Here's what to do when those red flags pop up

By Richard W. Walker

Connecting state and local government leaders

| January 21, 2004

In a performance-based contract, you want to manage for success, which means you want the contractor to be successful. But inevitably, some contracts and contracting relationships go wrong. Then what do you do?

In a performance-based contract, you want to manage for success, which means you want the contractor to be successful. But inevitably, some contracts and contracting relationships go wrong. Then what do you do?Chip Mather, senior vice president of Acquisition Solutions Inc. of Oakton, Va., outlined the warning signs and next steps.'In a performance-based relationship, the whole structure is designed to identify the quality of the performance, so you've got your major indicator built in and you're getting periodic reports on the contractor's performance.But there's another aspect of performance-based contracts where the relationship can go down the tubes. We see a lot of that when both parties revert back to old behavior'for example, when the government wants to get involved in exactly how things are being done rather than managing outputs and outcomes.Then you get into a lot of finger-pointing. I saw one case recently where the government was trying to tell the contractor what kind of memory it should be using in its routers. That indicates a performance problem. It's the government getting into the contractor's business. [On the other hand] if you're not seeing the outcomes, that's a sign that it's going wrong on the contractor side.''You either watch the contract go into what I call the death spiral or you get intervention'somebody comes in and says, 'This is bad behavior, stop it.' ''The Federal Acquisition Regulation is quite clear about termination for convenience and termination for default. But in all honesty, in most contracts it's hard to disengage. It's very similar to divorce. It's a painful, difficult process that will end up hurting both of you. The real answer is to try to prevent the divorce. But once you're past [the point of no return], then by all means pull the plug.'

In a performance-based contract, you want to manage for success, which means you want the contractor to be successful. But inevitably, some contracts and contracting relationships go wrong. Then what do you do?

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