by Stacy Tatman, MS, JD, Manager, Government Relations, NEMA
An essential function of Federal, state, and local government involves obtaining goods and services. So it makes sense that efforts to increase the effectiveness of procurement activities would lead to more efficient use of agencies’ limited resources
and overall ability to create public value.
To reach the goal of procurement that encourages greater accountability and performance, governments are increasingly using outcomes-based contracting methods (OBC). OBC requires that the hired contractor devise the most effective and efficient way to
perform the contracted work.
The steady move away from traditional product-based sales into a world of solutions and services is changing the emphasis of contracts. Many agreements today now tie compensation to a contractor’s ability to meet or exceed defined program outcomes
in a meaningful and measurable way. When the focus is on results and outcomes, procurement officers and agency leaders can better design contracts that drive innovative, cost-effective services, reasonable risk-sharing, and measurable results.
OBC is a form of contracting that explicitly includes certain characteristics:1,2,3
- Identification: A clear identification of a problem, a specific goal, or a series of objectives and the value in achieving the desired outcome;
- Alignment: Alignment of procurement methods with goals—the hired contractor determines, designs, and implements the solution(s) that lead to achievement of the outcome;
- Measurement: Collection of data on the performance indicators to assess the extent to which the contractors are successfully implementing the defined services; and
- Adjustment: Evaluation of performance leads to consequences for the contractors, such as changes in their financial compensation or in their contracts. Typically, at least a portion of a contractor’s payment, contract extensions,
or contract renewals are tied to the achievement of specific, measurable performance standards and requirements. Contractors are compensated under the contract based on the degree to which the agreed-upon outcome is achieved.
OBC can assist governments in delivering their desired performance through adoption of improved procurement strategies and contract types that align with its goals.
Roadway Infrastructure Advancements
From multilane interstates to rural backroads, the United States boasts over four million miles of roads. Roads are among the most visible and familiar forms
of infrastructure. These familiar transportation networks, which are important for the economy, national defense, and access for all Americans to travel , need consistent upkeep to remain safe and effective. One out of every five miles of highway
pavement is in poor condition, and our roads have a significant and increasing backlog of rehabilitation needs.
Roadway infrastructure has evolved from traditional concrete and asphalt foundations to complex systems that now use sophisticated communication and information technologies. Advanced technologies such as vehicle-to-vehicle (V2V) and vehicle-to-infrastructure
(V2I) communication systems, collision avoidance technologies, integration of intelligent transportation systems with the Smart Grid, and advanced mobility and access technologies are designed to improve safety, efficiency, system performance, and infrastructure return on investment. Modernizing roadway infrastructure and implementing these new technologies has increasing urgency across the nation.
The U.S. highway system and its related infrastructure continually need upkeep, repair, enhancement, expansion, and advancement. Fixing, overhauling, and modernizing our country’s infrastructure needs to remain a top priority for federal, state,
and localpolicymakers. Significant private-sector involvement can help bring our nation’s transportation infrastructure into the 21st century, and OBC is an excellent tool to help meet existing and emerging challenges.
OBC Can Help Meet Governments’ Roadway Infrastructure Challenges
Unprecedented challenges demand innovative solutions. With roadway infrastructure facing both traditional and emerging problems, OBC can offer government agencies an efficient solution to manage transportation repair, enhancement, and expansion issues.
OBC would be beneficial in giving Federal, state, and local governments the ability to meet the demand for high-quality public services with limited budgets.
Federal highway law4 requires governments to measure and report on the safety as well as other performance metrics of their highway networks. The results of those measurements could
provide the framework from which to build results-driven agreements with contractors.
The demand for public funding of transportation infrastructure projects greatly outstrips the constrained amount of public funds available. Under traditional contracting methods, government purchases assets (such as concrete, asphalt, striping signage,
and signaling) which are then deployed and maintained over time. With OBC, an agency develops clear goals for the efficient management of these assets. This shift in approach incentivizes contractors in the private sector to find the most efficient
and cost-effective methods and technologies to meet the government’s goals.
Case Study: Georgia Department of Transportation ITS Comprehensive Maintenance Contract5
The Challenge: To find a contractor to provide the Georgia Department of Transportation (GDOT) with a comprehensive management, installation, and maintenance program for an intelligent transportation system (ITS). ITS is used to provide
motorist assistance, traveler information, enhance safety, mitigate congestion, and reduce carbon emissions.
Contractor Responsibility: To maintain more than 4000 ITS devices that assist traveling motorists and emergency responders throughout Georgia; manage camera systems, video and presence detection systems, ramp metering systems, dynamic message
signs and structures; and maintain hub buildings which house and protect the backbone devices of the entire system
Applying OBC Practices:
In 2010, Serco Inc., a provider of professional, technology, and management services, was awarded a $50 million, five-year outcomes-based contract (contract) which was the first of its kind
for GDOT. Payment to Serco Inc. was contingent on how well the contractor met performance goals.
One of the initial goals for GDOT was to ensure that on any given day, a minimum of 90 percent of the statewidetraffic cameras would be operable. The inherent flexibility of the contract provided that the contractor received increased pay if it met the
performance metric goal. Conversely, the department paid less (and consequently saved money) if the percentage of operable cameras fell below 90 percent.
Other significant features of the contract included clauses related to timing, quality of work, frequency of upgrades, and others. Furthermore, the contract was adjustable over time. In 2015, the 90 percent camera operability target was raised to 95 percent,
and the timeframe for repair went from 45 days down to 30 days. The 2020 goals are even more ambitious.
OBCs provide many benefits, including a flexible structure. An external standard operating procedure (SOP) provides the foundation and can be easily updated. This creates inherent flexibility because the agreements can evolve. Varying maintenance plans
allow for special situations (e.g., safety issues that need expedient remedies).
Utilizing an OBC method has not been a panacea, however, and GDOT realized an increase in the complexity of such contracts. The contract scope and pricing alone can exceed 40 pages, which does not include any boilerplate contract language or SOPs. Project
managers must be knowledgeable about (and responsible for) the entire document, which can comprise hundreds of pages for complex projects.
It can also be difficult to find the appropriate balance in the agreement and to determine the balance between 100 percent efficiency and a breach of contract. Conversely, it can be challenging to ensure adequate performance without overpaying.
Nevertheless, the benefits of OBC generally outweigh the difficulties of the process, and GDOT has used OBC in other areas to increase efficiencies and achieve comprehensive ITS management goals.
Governments should adopt OBC practices to address roadway infrastructure needs. Roadway infrastructure is evolving, and government procurement practices should follow suit. OBC is the best way to meet these challenges, and NEMA welcomes the opportunities
to further discuss these ideas. Staff Contact: Stacy Tatman.
4 Approved in MAP-21 and affirmed by the FAST Act.