Performance Contracting Framework
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Figure 1. Overall Process for Performance Contract Development

The figure provides an overview of a recommended process for developing a performance contract. The process starts with defining and recruiting stakeholders. The stakeholders must then decide if performance contracting is appropriate for the specific project being considered. This decision is the project selection process. If the project is not appropriate, then the stakeholders should use the traditional approach to contracting. If the project is appropriate for performance contracting, then three activities happen in parallel. The first activity is developing and testing the performance goals. The second activity is developing the measurement methodology. The first and second activities interact. The third activity is determining the method of award - Best Value or Enhanced Low Bid.

If the stakeholders choose Best Value, then the Owner Agency must develop a Best Value Request for Proposals (RFP) Package. If the project is Federal Aid, then they must also develop and submit an SEP-14 Application, and then obtain approval for the RFP package. If the project is not Federal Aid, then the process goes straight to obtaining approval for the RFP package. The Owner Agency then solicits proposals, evaluates proposals, awards the contract, and then manages the contract and measures performance.

If the stakeholders choose Enhanced Low Bid, then the Owner Agency must develop an Enhanced Low Bid Invitation for Bids (IFB) package. If the project is Federal Aid, then they must also develop and submit an SEP-14 Application, and then obtain approval for the IFB package. If the project is not Federal Aid, then the process goes straight to obtaining approval for the IFB package. The Owner Agency then solicits bids, evaluates bids, awards the contract, and then manages the contract and measures performance.

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Figure 2. Sample Project Selection Decision Tree

The figure displays a series of decisions to be used by an Owner Agency to determine if a project is suitable for performance contracting. If the answer to any of the questions is "No", then the Owner Agency should consider a traditional contract. If the answer to all of the questions is "Yes", then the Owner Agency should consider a performance contract.

The questions are as follows:

• Does the Owner Agency support the concept?
• Does the contractor community support the concept?
• Is the project goal-oriented, and are those goals under the influence of the contractor?
• Is the Owner Agency able to use incentives and disincentives?
• Does the contractor have flexibility in how they perform the work?
• Does the Owner Agency have adequate resources for contract development?
• Does the Owner Agency have adequate resources for performance measurement?
• Can the Owner Agency use Best Value or Enhanced Low Bid award processes?
• Is there sufficient time for contract development and work force education?

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Figure 3. Process for Defining the Performance Goals and Measures

The figure shows a recommended process for defining performance goals and measures. The Owner Agency should first hold initial brainstorming sessions with stakeholders. The stakeholders should then determine the performance goal format and write draft goals. Each goal should be put through the "What makes a good goal" test, and should be checked against the Owner Agency's Standard Specifications. The stakeholders should then organize and categorize the goals, and then determine if they will use pass/fail or multi-level measures. If the stakeholders choose pass/fail, then they should refine the goals, establish the baseline, and test, refine and finalize the goals. If the stakeholders choose multi-level, they should define and refine levels of performance, establish the baseline, and test, refine and finalize the levels of performance.

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Figure 4. Process for Defining the Measurement Methodology

The figure shows a recommended process for defining the measurement methodology. The Owner Agency and stakeholders take the performance goals from the previous section, and for each performance goal, determine the measurement methodology (what gets measured, when, by whom, how). The Owner Agency and stakeholders should then determine how to summarize the results, and determine how to tie the results to the incentive/disincentive fee structure. The Owner Agency and stakeholders should then develop the necessary RFP/IFB materials on the measurement methodology.

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Figure 7. Enhanced Low Bid Process

The figure shows a recommended process for the Enhanced Low Bid Award Process. The Owner Agency first reviews their contracting guidance to determine if the Enhanced Low Bid methodology is allowed. If it is not allowed then the Owner Agency would develop a traditional low bid IFB. If it is allowed, then the Owner Agency would develop a State Agency Program Plan and determine which type of prequalification process applies. The Owner Agency would then draft their Section L Proposal Criteria (see sample materials) and develop the contractor questionnaire. The Owner Agency would then draft Section M - Evaluation Criteria (see sample materials). If the contract will be federally funded, then the Owner Agency would compose their SEP-14 application, and submit it to FHWA for review and approval before completing their IFB package. If the contract is not federally funded, then the Owner Agency would move directly to completing their IFB package. Once the IFB package is complete, the Owner Agency would develop a contractor short list based on answers to questionnaires. The Owner Agency would then select the Contractor based on low bid.

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Figure 8. Best Value Process

The figure provides a recommended process for Best Value awards. The Owner Agency would first review state procurement rules/laws and agency contracting guidance to determine if the Best Value method is allowed. If it is not allowed, or if the project would not be best served by the Best Value structure, then the Owner Agency should review agency contracting guidance to determine if an Enhanced Low Bid Methodology is allowed. If it is allowed, then the Owner Agency should develop Enhanced Low Bid criteria (see the Enhanced Low Bid section). If Enhanced Low Bid is not allowed, then the Owner Agency should develop low bid criteria or develop an Invitation for Bids.

If the Best Value method is allowed, and if the project would be best served by the Best Value Structure, then the Owner Agency should select appropriate evaluation criteria, and draft RFP Section L - Proposal Criteria (see sample materials). The Owner Agency would then select an appropriate award methodology and draft RFP Section M - Evaluation Criteria (see sample materials). If the project is federally funded, the Owner Agency would compose an SEP-14 application and submit it to FHWA for review and approval before completing the RFP package. If the project is not federally funded, the Owner Agency would move directly to completing the RFP package.

Figure source: Adapted from: Best-Value Procurement Methods for Highway Construction Projects Preliminary (Draft Final Report); Scott, Sidney; Molenaar, Keith; Gransberg, Douglas; Smith, Nancy; Transportation Research Board National Cooperative Highway Research Program NCHRP 10-61; pp. 131-144.

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Figure 10. Qualitative Cost-Technical Tradeoff Decision Matrix

The figure shows a qualitative cost-technical tradeoff decision matrix. If the lowest price proposal is the superior proposal in terms of the non-cost proposal, the Owner Agency would award to the lowest priced offeror. If not, and the proposals are essentially equal in terms of non-cost factors, the Owner Agency would still award to the lowest priced offeror. If not, the Owner Agency would conduct a tradeoff analysis, and award to the offeror that represents the best value.

Figure source: Adapted from: Best-Value Procurement Methods for Highway Construction Projects Preliminary (Draft Final Report); Scott, Sidney; Molenaar, Keith; Gransberg, Douglas; Smith, Nancy; Transportation Research Board National Cooperative Highway Research Program NCHRP 10-61; pp. 131-144.

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