A key to the success of Performance-Based Logistics is the altered relationship between the service provider and the customer. According to the U.S. Department of Defense product support guide to program managers: "PBL inherently 'self-motivates' service providers to do 'good things,' such as improve component and system reliability, since it provides the foundation for increased profit."
For the U.S. government, the incentives are improved support to the war fighter and more predictable expenditure of resources with less of a management burden. However, the government retains ultimate control over the process. A study by the Center for the Management of Science and Technology explained the altered role of the government thusly:
With Performance-Based Logistics, traditional functions of the government are shifted to the contractor without giving up the 'core capabilities,' allowing the government to maintain the capability but relinquishing the performance of the service to the contractor. For example, an Item Manager — also known as the IM — is concerned with the individual parts and the supply of the specific items. With a Performance-Based Logistics arrangement the Item Manager is now a manager of suppliers not parts.
The mechanism by which Performance-Based Logistics is implemented for a specific platform, system, or item is through a Performance-Based Agreement.
A traditional sustainment contract provides parts and/or labor hours at a set price. A PBA sets out the specific outcomes or support metrics the customer seeks and the manner in which the contractor is to be rewarded for successful performance.
A Performance-Based Agreement is based on performance metrics established by the war fighter and contractual outcomes or metrics defined by the program manager. The contractor defines the level of support necessary to achieve those outcomes.
The ultimate objective of a Performance-Based Agreement is to establish a fixed price for the desired outcomes. For many Performance-Based Agreements it is desirable to employ a cost-plus incentive fee approach early in the performance period while risk reduction occurs.
With sufficient data regarding the platform's or system's sustainment requirements and the creation of a well-functioning supply chain, it should be possible to convert a Performance-Based Agreement to a fixed-price contract.
Each Performance-Based Agreement requires a Business Case Analysis. The BCA is intended to justify entering into a Performance-Based Agreement. It establishes a best-value analysis, considering not only cost but also other factors such as performance, reliability and supportability of the platform or system in question.
The Business Case Agreement should demonstrate that by entering into a Performance-Based Agreement, the government will either save money in comparison to existing support arrangements or will realize performance benefits at little or no additional cost.
Part 6: Establishing metrics to define the focus of Performance-Based Logistics and to judge its outcome
(Daniel Goure is vice president of the Lexington Institute, an independent think tank in Arlington, Va.)
(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)
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