2-16.7 Considerations for Using a Performance-Based Contract

Performance-based contracts require more interaction with suppliers than traditional contracts do. The CO works with the supplier to determine the monitoring methods, appropriate incentives, risk sharing, payment options, and methods for reporting performance against metrics. Other considerations that may need to be addressed when using this type of contract:

• Increased initial up-front costs (e.g., more time and resources to be allocated by Postal Service and suppliers to set up a contract, possibility of a delay to the start of the project, or converting from a traditional SOW to a PWS or SOO).
• Payments need to be tied to concrete milestones and deliverables and not necessarily set dates.
• Data rights and intellectual property issues should be clearly identified.
• Method to resolve failures is defined; acceptance criterion and a method to inspect are needed.