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PERFORMANCE BASED SERVICECONTRACTING Facility Engineering Associates 2012

Thank you for attending today’s session! Please let us know your name and/or location whenyou sign in We ask everyone to mute their telephone during thepresentation If you have questions or comments, use the chat toolprovided during the presentation At the end un-mute your telephone for generalquestions and answers Please mute cell phones to avoid background noise Do not touch wireless microphones (Fairfax only) Facility Engineering Associates 2012

Kathy PowersProject Manager Facility Engineering Associates 2012 P.E., CFM MS and BS in CivilEngineering Past U.S. Navy Civil EngineerCorps Officer Past warranted Departmentof Defense ContractingOfficer, and AcquisitionProfessional

Learning Objectives Learn the difference between performancebased and prescriptive contracts (traditional) Understand the advantages and challenges toperformance based service contracting Discover a repeatable methodology for writingperformance based service contracts Learn how to administer a performance basedservice contract Facility Engineering Associates 2012

WHAT IS PERFORMANCE BASEDCONTRACTING? Facility Engineering Associates 2012

Performance Based Contracting(PBC)A PBC should describe the owner’s needs in terms ofwhat is to be achieved, not how it is to be done.The intent is rather than micromanaging the detailsof how contractors operate, the owner should setthe results and give the contractor the freedom toachieve them in the best way. Facility Engineering Associates 2012

Outcome Based ContractingPBC is also called outcome based contracting.Specification should focus on: Outcomes not inputs. Results of the contractor’s work not on the workitself. The cleanliness of the bathroom not how it wascleaned. Facility Engineering Associates 2012

Prescriptive vs. Performance Contracts Outline exactspecifications expected Less flexible Can sometimes stifleinnovation and morale Contractors may havelittle incentive ormotivation to doanything beyond whatis specified Facility Engineering Associates 2012 Describe expected results Flexibility for the vendorregarding achievement ofthose results With a responsible contractor,possible cost efficiencies andimprovements Contractor may take morepride in work and look for waysto increase effectiveness andefficiencies and add value

Prescriptive vs. PerformanceSpecification Examples Mow and edge grass Maintain a smooth, neatlytrimmed, acceptable lawn, freeweekly.of eroded or bare spots and Aerate spring and fall.weeds. Fertilize in April and Maintain grass between 2 to 4October.inches in height. Weed beds quarterly. Fertilize, water, edge, eliminate Use only commercialweeds, maintain mulch, andmowers.repair or replace damagedplants in shrub and plant beds. Facility Engineering Associates 2012

Why Performance Based Contracting?PBC allocates higher risk to thecontractor compared to traditionalcontract arrangements, but at thesame time opens up opportunities toincrease his margins where improvedefficiencies and effectiveness ofdesign, process, technology ormanagement are able to reduce thecost of achieving the specifiedperformance standards. Facility Engineering Associates 2012

Why Performance Based Contracting?Outsourcing allows the organization toconcentrate on their core business. Performancebased contracting allows the contractor to bringtheir extensive experience and cutting-edgetechnology in their core business to yourorganization. Facility Engineering Associates 2012

Why Performance Based Contracting?Law and regulation establish a preference forperformance-based service acquisition: FederalAcquisition Regulation Subpart 37.6 (PerformanceBased Contracting)It is the policy of the Federal Government thatagencies use performance-based contractingmethods to the maximum extent practicable Facility Engineering Associates 2012

OMB Best PBC Practices Drafting SOW Solicitations & Award Contract Administrationwww.whitehouse.gov/omb/procurement guide pbsc/ Facility Engineering Associates 2012

ADVANTAGES AND CHALLENGES TOPERFORMANCE BASEDCONTRACTING Facility Engineering Associates 2012

Advantages to PBC Reduce maintenance costs through the application ofmore effective and efficient technologies and workprocedures. Improve control and enforcement of quality standards. No detailed specification or process descriptionneeded. Contractor flexibility in proposing solution. Contractor buy-in and shared interests. Surveillance: less frequent, more meaningful. Allows for measurement of metrics. Facility Engineering Associates 2012

Advantages to PBCOrganization does not need to be an expertat how to get what they want they just needto be experts in knowing what they want. Facility Engineering Associates 2012

Disadvantages to PBC More challenging to develop andimplement PBC: paradigm shift. Organizations need to be well schooledin the methodology for arriving atmeasurable metrics and acceptablequality levels when developing theperformance work statement (PWS) orstatement of work (SOW). Administering PBC can also require a paradigmshift for the organization. Facility Engineering Associates 2012

How To Overcome DisadvantagesTRAININGBooksOn-Line Training Facility Engineering Associates 2012www.whitehouse.gov/omb/procurement guidepbsc/

WRITING PERFORMANCE BASEDCONTRACTS Facility Engineering Associates 2012

Performance Based Specification1: Define specific requirements2: Decide on your organization’s expectations3: Determine performance standards or level ofservice4: Decide how you will measure the contractor’soutcomes Facility Engineering Associates 2012

Define RequirementsNeed to determine the scope and nature of theservices required and describe them clearly.Formulate a statement that clearly defines:1) What do you want?2) How much, when and where? Facility Engineering Associates 2012

Requirements Example1. What services do you want included in the contract?Example grounds maintenance. Lawn care – mowing, Garden care –edging, watering,weeding, irrigating,fertilizing, seeding,patching Pest management Snow and iceremovalplanting, weeding,mulching Tree/bush care Leaf removal Ornamental fountainmaintenance2. Where? Facility Engineering Associates 2012

ExpectationsAfter you have determinedrequirements the next stepis expectation. The RFPshould clearly state whatyour organization’sexpectations are. Facility Engineering Associates 2012

Expectations Example Maintain all facilities at the APPA Custodial ServiceLevel 2.5. Levels of service 4 and 5 will not betolerated. [Service Level 2.5 is defined as routinelyat the level 2 while only occasionally sinking tolevel 3.] Requests for service are responded to andresolved in a timely fashion. Utilize green and recycled products to the fullestextent possible and submit annual data in acomplete and timely manner. Facility Engineering Associates 2012

Performance Standards Establishes the minimum level of service acceptable tomeet customer requirements. Provides a framework for monitoring actual servicesrequirements and targets. Use internal standards: relevant organizational or FMstandards and/or standards that may have been part ofprevious contracts or “at existing/current levels”. Use external standards: conformance to regulatoryrequirements, international standards, health and safetylaws and regulations, industry standards andmanufacturers’ recommendations. Facility Engineering Associates 2012

Performance Standards ExampleAPPA Service nsiveStewardshipOrderly TidinessHigh Level3Managed CareCasual InattentionModerate y LowLevel5Crisis ResponseUnkempt NeglectMinimum Level Facility Engineering Associates 2012

Measure OutcomesHow are you going to measure the contractor’sperformance? Customer satisfactionKPIsMetricsReports Facility Engineering Associates 2012

Measure OutcomesA performance metric is a measure of anorganization's activities and performance. DM vs PM PM Completion Rates Customer Satisfaction Work Order Completion Times Unscheduled Downtime Workforce Productivity Facility Engineering Associates 2012

Metrics ExamplesMetric DescriptionStd.Metric DescriptionStd.Facility Condition Index (FCI) 0.05Stockroom Turns / Year2–3Deferred Maintenance BacklogTrendAnnual Training Hours 40 hrs.On-the-job Wrench Time 60%Maint. Cost / Replacement Cost3 - 4%PM / CM Ratio70 / 30Percent Return Work 5%Unscheduled Maintenance Downtime 2%Mean Time Between FailuresTrendPM Schedule Compliance 95%% Failures Assessed: Root Cause 75%CM Schedule Compliance 90%Maintenance OT Percentage5-15%Unscheduled Man-Hours 10%% WO Covered by Estimates 90%WO Turn-Around TimeTrendOn-Site Supervisor Time 65%Emergency Response Time 15 min.2Stockroom On-Time Delivery 97%Stockroom Service Level 97%Material / Part Performance 98% Facility Engineering Associates 2012

Dashboard Reports Facility Engineering Associates 2012

Contract “Musts” Fixed Fee Competitively Bid Best Value Award Partnering Facility Engineering Associates 2012

ADMINISTERING PERFORMANCEBASED CONTRACTS Facility Engineering Associates 2012

Contract Administration Definition: any action from the time acontract is awarded until its closeout. It is theprocess of ensuring that the intent,requirements, and terms and conditions ofthe contract are met. Facility Engineering Associates 2012

Purpose for ContractAdministration Assess Performance Compliance Document Outcomes Ensure Continuing Relevance Facility Engineering Associates 2012

Quality Control (QC) versus QualityAssurance (QA) Is there a difference between QC and QA? Is the contractor responsible for both? Answer to both questions:YESQC: Input vs. QA: Output Facility Engineering Associates 2012

Quality Control (QC)Quality Control: the measures put in place bythe contractor to control the quality of the inputlike training, proper procedures, utilizing qualitymaterials & tools; etcQuality Control Plan: A self-inspection plan thatdescribes the internal staffing and procedures that thewill meet the quality, quantity, timeliness,responsiveness, customer satisfaction, and other servicedelivery requirements in the statement of work. Facility Engineering Associates 2012

Quality Assurance (QA)Quality Assurance is the evaluation of thequality of the output; this includesinspections, data monitoring, customersurveys, metrics, status reports, etc. Thecontractor must establish a QA plan, tell youwhat that plan is and follow it.Why QA? So any discrepancies inthe quality or timeliness of thework can be quickly addressedand resolved. Facility Engineering Associates 2012

QA/QC GoalThe Contractor establishes procedures andprocesses that will produce qualityoutcomes.The Contractor establishes procedures andprocesses to check the quality of theoutcomes.The Contractor establishes procedures andprocesses to “fix” poor quality. Facility Engineering Associates 2012

Owner’s Responsibility: MonitoringWhat are you monitoring?1. The contractor’s processes2. The contractors procedures3. KPIs and/or metricsWhat are you looking for?1. Adherence to their“plan”2. Success of their QA/QC. Facility Engineering Associates 2012

Why Monitor? Ensures contract terms are met Provides early problem detection Helps prevent or reduce fraud Helps avoid conflicts when misunderstandings orunexpected requirements arise Encourages regular communication Reinforces partnership Facility Engineering Associates 2012

What is Monitoring?Reviewing metrics together.Spot checking for accuracy of the metrics.Reviewing their inspection reports.Talking to your customers.Spot checking completed tasks.The monitoring process isunique for every contract. Thequestion is what will it take foryou to know (have a “warm &fuzzy”) that you are gettingwhat you are paying for. Facility Engineering Associates 2012