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Procurement Information Circular

June 27, 2001


PURPOSE: To provide a consolidated reference point for the guidance and definitions of PBC contained in the FAR and NFS; the PBC White Paper attached to the Administrator's memorandum of March 18, 1996; and the May 15, 1997 Code H memorandum (Performance-Based Contracting). The references are included in the PBC web-site established at

BACKGROUND: An Agency-wide assessment of NASA's implementation of Performance Based Contracting (PBC) was conducted in late 1999 and early 2000. The PBC Assessment Team report that contains the team's observations and recommendations may be viewed at:

A recommendation in the report was that the PBC definition and guidance in the PBC white paper and the May 15, 1997 memorandum should be updated, consolidated, and included in the NASA FAR Supplement. Since the report was issued, Federal Acquisition Circular (FAC) 97-25 dated May 2, 2001 revised the definition and guidance for PBC. The FAC implemented Section 821 of the Floyd D. Spence National Defense Authorization Act for FY 2001 (Public Law 106-398), that explicitly establishes a preference for performance based contracts or task orders (see FAR 37.102). Furthermore, the FAC specifically revised the PBC definition that had been in FAR 37.101 and moved it to FAR 2.101.


The following references regarding PBC are provided:

1.         PBC Definition -- FAR 2.101(b):

"Performance-based contracting' means structuring all aspects of an acquisition around the purpose of the work to be performed with the contract requirements set forth in clear, specific, and objective terms with measurable outcomes as opposed to either the manner by which the work is to be performed or broad and imprecise statements of work."

2.         PBC Contract Types.

An assessment of risk should be performed to determine what contract type to use. When contract performance risk can be fairly shifted to the contractor to allow for the operation of objective incentives, FFP, FPIF, or CPIF should be considered. However, when contractor performance (e.g., cost control, schedule, or quality/technical) is best evaluated subjectively, CPAF or FPAF may be considered.

In some cases, a risk assessment may show that a hybrid contract that combines two or more of the above contract types may be most effective. Indeed, in many instances, contract teams have structured hybrid contracts with links between various fee mechanisms. For example, a contract could require that the contractor achieve an award fee score of at least an 80 before it may be eligible to earn any objectively evaluated incentive fee. The expected benefits from utilizing a hybrid methodology should be balanced against any potential cost increase due to increased administrative expense.

In some cases, a risk assessment may identify contractor workforce skill mix as a potential risk. Instead of using a level-of-effort strategy to mitigate this potential risk, other mitigation strategies should be pursued (e.g. solicitations that require offerors to address how they will manage this risk). Remember, when a contract is structured as a term/level-of-effort, time-and-materials, or labor hour, or if staffing or skill mix of workers are specified, then the contract is not performance-based.

3.         PBC Preference:

FAR 37.102 states that Performance-based contracting is the preferred method for acquiring services. With limited exceptions (see FAR 37.102(a)(1)), PBC must be used to the maximum extent practicable.

In addition, FAR 37.102(a)(2) outlines an order of precedence for contract types as follows: (i) A firm-fixed price performance-based contract or task order, (ii) A performance-based contract or task order that is not firm-fixed price and (iii) A contract or task order that is not performance-based.

4.         NASA Policy for PBC usage on supply/service contracts.

Although the FAR is silent as to the use of PBC for supply type contracts, it is NASA policy, as outlined in NFS 1816.104-70 that PBC is the preferred way of contracting for all supplies and services at NASA.

The following is some useful guidance for determining if a supply (i.e. hardware or end item deliverable) contract is a PBC:

a.                   The specification/statement of work (SOW) describes, at the highest practicable level, what the end product must do (performance) and any critical constraints (e.g., size, weight). It eliminates non-essential process-oriented (how to) requirements and includes only minimally essential reporting requirements. If the level-of-effort, staffing levels or skill mix of workers are specified, then the contract is NOT performance-based

b.                  Measures of quality are directly related to the end product's ability to perform its intended use and along with schedule and/or cost form the basis of positive or negative performance incentives. Actual demonstrated performance of the end item is normally one of the measures--in some cases, the only measure. The contractor is held accountable for failure to meet minimum requirements (positive monetary incentives for performance exceeding contract requirements that benefits the Government can also be included).

c.       The contract requirements and incentives are clearly communicated.

5.         Task Order PBCs

As required by FAR 16.505, performance-based work statements must be used to the maximum extent practicable for tasks, if the contract is for services

6.         Relationship between PBC elements

The PBC solicitation and contract must convey a logical, easily understood flow among performance requirements and standards, incentives, and surveillance.

7.         PBC and Risk-Based Acquisition Management

While developing a strong PBC approach to contract structure, never lose sight of the fact that safety is NASA's highest value and that the principles of continual risk management must be applied to NASA acquisitions (see PIC 99-9, Risk Management). NASA's safety priority is to protect: (1) the public, (2) astronauts and pilots, (3) the NASA workforce, and (4) high-value equipment and property.

CANCELLATION: The H/Associate Administrator for Procurement memorandum dated May 15, 1997 is cancelled.

HEADQUARTERS CONTACT: Jeff Cullen, Code HK, (202) 358-1784, e-mail:


R. Scott Thompson, Director
Contract Management Division