Global Best Practice - Performance Based Contracting
Performance based contracting is a contracting method that is result-oriented. It focuses on the contractor's quality or outcomes instead of only considering the monetary implications of awarding a contract to a supplier. A performance based contract can include incentives and disincentives that are either monetary or non-monetary to encourage positive results from the contractor. Procurement organizations can use performance based contracting to improve performance and lower overall costs by ensuring that a given contract results in a high-quality performance. This practice outlines the steps that procurement professionals can take to develop performance based contracts along with suggestions for how procurement can measure performance when it is not tied to a monetary figure. It also offers guidelines for identifying incentives and disincentives and a checklist for finding and selecting the right supplier for a particular project. Finding a capable and competent contractor is essential when utilizing a performance based contract, which is why this practice recommends using past performance evaluations as well as partnering when selecting a contractor.