Performance Based Contracts & FAR Part 37

As a government contractor, you should quickly become aware of federal government performance based contracts under FAR Part 37.

This is critical at the bidding stage as well as understanding your obligations at the performance stage. Responding to government bids creates much confusion for businesses that are not familiar with FAR performance-based contracting rules. Later, companies can experience serious problems under the Changes Clause and out of scope direction by the government.

Many government solicitations for services are performance-based contracts. How you respond in the technical proposal is very important when considering this type of contract.

From the agency’s perspective, there are still major concerns on a national basis about how the government creates a PWS that does not comply with the spirit of performance based contracts. The ultimate question is whether a contractor is responsible for knowing the ins and outs of performance-based service contracting under FAR part 37, or is the onus on the government agencies to write a proper statement of work at the onset. This issue usually arises at the bid protest stage when the agency argues that a challenge to solicitation contents should happen before bid submission.

Introduction

Performance Based Contracting (PBC) has gained significant traction in government contracts, offering numerous advantages over traditional procurement methods. To regulate and guide this approach, the Federal Acquisition Regulation (FAR) introduced FAR 37, which establishes a framework for implementing PBC in federal contracting. This article explores the importance of PBC, provides an overview of FAR Part 37, and highlights the benefits and considerations of adopting this methodology.

Understanding Performance Based Contracts

Performance Based Procurements focus on achieving desired outcomes by clearly defining measurable performance objectives and incentivizing contractors to deliver results. It shifts the focus from the process to the performance, promoting accountability and efficiency. Key elements of a performance-based contract include a well-defined performance work statement (PWS), performance metrics, and quality assurance mechanisms.

FAR 37: The Framework for Performance Based Contracting

FAR 37 serves as the guiding document for federal agencies to implement PBC. It outlines the scope and applicability of PBC, defines the objectives of FAR 37, and establishes the key sections and subparts that govern PBC in federal contracts. By incorporating FAR 37, agencies ensure consistency and compliance with the performance-based approach.

Benefits of Implementing FAR 37 in Government Contracts

Implementing FAR 37 brings several benefits to government contracts:

Improved Outcomes and Results: By focusing on performance objectives, PBC encourages contractors to innovate and find efficient solutions to meet agency requirements, leading to improved outcomes and results.

Increased Accountability and Efficiency: Clear performance metrics and quality assurance mechanisms enable agencies to hold contractors accountable for their performance. This accountability drives efficiency and ensures that taxpayer dollars are spent wisely.

Enhanced Communication and Collaboration: FAR 37 encourages collaboration and communication between the government and contractors. This collaborative approach fosters a better understanding of expectations, leading to improved performance and customer satisfaction.

Key Considerations in Implementing FAR Part 37

To effectively implement FAR Part 37, agencies and contractors must consider the following:

Performance Work Statement (PWS) Development: A well-defined PWS is crucial in PBC. It should clearly articulate the desired outcomes, performance standards, and deliverables expected from the contractor. This requires careful planning and collaboration between the contracting officer and the program office.

Performance Metrics and Quality Assurance: Establishing appropriate performance metrics is essential in measuring the contractor’s performance. Metrics should be specific, measurable, achievable, relevant, and time-bound (SMART). Additionally, implementing robust quality assurance mechanisms ensures that the contractor’s performance meets the specified standards and requirements.

Performance Incentives and Award Fee Structures: To motivate contractors to excel in their performance, FAR 37 allows for the inclusion of performance incentives and award fee structures. These mechanisms provide financial rewards or bonuses for exceeding performance targets, promoting excellence and continuous improvement.

Compliance and Oversight in FAR 37 Contracting

To ensure effective compliance and oversight in FAR Part 37 contracting, agencies should consider the following:

Monitoring Performance and Deliverables: Regular monitoring of contractor performance and deliverables is essential to ensure adherence to the contract requirements. Agencies should establish mechanisms for tracking progress, evaluating performance, and addressing any performance issues promptly.

Contract Modifications and Changes: As circumstances evolve during the contract lifecycle, modifications or changes to the contract may be necessary. Agencies should follow the proper procedures outlined in FAR 37 for initiating and implementing contract modifications while maintaining the focus on performance objectives.

Dispute Resolution and Performance Evaluation: In cases of disputes or disagreements related to performance, agencies should have a well-defined process for resolution. Additionally, conducting periodic performance evaluations allows agencies to assess the contractor’s overall performance and make informed decisions regarding contract renewal or termination.

Challenges and Best Practices in FAR 37 Performance Based Contracting

Implementing FAR Part 37 and performance based contracting  may present challenges that agencies and contractors need to address. Consider the following best practices:

Contracting Officer Roles and Responsibilities: Contracting officers play a critical role in FAR 37 contracting. They should possess a thorough understanding of PBC principles and FAR 37 requirements to effectively manage and oversee performance-based contracts.

Contractor Selection and Evaluation: When selecting contractors, agencies should consider their past performance and ability to meet performance objectives. Conducting thorough evaluations and references checks can help ensure the selection of capable contractors.

Ensuring Clear and Measurable Performance Objectives: To achieve successful outcomes, agencies should collaborate with contractors to establish clear, specific, and measurable performance objectives. This clarity ensures a shared understanding of expectations and facilitates effective performance monitoring.

Summary

FAR 37 provides a comprehensive framework for implementing Performance Based Contracting in federal contracts. By focusing on measurable performance objectives, FAR 37 promotes accountability, efficiency, and collaboration between agencies and contractors. It offers numerous benefits, including improved outcomes, increased accountability, and enhanced communication. However, successful implementation requires careful planning, attention to performance metrics, and compliance with the established procedures. By embracing FAR 37 and adopting best practices, agencies can maximize the advantages of Performance Based Contracting and drive successful contract outcomes.

Understanding the Government’s FAR Performance-Based Contracts Concept

Performance based service contracts have been around for over two decades. However, during 2003 and 2006 there has been more of a push to change the way the government does business.  

FAR Performance-based service contracting (PBSC) is in place to highlight and improve the old way of doing business with the government ( too much detail in the PWS telling the contractor how to perform the contract) and replace it with acquisition approaches that are structured around the government’s end result as opposed to the manner in which the work is to be performed by the contractor.

This approach is still difficult for contracting officer’s to digest or for source selection members to evaluate bids.  The PBSC approach is designed to ensure that contractors are given the discretion to determine how to meet the Government’s performance objectives, that appropriate performance quality levels are achieved, and that payment is made only for services that meet the government’s performance levels.

Problem: Still today, agencies and contractors struggle with the basic requirements. Statements of Work of often improperly written. In addition, contractors struggle to submit solid technical proposals. As a result, FAR performance-based contracting courses is becoming a large need for both government agencies and federal contractors. Find out about SBA Certificate of Competency COC Program & Bid Protests.

Solution: Both federal contracting agencies and small businesses should invest in the proper training to understand the intent of the regulations and to develop realistic best practices that meets both the legislative intent and the reality of getting service contracts performed in a smooth and problem-free manner.

FAR Part 37.602 – What is a Performance Based Service Contracts?

Federal government performance based contracts focus on the seven steps to performing the contract.  The theory of PBSC acquisitions should focus on telling the contractor the end result and not how to accomplish it. See FAR Part 37.602. As the government posts its new opportunities you will see the trend and development in performance work statements (PWS).  See Commercial Off the Shelf Items in Government COTS Contracts. Some still tell the contractor what to do and how to do it within the statement of work. The basics of performance based contracts under FAR Part 37 are as follows:

• The agency should not dictate to the contractor how to perform the contract;
• The government should focus on getting results only;
• Many contractors should also focus on the government’s performance standards in the PWS
• Proposal evaluations should lean toward whether the contractor can potentially meet the government’s result;
• Agency should grade the contractor on its own quality assurance plan; and
• Contractor’s quality control becomes a changing document throughout the contract life cycle.

FAR Part 37.6 –  Problems With Federal Government Performance-Based Acquisitions

The federal government has now mandated under FAR part 37 that certain service contracts be performed and procured on a performance based contracting basis. This means that the days of telling the contractor how to do every single aspect of the contract are over for the most part. See Consequences of Procurement Fraud Schemes & Avoiding Criminal Liability.

Contracting officers often face challenges when applying the rules of Performance Based Contracting (PBC). One common issue is the difficulty in defining clear and measurable performance objectives. Performance -based contract rules suggest that the Agency only identifies the end result in the performance of the contract. However, it is the contractor that determines how it will meet the end result of the PWS requirements.

This requires a deep understanding of the agency’s requirements and the ability to translate them into specific performance metrics. Additionally, ensuring that the selected contractors have the necessary capabilities and resources to meet these objectives can be a complex task.

Contracting officers also encounter challenges in monitoring and evaluating performance throughout the contract lifecycle, especially when dealing with subjective or qualitative performance measures. Balancing the need for flexibility in contract modifications while maintaining focus on performance objectives can pose another hurdle. Addressing these challenges requires expertise in PBC principles, effective communication with stakeholders, and ongoing monitoring and assessment of contractor performance.

• There is still a national problem with how the agency writes its PWS for federal performance based acquisitions at the proposal and solicitation stage.
• You will often see that the statement of work in many government solicitations still tells you exactly how to do each and every aspect of the requirements.
• Sometimes the agency may unreasonably evaluate proposals by implementing measurable performance after bid submission.

But what can you do about it? The answer is unfortunately very little. At best you can ask specific questions about the nature of your responsibility during the initial questions and answer period. See SBA Certificate of Competency Determinations & Small Business COC Requirements.

Can you file a pre-award protest? Maybe. However, there is a great risk that GAO or any protest court would rule in favor of the agency simply because the court may rule that the agency best determines its own needs despite regulations that govern how the PWS should be written

• Although the question about challenging federal performance-based service contracts PWS in the solicitation is really whether the solicitation is written to the performance base standards, you will still be walking on a thin line.
• Although there is not much case law on this, your best bet is to develop your proposal in a fashion that tells the government HOW you plan on meeting its end result. You should also inject many of the performance-based contracting approaches into your proposals.
• One important factor to look at when the government evaluates your proposal is to see whether it makes a determination that your approach could not meet its end result.

CPARS on Performance Based Contracts

One major problem in the federal contracting marketplace occurs when the contractor receives an adverse CPARs report. The agency may often rate the contractor’s CPARS on the premise that the government mandates the result. Such an approach may be grounds to completely overturn the CPARS ratings,

The government is required to use the contractor’s quality control plan to rate the contractor’s past performance.

FAR Part 37.6 Applicable Federal Rules

FAR Part 37 governs the majority of guidelines for PBS contracting. One article claims that performance based contracting is difficult on the commercial industry. However, other studies show that both the government and the contractor save money. See Asset Purchase Agreement & Government Contract Novations.

• With federal performance based acquisitions, performance evaluations provide better data for contractor past performance.
• A powerful incentive of excellence and customer satisfaction is created when contractors know their performance will influence future award decisions.
• There are many critics of government contracting against OMB. This can be expected in federal procurement.
• The truth of the matter is that if the government has paid more for government contract awards, then change is needed where performance-based contracts save taxpayers’ dollars.

How to Address Potential Problems With Federal Government Performance-Based Contracts?Many federal service contracts are offered to the public under federal performance-based standards. Many contractors typically do not understand the statements of work as written in the RFP or solicitation. This can result in rejected proposals. Other problems include:

• Misunderstanding of Quality Assurance Surveillance Plans (QASP) in the solicitation
• The belief that your common commercial quality assurance plan will suffice for federal performance based acquisitions
• Understanding how pricing can directly relate to the government’s requirements

For further information or guidance about federal government FAR performance based contracting under FAR Part 37.6, contact our office or call us at 1-866-601-5518 for a FREE initial consultation.

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