© 2007 noblis, inc. assessment of performance-based contracting presented to: 2007 region 4...
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© 2007 Noblis, Inc.
Assessment ofPerformance-Based Contracting
Presented to: 2007 REGION 4 ENVIRONMENTAL PROTECTION AGENCY / DEPARTMENT OF DEFENSE / STATES / ENVIRONMENTAL CONFERENCE
Date: June 20,2007 Authors: Jon Horin, Cathy Vogel, Fred Price, Bob EdwardsNoblis
2Company Confidential/Proprietary
Introduction
• Performance-Based Contracting (PBC) vs. Other Contract Vehicles
• Criteria for Determining When to Use PBC
• Achieving Best Value With PBC
• Evaluating Strength of PBC Offerors
• Lessons Learned from Past PBC Efforts
• Key Information Sources
3Company Confidential/Proprietary
PBC vs. Other Acquisition Approaches• With PBC, the Air Force buys results instead of
compliance, and contractors have maximum flexibility to select and implement the best practice to achieve the goal
• Air Force shares the risk with the contractor in order to encourage accelerated completion of goals
Contract Type Risk to Contractor
Completion Incentive
Sites Best Suited to This
Situation
Typical Payment Format
Time and Materials
Low Low Poorly Characterized or Variable Scope
Hours Worked at Set Rates
Cost Plus Fee Low to Medium
Medium Poorly Characterized or Variable Scope
Payment for Costs Incurred
Process Oriented Firm Fixed Price
Medium High Well Characterized with Firm Objectives
Payment Linked to Completion of Scope
Performance-base Firm Fixed Price
Medium to High
High Well Characterized with Firm Objectives
Payment Linked to Performance Objectives
4Company Confidential/Proprietary
Criteria for Determining When to Use PBC
Possible PBC Criteria Include:– Extent of site characterization
– Degree of regulator support
– Flexibility of legal agreements
– Clarity and achievability of government goals
– Adequacy of time for preparation and award of contract
– Impact on the government of failure
– Grouping sites for PBC results in risk acceptable to contractors and government
5Company Confidential/Proprietary
Achieving Best Value With PBC
• Review the draft Statement of Objectives (SOO) to determine:
– Clear, measurable objectives and goals
– Potential for modifications
– Financial requirements
• Consider additional factors such as previous experience with fixed-price contracts, and innovative solutions
• The solicitation must require that the offeror propose a clear and comprehensive explanation of what will be accomplished and in what amount of time for a fixed amount
• The Independent Government Estimate (IGE) should be in line with the cost to complete (CTC); the offeror’s proposed cost should be in line with these numbers. Large deviations should be evaluated
6Company Confidential/Proprietary
Evaluating Strength of PBC Offerors
Evaluation factors can include:– Contractors Qualifications
• Financial resources• Financial stability• Staff qualifications• Past performance• Technical approach
– Risk of Proposed ApproachFinancial risk mitigation through:
– Contingency planning– Teaming arrangements – Environmental insurance
» Cleanup cost cap» Pollution and legal liability
– Proposed Milestone and Payment Schedules– Cost/Price
7Company Confidential/Proprietary
Financial Stability
• The Federal Acquisition Regulation (FAR) states “Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only”
• An offeror must have adequate financial resources to perform the contract—or the ability to obtain them—to be determined to be responsible
8Company Confidential/Proprietary
Evaluating Financial Stability
FAR Section 9.104-1 Standards
– An offeror must have a satisfactory record of integrity and business ethics to be determined to be responsible
– An offeror must have the necessary accounting and operational controls
– Special standards can be developed and set forth in the solicitation
9Company Confidential/Proprietary
Financial Requirements for Small Businesses
Small businesses found "not responsible" (i.e., unable to achieve the minimum financial requirements) are referred to the Small Business Administration (SBA)
– SBA conducts further assessment
– SBA can issue a Certificate of Competency (COC) if the small business is found to be competent, preventing elimination on the basis of non-responsibility
10Company Confidential/Proprietary
PBC Execution with Insurance: Cost Elements
Cost risks determined by Monte Carlo analysis by contractor and insurance vendor
Contingency calculated to cover 98% probability of completion. Insurance kicks in at 99.9% probability of completion.
Co-pay influenced by exclusions
Insurance Claim Payment
Co-
Pay
10-
15%
Deductible 15-20%
Insurance Premium 10-15%
Fee and Overhead
Contingency 10%
Cost
Gua
rant
eed
Fix
ed P
rice
Rem
edia
tion
(GF
PR
)/P
BC
G
over
nmen
t C
ost
Insu
ranc
eC
over
age
11Company Confidential/Proprietary
PBC Execution with Insurance:Dollars vs. Time
$
Time
Best Outcome
Government Payments
Contractor Share
Exp
ecte
d C
ompl
etio
n of
Rem
edia
tion
Goa
ls
Per
iod
of
Per
form
ance
/T
erm
of
Insu
ranc
e
12Company Confidential/Proprietary
PBC Execution with Insurance:Dollars vs. Time (Continued)
$
Time
“Insurance Payments”
Expected Outcome with Insurance
Contractor Share
Government PaymentsE
xpec
ted
Com
plet
ion
of R
emed
iatio
n G
oals
Per
iod
of
Per
form
ance
/T
erm
of
Insu
ranc
e
13Company Confidential/Proprietary
PBC Execution with Insurance:Dollars vs. Time (Concluded)
$
“Insurance Payments”
When Things Go Wrong
Contractor Share
Government Payments
Time
Exp
ecte
d C
ompl
etio
n of
Rem
edia
tion
Goa
ls
Per
iod
of
Per
form
ance
/T
erm
of
Insu
ranc
e
14Company Confidential/Proprietary
Lessons Learned from Past PBC Efforts• Select sites for PBC only after careful analysis – must be sufficiently
characterized
• Involve the installation staff early in the process
• Dense, non-aqueous phase liquid (DNAPL) in groundwater may be difficult for PBC because it is hard to achieve site closure – soil contamination often presents less uncertainty
• Remedial Process Optimization analysis prior to PBC acquisition “primes the pump” for innovative solutions
• SOO must have clear and achievable objectives (reflected in the Quality Assurance Surveillance Plan [QASP]) and milestones, but must also allow the contractor adequate flexibility to encourage innovative proposals
• Significant payment must be reserved for final milestone to maintain completion incentive
15Company Confidential/Proprietary
Lessons Learned from Past PBC Efforts (Concluded)
• Provide for adequate time and resources for the acquisition effort
• Participation of Major Command and Installation staff is critical to the success of PBC
• Regulator response or input is desirable during the solicitation process
• Post-award efforts must begin immediately and require Air Force involvement
• Soon after award, the PBC contractor should meet with Installation staff and regulators
• Air Force must have current knowledge of ongoing efforts by contractors and should not be surprised by contractor actions
16Company Confidential/Proprietary
Key Information Sources
Environmental Restoration Performance-Based Contracting Guidebook, US Air Force Office of the Civil Engineer, Air Force Center for Environmental Restoration, December 2005.
Environmental Restoration Performance Based Contracting (PBC) Concept of Operations, Air Force Center for Environmental Excellence, Final, 22 February 2007.
US Army Environmental Center Performance-Based Contracting Guidebook, rev. 1, 27 January 2006.
Use of Environmental Insurance by the Military Departments, Department of Defense Office of the Inspector General (D-2006-080), 27 April 2006.
Memorandum from SAF/IEE “Air Force Cleanup Program Performance-Based Management Policy,” 27 October 2004.
Memorandum from HQ USAF/ILEV “Performance-Based Contracting (PBC) Guidebook,” containing goals for percentage of PBC contracting each fiscal year and PBC goal calculation guidance, 22 December 2005.
17Company Confidential/Proprietary
Environmental Restoration Performance Based Contracting (PBC) Concept of Operations
http://www.afcee.brooks.af.mil/products/pbc/meeting/downloads/AFCEE%20PBC%20CONOPs%20FINAL%20v2.1%2002222007.pdf
http://www.afcee.brooks.af.mil/products/pbc/insurance.asp
18Company Confidential/Proprietary
Summary
• PBC is one option for environmental contracting but is not always the best approach and must be evaluated in each instance
• The acquisition process can take longer for PBC but is a critical step for success
• A PBC contract may be awarded on best value, not simply lowest cost
19Company Confidential/Proprietary
Summary (Concluded)
• Best value is established based on consideration of a variety of factors
• The financial strength of an offeror should be considered to reduce failure due to risk
• Future PBC should take advantage of the lessons learned in past and ongoing PBC efforts.