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1  

4th Annual 

PMI OVOC/DND

Project Management Seminar 
 

Jim Richardson

Director Major Service Delivery Procurement 
 

22 September 2004

 

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Innovation in

Service Contracts

 

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Topics 

Contracting for Services Performance-Based Contracting Performance Incentive Contracts Private Financing Initiatives  

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DND service contracts include: 

    SITE SUPPORT SERVICES

Goose Bay base support Meaford base support Canadian Forces contractor  
augmentation program (CANCAP)  

    AIR TRAINING

Contracted flying and training support NATO flying training in Canada Contracted airborne training services  

    MEDICAL SERVICES for the CF

Clinical staff augmentation  

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In describing the requirement:

Specify requirements as outputs or results Provide performance standards Consider long term contracts

e.g. 20 years:

Contractor can amortize costs Provides time to improve performance Improves customer/contractor relationships  
 

Lessons learned 00setting frameworks

 

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Before contract:

Consult early and often with industry on requirement, performance standards and measures.

After contract:

Develop/refine performance measures in  
co-operation with contractor. Develop/refine QA/QC processes in  
collaboration with the contractor. Evaluate performance with a shared  
focus on each party achieving  
100% of their objectives.  

Lessons learned 00Collaboration

 

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    Carefully manage the relationship with the contractor.

It is a long term collaborative effort. Resolve performance issues as they arise. During the periodic award evaluations, there should be no surprises for either party. Lots of care and feeding required by both parties - daily contact and co-ordination. Hold regular executive meetings with the contractor and key stakeholders.  

Lessons learned 00relationship with the contractor

 

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Performance-Based Contracting 

Were response times IAW the standard?

Were the systems brought back to operational status? 

Inspection/Checklist Items 
 

Each month randomly select 10 work orders from the work order register. 

Measure 

95% of trouble calls are responded to within 1 hours. The remainder within 2 hours. Communications equipment, computer hardware or software repairs are completed within 4 hours or IAW a negotiated schedule. 

Performance Standard 

300 trouble calls per year. 

Estimated Quantity 

Repair critical communications equipment, computer systems and software. 

Requirement

 

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Definition 

A performance incentive is a provision in the contract to reward the contractor for performance beyond a minimum level, where the increased performance provides value to the customer.

 

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When does DND consider using performance incentives?  

When DND has a complex service requirement. When the service contract includes performance specifications and performance standards. When all aspects of a contractor00 work cannot, or should not be precisely specified.  

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Performance Incentive Characteristics 

Can be 2-10 % of Contract Value Needs to be Achievable 00With Extra Effort No Guarantee of Payout to Contractor Performance Elements, Weighting and Criteria can be Adjusted by DND Before Each Assessment Period Can be a Mixture of Objective and Subjective Assessments Incentive Fee Decision Cannot be Appealed  

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Performance Incentives 
- Not an increased cost 

In consideration of potential Performance Incentive Fee, bidders may lower profit to get an edge in the bid submission Profit on service contracts with PIF is lower than contracts without PIF (total PIF plus profit is no greater than profit on non incentive service contracts)  

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Incentive Fee Process 

RFP/SOW and Contract 

DND: Performance Standards, Measures, and Evaluation Plan 

Contractor: Quality Management Plan 

QA Plans, Quality Inspections and Checklists 

Performance 

Contractor Review 

Customer Review 

DND/PWGSCPerformance Evaluation Team 

DND/PWGSC Performance Incentive Fee Board 

Award Performance Incentive  
$ Fee

 

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Elements and Weighting 

SECTION 

WEIGHTING 

2 

MANAGEMENT 

9.30% 

3 

SUPPLY 

2.33% 

4 

COMMUNICATIONS  

7.21% 

5 

BULK FUEL 

8.37% 

6 

TRANSPORTATION 

7.67% 

15 

WASTE COLLECTION 

0.93% 

16 

BLDG MAINT 

4.42% 

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ROADS&GRNDS 

5.58% 

18 

WASTE 

2.33% 

100%

 

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Performance and Payment  

0% 

20% 

40% 

60% 

80% 

100% 

120% 

81 

83 

85 

87 

89 

91 

93 

95 

97 

99 

Performance 

Incentive fee

 

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Example: 
performance scores over time for one contract and typical scores 

80 

85 

90 

95 

100 

Evaluation period 

Percent 

Typical 

One contract

 

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DND experience with performance incentives 

Proving to be a 
valuable tool to 
manage contract 
performance. Helps align the contractor00 actions with the customer00 objectives for the contract. Contractors00 performance has tended to improve. On-site customer empowered.  

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DND experience with performance incentives00 continued 

Contractor likes performance incentive: Motivates contractors00employees; Provides bragging rights for marketing value; and Improves bottom line. Takes effort to administer. Small disincentives or penalties are also necessary.  

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Private Financing Initiative 

Where Capital Assets used by the Government are Owned by the Contractor For Example, NFTC:  

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No Government Spending of Capital Funds to Acquire Capability Costs Paid as Service Delivered Financing Rates Similar to Government Rates Not Applicable in All Cases Complex Arrangement Policy, Accounting Issues  

Private Financing Initiative

 

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QUESTIONS? 

Jim Richardson

richardson.jw@forces.gc.ca

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