2-16.1 Appropriate Circumstances for Use of Performance-Based Contracts

Performance-based contracts should be implemented for projects with outcomes that can be measured objectively (e.g., grounds maintenance, security, computer maintenance, network operations). Performance-based contracts can be used for any contract, including small-dollar-value contracts, but are generally most appropriate when:

• Projects are large, have new technology, or have high risks.
• Existing contracts can be converted to define as much of the requirements in performance-based terms as possible.
• Large umbrella contracts are experiencing cost overruns or performance problems.
• Contract is awarded competitively for task order contracts.
• Benefits contributed by suppliers can be quantified.
• Project implementation and production time need to be reduced.

Postal Service suppliers that are strategic or key should be considered for performance-based contracting. Performance-based contracting allows for the resolution of payment or other issues more quickly and efficiently because of the nature of the shared-risk relationship. In a performance-based contract, the Postal Service must be committed to supplier support because it may have to address issues outside the contract that limit supplier success on the current project.