in order to transform the contractor from a mere
“seller” to “supplier”, and ultimately “partner” to
the buyer. The new measurements are:
● ●
SPM (Strategic Performance Measure) –
a qualitative measurement which is not
directly related to payment to determine
the long-term behaviour of the contractor;
and
● ●
SHI (System Health Indicator) – a qualitative
measurement which is not directly related
to payment to determine the confidence
that the contractor is continuously capable
to deliver its contractual obligation.
Using the combination of KPI, SPM and SHI, a
PBC has an effective contractual tool to objectively
measure the overall performance of a contractor
over a period of time. Coupled with a “report
card” system, the consequences of a contractor’s
achieved performance can be objectively analysed
and subsequently tied to appropriate reward and/
or remedy provisions. These advancements have
made PBC a relational contract that emphasises
not only delivery, but also on the relationship of
the contracting parties.
In terms of application, there are four
stages of 3 rd Generation PBC that can be used,
depending on the complexity of the contract
(work) scope and the systems’ scope. As
shown in Figure 2, a simple contract which
only involves maintenance of components of a
platform/system, requires a Stage 1 PBC that
mainly focuses on “delivery”. On the other
extreme, a complex contract that covers a fleet
of a platform/system will require a Stage 3 or 4
PBC. At these stages, the contract outcomes
are focused on system-level availability and
mission assurance respectively. Depending on
the depth and breadth of capability sustainment
function to be outsourced, a PBC can have a
combination of stages in a single contract.
METHODOLOGY
Performance Management Framework (PMF)
is the central feature of the 3 rd Generation PBC.
For a capability sustainment contract, PMF is
developed based on the buyers’ requirement
determined by a group of people representing
various stakeholders that have direct interest
in the platform/system. The purpose of PMF is
to link the required capability-based outcomes
to contractor performance and subsequently
link contractor performance to a range of
predetermined rewards and remedies. Typically,
when developing a 3 rd Generation PBC, PMF is
used to address the following elements:
Contract Outcome
Stakeholders must determine and agree on
the outcome that is required of a capability
sustainment contract. A “Contract Outcome” is
Figure 2: The four stages of 3rd Generation PBC
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