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Performance-based contracting
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<p>Performance-based contracting (PBC) or results-based contracting, is a <a href="/facts/Procurement/y35C00fn">procurement</a> strategy used to achieve measurable supplier performance. A PBC approach focuses on developing strategic <a href="/facts/Performance_metric/qVbntaF8">performance metrics</a> and directly relating contracting payment to performance against these metrics. Common metrics include <a href="/facts/Availability/l8SGSyyf">availability</a>, <a href="/facts/Reliability_(engineering)/cd6AS5w3">reliability</a>, <a href="/facts/Maintainability/SmyLaINQ">maintainability</a>, <a href="/facts/Support_engineering/oBDB9khj">supportability</a> and <a href="/facts/Total_cost_of_ownership/nt4HjhWX">total cost of ownership</a>. </p><p>The primary means of accomplishing this are through incentivized, long-term contracts with specific and measurable levels of operational performance defined by the customer and agreed on by contracting parties. The incentivized performance measures aim to motivate the supplier to implement enhanced practices that offer improved performance and cost effective. This stands in contrast to the conventional transaction-based strategy, where payment is related to completion of milestones and project deliverables. </p><p>In PBC, a part or the whole payment is tied to the performance of the provider and the purchaser does not get involved in the details of the process. It therefore becomes crucial to define a clear set of requirements to the provider. Occasionally governments fail to define the requirements clearly. This leaves room for providers, either intentionally or unintentionally, to misinterpret the requirements. </p><p>Performance-based approaches are widely used within the <a href="/facts/Defense_industry/A8mywI9w">defense industry</a>, but can be applied across many sectors. In the defense industry they are also known as <a href="/facts/Performance-based_logistics/XWmF8DLm">performance-based logistics</a> (PBL). In <a href="/facts/International_development/ouf3xcPQ">international development</a> the concept is known under <a href="/facts/Output-based_aid/tPHuI9lb">output-based aid</a>. </p><p><i>Payment by Results</i> (PbR) is a closely related concept. It can be used as a <a href="/facts/Public_policy/fYl7gXaC">public policy</a> instrument whereby payments are contingent on the independent verification of results. </p>