Outcomes-Based Contracting: An Invaluable Tool That Builds on Proven Practice

A key element of the Administration’s efforts to bring common sense to Federal procurement is pressing agency contracting and program staff to focus on the resources applied to a project (people and dollars) and the results achieved.  For example, in education, is greater funding resulting in higher student test scores? For healthcare, is a new treatment successful in reducing the need for patient hospitalization? In both these cases the perceived benefits of the effort are clearcut. The United Kingdom has been using these methods for over a decade in a variety of public settings and advocates are high on the approach. From a policy standpoint, the technique makes sense since it forces both program officials and contracting staff to agree on what will constitute mission success.

From an acquisition perspective, when projects fail, after-action critiques frequently cite program officials as having failed to clearly describe what they were looking to accomplish. When using an outcomes-based technique, you not only have to know what you want accomplished, but you also must think through how you are going to measure whether you’ve gotten there. From Drucker to Goldsmith and others, measurement is essential to achievement. How to measure is as critical to success as having a well-planned acquisition process and a clearly defined goal. Moreover, that measurement effort needs to be thought through well in advance so that it can be included in any type of agency solicitation. Being able to measure an outcome achieved, however, doesn’t mean that the agency needs to tell the contractor how to do the job.

As Administrator of the Office of Federal Procurement Policy in the early nineties, I introduced a very similar approach, “Performance-Based Contracting,” as a government-wide policy. A major reason for going down this path was to bring new entrants and new ideas into the Federal marketplace.  New technology firms were totally uninterested in low-price government shootouts or in being told how to do their work. So a new avenue was needed to bring their innovations, particularly in information technology, into the government. This focus on results, with fewer prescriptions on methods for getting there, opened up this pathway. This “Performance-based” approach also moved the government toward “Best Value” evaluations and away from low price to determine who best could meet the government’s needs.

As I consider the benefits about moving toward an outcomes-based model, they are quite similar to those we identified back then. The approach welcomes new ideas and efficiencies from firms while prescriptive, compliance-based constraints are reduced. This approach also comports with many of the actions underway as part of the Revolutionary FAR Overhaul, with the benefits of greater flexibility and agility going to both contractors and contracting officials. Performance-based looks to hold contractors accountable for getting the job done, with clearly measured results used to assess success. Outcomes-based contracting does something similar. Both want to pay for results.

As more information is provided on outcomes-based contracting and more agencies move toward this new methodology, they should consider some of the cautions various reviewers have raised over the years about Performance-based. The Report of the Acquisition Advisory Panel (SARA Panel) in 2008, for example, cites issues with the following:

• Agency uncertainties on when to use Performance-based;
• A focus on activities and processes rather than performance and results;
• Poor needs definitions and telling the contractor what to do; and,
• Inadequate performance measures.

From my own experience over the years in getting the policy established and then helping agencies carry it out, problems have ranged from agencies just “checking the box” and calling a solicitation performance-based when it was not, to their focusing on easy to achieve outcomes like timeliness as opposed to measuring the quality of the service rendered. Central to both of these challenges are the yardsticks used to determine progress or success.

Also, when looking for contractor accountability in paying for results, and multiple contributors are at play, including government and industry each playing a part, it’s not so easy to determine who’s at fault when things go south.  This is as big an issue as I’ve seen. Another challenge has been the difficulty in identifying a good solid baseline from which to gauge progress, going back to the caution, “if you can’t measure it, you can’t manage it.”

Finally, ensuring staff are well versed in the technique (another common finding of the Acquisition Advisory Panel – they weren’t) is critical since these are the people who will need to make it work. In addition, another longstanding criticism of the approach has been that needs change over time and the technique is too rigid to recognize that fact and adapt. 

Getting the mission accomplished as efficiently and effectively as possible is certainly a worthy goal. Every effort should be made to help the program and contracting workforce accept this challenge. The IBM Center for the Business of Government and the National Contract Management Association, working in partnership, have a major project underway to show how outcomes-based contracting can be best applied in the US contracting setting, so help may be on the way. Stay tuned!