Using performance-based logistics could help the military save money throughout a product’s lifecycle, but there are institutional barriers keeping the Defense Department from more widely using that sustainment model, analysts from the Center for Strategic and International Studies found in a report released last Friday.
In a performance based logistics (PBL) arrangement, the government and vendor agree to contract for a specified outcome, such as meeting a specified readiness target. This often requires a multiyear contract so that the company can make investments to improve processes and equipment, which then leads to better performance and savings further down the road.
However, government contracting personnel interviewed by the CSIS team expressed confusion about when it was appropriate and legal to use a PBL contracting mechanism, said Andrew Hunter, a CSIS senior fellow and one of the authors of the study.
“For most institutional barriers that we identified, you go to another person and they say, ‘Well, actually we found a way around that barrier,’” he said during an Oct. 16 panel discussion on the report. “There are frequently ways around the barriers, but the challenge is that those ways are either, for one reason or another, culturally unacceptable in whichever organization is experiencing that barrier, or they just haven’t gotten the secret.”
Rather than changing specific laws or regulations, the CSIS team found that guidance should be clarified to allow for a more widespread and effective use of PBL contracts.
For one, the government needs to explain when and how personnel can use operations and maintenance (O&M) appropriations and working capital funds for PBL, said Gregory Sanders, who helped author the report. “Legally, as we understand, both can be used for multiple year [contracts], but there is some hesitancy [to do so],” he said.
The Defense Logistics Agency and military services should work together to develop a top-level strategic approach to PBL that spells out how different types of funding can be used, CSIS analysts recommended in the report. Afterward, if existing laws are still preventing government contracting officials from using such an arrangement, the Defense Department should then seek congressional authorization to use O&M and working capital funding for multiyear PBL contracts.
The department should also consider expanding the use of longterm, multi-year PBL contracts, Hunter said. Such contracts are common in Australia and certain parts of Europe, but are often seen as risky in the United States because they lock the government into terms that might not end up being favorable to it. However, longer contracts provide companies with the certainty needed to make bigger investments that can garner better results.
“You need sufficient contract length, because if you’re going to make investments, the payoff needs to be a payoff over a period of years,” he said. “That can be a little challenging in a DoD context, because there is a strong cultural bias toward one year contracts or contracts that are one year with options.”
To incentivize companies, the government could predicate a contract’s length on the vendor’s ability to meet the specified performance outcomes, Sanders said. For instance, a company that performs well above expectations could be awarded with contract extensions or options.