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This paper evaluates an Air Force performance-based service contract against the contracts that were prescriptive in the past. Department of Defense mandated that all service contracts be performance-based by 2005. The goal of the paper is to determine whether this contract, after becoming performance-based, is achieving greater cost savings and better outcomes for government, contractor, and taxpayers. The paper assesses the contract performance standards and how they are measured. The authors analyze the language of the Statement of Work (SOW) before and after it became performance-based. The contractor’s performance is evaluated. Positive incentives are identified and described. Finally, the paper addresses risk assessment issues.

Performance-Based Contracting (PBC) is widely accepted as a useful tool. It is believed that the use of PBC can assist the efficient utilization of the public resources. The objective of this research is to assess the extent of PBC application and the obstacles to applying it in the public procurement systems of developing countries. Interviews and factual analysis of procurement guidelines and contracts are used to collect data for this research. The analysis results indicate that the majority of public organizations have not yet used PBC even though it is allowed by the law. This is due partly to lack of clarity in the procurement laws and lack of capacity to use PBC.

The purpose of this paper is to show how performance‐based contracting functions as an enabler of service innovation by maintenance contractors.

A postal survey of medium‐sized maintenance employers was carried out. The questionnaire and findings were mapped and analysed combining existing models of service innovation and service quality.

As a consequence of the survey, performance‐based contracting maintenance companies implement innovations in their service concept, client interface and service delivery system to guarantee the quality of their services. The maintenance contractors have launched new, improved or better competing services for their own organisation. Existing services are implemented in a new environment incorporating small incremental innovations.

Maintenance companies do not solely address all business innovations as consequences of performance‐based contracting. Performance‐based contracting of, for example, building services may by the different nature of the maintenance strategies and activities lead to somewhat other outcomes.

There is very little literature on maintenance contractors as service providers and service innovators. This paper provides insights in innovations by maintenance contractors as well as the needed additional knowledge and competences of the contractors acting as maintenance‐engineering consultants.

As enterprises focus on offering integrated product/service bundles, performance‐based contracts become ever so important in ensuring effective delivery. Performance‐based contracts fall under the result‐oriented category of industrial product service systems (PSSs). The paper aims to present a conceptual framework for operations strategy in performance‐based industrial PSSs that will help manufacturing companies configure their operations to support effective delivery of integrated product/service offering.

This paper first develops a conceptual framework for operations strategy in performance‐based contracts by identifying the key elements after a detailed systematic review of literature. A major shift in support and maintenance logistics for complex engineering systems over the past few years has been observed in the defence and aerospace industries. Availability contracting, a special type of performance‐based contracts, is replacing traditional service procurement practices. Two exploratory case studies involving defence availability contracts are conducted for making inferences regarding the operations strategy.

The important findings of this research are a set of elements of operations strategy guiding the development of a conceptual framework, a set of operating principles and processes supporting effective delivery of performance‐based service contracts.

The true value of this research is to open up the novel area of result‐oriented industrial PSSs operations strategy by capturing the key characteristics of operations using both literature and empirical evidence.

Many road authorities considered contracting out road maintenance to the private sector based on performance measures as an alternative and better solution than traditional methods of contracting. It highlights issues of interest to road authorities in the context of saving maintenance costs and managing contracting times effectively. This method is named as performance based maintenance by contracting (PBMC) and has substantial success records in minimizing infrastructure maintenance costs in many developed and developing countries over the last two decades. It has received the attention of researchers and practitioners. However, the literature on PBMC is reasonably high although the concept of PBMC is relatively new. The purpose of this paper is to carry out a comprehensive state of the art review of the literature that has been conducted in the recent years.

A total of 62 published report and journal articles related to performance based maintenance by contracting for road network system has been analysed and reviewed in this paper.

This paper analyses the literature on PBMC and presents examples of developed and developing countries that have been successfully maintaining their road network systems using PBMC as their preferred method of contracting.

The potential of reducing maintenance costs, increasing the quality of works and reducing the chance of corruption in the long run in developing countries are the challenging issues for PBMC, which needs more attention. This paper can be used as a base or platform for future research in the area of PBMC such as developing optimal policies and cost models.

This paper would be useful for the research on PBMC. It would be beneficial for the engineers or professionals in improving the performance of road maintenance and management.

This paper focuses on the World Bank's emerging experience with a promising application of performance-based contracts: Output-Based Aid (OBA) subsidies. OBA is the provision of subsidies for the delivery of and access to social or infrastructure services. Under OBA, subsidy payments are tied to measurable performing outputs, leaving the specific methods of achieving these outputs to the service provider's discretion. While creating better risk allocation, more value for users and contracting agencies, and fewer opportunities for corruption than traditional methods, OBA schemes raise new procurement issues that need to be reconciled in order to achieve optimal results. An issue this paper explores is the tension between the need that contracts be "expenditure-based" with the "performance-based" nature of OBA subsidies.

Outsourcing-based performance practices establish goals for supplier performance and compensation. The management of contracts based on performance is complex as is the alignment of long-term relationship and indicators. The purpose of this research is to analyse the practices that contracting companies utilise to manage outsourcing contracts with performance-based compensation.

Multiple case studies were conducted with five contracting companies. Nine performance-based outsourcing contracts were analysed.

The selection and evaluation processes have been neglected by the buyers associated with contracts that are over ten years old. The process of transferring activities relied on the knowledge of employees. Management practices based on indicators and the adoption of results-based compensation are commonplace in a number of contracts and are consistent with theory.

This paper identifies management practices that differ between what is expected from the theoretical framework and what is observed in the actual examined contracts. Opportunities for improvement have been identified mainly in the areas of supplier selection and activity transfer; the use of pilot tests and the reengineering of the outsourced processes are suggested.

The performance of service supply chains in terms of service levels and cost efficiency depends not only on the effort of service providers but also on the inputs of sub-contractors and the customer. In this sense, performance-based contracting (PBC) entails increased financial risk for providers. Allocating and managing risk through contractual relationships along the service supply chain is a critical issue, and yet there is scant empirical evidence regarding what factors influence, and how, provider willingness to bear PBC-induced risk. This paper aims to address this gap.

The paper draws on agency theory and two cases of logistics service supply chains, in the food retail and automotive industries respectively, to identify key influencing factors. Data were collected through semi-structured interviews with 30 managers of providers and sub-contractors and review of 35 documents, notably contracts and target letters.

Four influencing factors were found: performance attributability within the service supply chain; relational governance in service supply chain relationships; provider risk and reward balancing; and provider ability to transfer risk to sub-contractors. The propositions developed address how these factors influence provider willingness to bear PBC-induced risk.

The factors identified are external to the provider mindset and refer to the management of contractual relationships and service delivery interactions along the service supply chain. The paper contributes to agency theory by stressing the risk allocation implications of bi-directional principal-agent relations in service supply chains.

The study suggests ways in which providers can increase their capacity to bear and manage financial risk related to PBC design.

The paper identifies factors that influence provider willingness to bear financial risk induced by PBC in service supply chains.

Performance-based contracting (PBC) plays an increasingly important role in the defense industry. This paper aims to investigate factors that influence service provider’s willingness to accept PBC-induced risks. It also shows how these risks could be managed in a military service supply chain.

The case study focused on the relationship between a service provider and a customer that acted on behalf of other users in the defense sector. The contract involved the sustainment of a military engine in a complex supply chain.

The service provider’s performance attributability appeared to have a strong impact on its willingness to take PBC-induced risks. For the parts where the service provider did not have full control over the service performance, exclusions and Service Level Agreements (SLAs) were used to manage and mitigate the risks associated with uncontrolled performance. The service provider’s willingness to accept PBC-induced risks was also affected by its ability to make accurate forecasts, the applied growth path and the length of the contract.

This case has specific characteristics, unique by time (maturity of the technical system and supply chain) and place (market). It is recommended that results are tested in other research settings.

Organizations should be aware of the factors that influence a service provider’s willingness to bear PBC-induced risks. Customers should limit PBC to those parts of a contract where risks are of an acceptable level. Also, it is recommended to follow a phased growth path when it is not possible to make accurate forecasts in a PBC context.

This study is the first to address critical issues concerning the identification and management of risks under PBC in the defense industry.

Performance-based contracting (PBC) is a business model for the adaptive and innovative delivery of product-service systems. In PBC, the provider is paid according to the service performance with the aim of providing monetary incentives to safeguard possible outcomes as much as possible for the PBC customer. Performance measurement and its management are crucial for PBC success and, in particular, for the pay-for-performance link. However, the literature on PBC performance management is rather sparse, and there has been no systematic review on the topic. Thus, the purpose of this paper is to fill that gap and to present a comprehensive and systematic review of performance measurement and management in the PBC context.

The paper builds on a literature review based on a sample of 102 subject-relevant articles from academic journals. The content analysis follows a two-step procedure. First, the articles are coded following a process-based research framework. Second, the content of each process step is assessed in a qualitative text analysis.

The results show a surprising scarcity of papers that explicitly address performance management topics in the context of PBC. Only the topics of performance specification and performance indicators are broadly addressed, whereas in all of the other areas, e.g., strategic alignment, data capture and reporting, only limited specific findings could be found.

The paper concludes that future research on performance management in PBC should expand its theoretical framework and empirical efforts in four specific proposed directions.

The paper provides an up-to-date review that is focused on performance management and measurement in the emerging context of PBC.