within PBL, as well as contract at the system or subsystem level. PBL includes flexible sustainment, but also incorporates direct vendor delivery (DVD), technology insertion, reliability-centered maintenance (RCM), process improvement, business re-engineering, and public/private partnering and teaming.

It is important to determine the most advantageous PBL partnership, including supply agreements, parts contracts, maintenance contracts, and even full sustainment contracts for total life-cycle support. Companies need to lay the foundation now to deliver a flexible and agile performance-based system.