Critical factors for design of successful performance-based contracting environment

Abstract

A recent trend around the world among the owners of complex engineering systems such as aircraft or oil refinery is to include consideration for the sustainment of the system. The goal is to attain desired capability levels that can be measured as a performance outcome of systems in-service. There are two parts in the contractual framework: system acquisition and sustainment (in-service support). The sustainment agreement imposes significant risks because the revenue is now tied with the actual system performance which can be out of the control of the service provider. There are a lot of uncertainties in the performance-based contracting environment and questions have to be asked by both sides of the contract. The manufacturers should ask whether it is beneficial for them to take on the risks to be committed. The asset owner should ask whether the contractor has given sufficient evidence that they can meet the stringent performance-based contracting environment. This paper attempts to answer these questions by exploring from experience and people involved in performance-based contracts the concept and value for money to the contracting parties.