Authors
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Elisa Meddi
Senior Advisor
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Andrew Gibson
Published
27/11/2020
What is Performance Based Contracting?
Performance Based Contracting (PBC) is an outcome oriented contracting method. The customer’s outcomes are achieved by contractually incentivising the contractor to deliver against them.
Commonly used in major construction and Defence projects throughout Australia, PBC is becoming increasingly popular across other Government agencies. This methodology seeks to manage contractor performance and ensure Government objectives are met.
PBC can be beneficial for both the customer and contractor. It promotes innovation, collaboration and encourages contractors to find cost effective solutions, resulting in better value for money.
Our Top tips
When developing your PBC, we recommend the following:
- Clearly define your scope of work prior to setting your PBC performance measures. This will allow you to identify what is measurable and define what success looks like.
- Invite various stakeholder groups to help design your performance measures. This may include engineers, technical advisors, logisticians, users, finance, and commercial teams.
- Allow the contractor to have input into the final performance measures. Contractors will often bring new ideas to the table that can be favourable to both parties.
- Establish specific and achievable performance measures that drive the outcomes most important to you. Specific measures create clear and shared objectives and achievable measures set your program up to succeed.
- Ensure the outcomes are bound to performance indicators.
- Include a range of incentives to drive performance, for example profit, contract term and opportunities for additional work.
- Consider the work and cost of measuring each performance measure. The effort of measuring your performance measures should not outweigh the benefits.
- Performance measures drive contractor focus and behaviour, so choose them wisely.
