Examples Needed: Positive and/ or Negative Incentives in Performance Based Acquisitions

Replies to This Discussion

Permalink Reply by Mike Lisagor on December 8, 2011 at 2:15pm

Candace - there are lot of variables that will determine what incentives will be effective. In general, incentives should reward desired contractor behavior (key deliverables, service quality, etc.). Since most companies desire to make a profit, the "positive" and "negative" incentive most often revolves around profit award or performance bonuses. This is similar to an award fee contract where a portion or all of the contract "fee" is awarded based on the attainment of defined objectives/metrics. But, the more involved the performance measures, the more involved the management of the contract. In general, higher risk and/or more complex projects justify more complex performance measures and incentives. 

Not sure if this helps. But, I'm sure there are many people with lots of experience in this area.

Permalink Reply by Candace Riddle on December 9, 2011 at 7:43am

Mike - Thank you.  That does make sense.  I visitied acquisition.gov and reviewed the 7 Steps to Performance Based Acquisition.  It touches on the subject, much the same as your response.  However, it does not give concrete examples of negative incentives.  The only one I could really define as "negative" would be something like liquidated damages.  I'm working on a project right now to draft a "standard of practice" for performance based contracting and was trying to better define "negative" incentives and give a few examples in the practice.  You're right - not a lot of people of experience in this area.  Thanks for your help.

Permalink Reply by Chris Hamm on December 9, 2011 at 7:30pm

Hi Candace.

It really depends on your contract type.  Certain contract types allow for more financial incentives and disincentives (FPIF, FPAF, CPIF, CPAF) than others (FFP, T&M, CPFF).  I have a strong preference for financial incentives tied to service level agreements.  My ideal project design has recurring, operations and maintenance tasks as FFP or FPIF, and developmental/surge requirements as CPIF or CPAF.  In my incentive pools, I like about 70% of the total to be tied to objective SLAs, and 30%ish to management, customer satisfaction, etc.

Most disincentives kick in when an SLA or acceptable quality level is not met, and a % of fee is deducted.

Once you leave financial, you quickly move to past performance or award term.  Option periods can also be connected to incentives and disincentives.

Permalink Reply by Cindy Brockwell on December 11, 2011 at 3:20pm

Hi Candace,

 

For the services industry, I'm starting to see more performance measures tied to award of option periods, fee payments, etc.  This of course has criteria assigned to it such as contractor has ability and reasonable timeframe to respond to "defect" or "performance issue" in plenty of time to ensure award of option period can occur with all other criteria in order.   Typically there are only 3 or 4 performance measures and sometimes the govt states what they want in performance and asks the contractor to provide the positive and negative "consequences" that they are willing to live with.

Hope this helps!

Cindy

Permalink Reply by Angel Delgado on December 27, 2011 at 2:23pm

Not sure if you received an appropriate answer... I can send you some examples, priv-message me your email.