Performance Based Logistics In The Department Of Defense

1791 words - 8 pages

Performance-Based Logistics grew out of the efforts to comply with Section 912c of the 1998’s National Defense Authorization Act (NDAA). Section 912c called for the use of the best commercial practices, competitive sources, modernizing through spares, program manager oversight, and the expansion of the prime vendor programs. In 2001, the Quadrennial Defense Review (QDR) mandated the use of PBL to make the supply chain more efficient and improve the readiness of major weapons systems. On May 12, 2003, DoD Directive 5000.01, The Defense Acquisition System, directed Project Managers to “develop and implement performance-based logistics strategies that optimize total system availability while minimizing cost and logistics footprint” (DoD, 2003). This directive changed the old practice of buying and contracting for resources, to buying and contracting for results. A contractor, the government, or a combination of both can achieve this level of performance.
In general, PBL contracts define performance goals desired by the customer and provide incentives to the contractor for achieving those goals. These performance goals are oriented towards operational objectives such as readiness, reliability, and maintainability. Providing goals and not telling the contractor what to do, or how to do it, “gives the contractor more flexibility and there is more room for innovation and creativity” (Sols, Nowick, & Verma, 2007). Simply put, the Army is buying outcomes at an agreed price, instead of purchasing assets at variable prices when needed. For PBL to be effective, the support provider needs to ensure that the demanded elements are available to provide the agreed level of availability. This process assigns responsibility to the supplier, not the customer.
The incentives offered to the supplier in PBL are key for the motivation of the contractor to achieve and surpass the agreed goals. These beneficial incentives could be monetary, or non monetary. The use of incentives is beneficial because they keep competitive pressures on the government and industry providers. In addition, these incentives allow the private industry to execute efficient practices already proven in the private sector. Customers analyze the performance of the contract over an extended period of time to allow for the balance of rewards and penalties earned by the contractors. Failure to achieve the established goals, results in penalties to the contractor that include: price reduction, performing a service at no cost, or terminating the contract. The incentives offered to the contractor under PBL are purposely attractive to ensure that the contractor remains motivated to perform during the life of the contract and to avoid unstable support. Therefore, it is extremely important to establish the performance goals in an “appropriate and well understood form of metrics or figures of merit” (Sols et al., 2007). These metrics are unique for each PBL arrangement; there is no one size fit all...

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