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performance based payment plan


Michael11

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A PBP plan is required for an upcoming proposal.  I'm actively researching some of the requirements but I've never done one and neither has my company.  One thing I haven't been able to find online is a simple example.  Can anyone share any best practices or where I may find a guide to create one?  

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If the solicitation includes the provision at FAR 52.232-28, Invitation to Propose Performance-Based Payments, then read the provision for information on what you are required to submit. If the solicitation asks for something different or additional, you'd have to ask the contracting officer what they want if it isn't clear from the solicitation. There is no universally accepted format or content for a "Performance-Based Payment Plan".

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Guest Vern Edwards
8 hours ago, Michael11 said:

A PBP plan is required for an upcoming proposal.  I'm actively researching some of the requirements but I've never done one and neither has my company.  One thing I haven't been able to find online is a simple example.  Can anyone share any best practices or where I may find a guide to create one?  

I don't provide cut-and-paste samples, but a variety of general guidance is available online, and some of it contains illustrative examples. Steep yourself in it and use your imagination. Start by reading FAR Subpart 32.10 on performance based payments and any supplement published by your prospective customer. Then check out the following:

DOD policy and guidance memo on performance based payments http://www.acq.osd.mil/dpap/policy/policyvault/USA001662-13-DPAP.pdf

DOD Performance Based Payment website, includes links to training courses and to Excel cash flow analysis tools http://www.acq.osd.mil/dpap/cpic/cp/Performance_based_payments.html

DOD Performance Based Payment Guide (2014) contains some examples  http://www.acq.osd.mil/dpap/cpic/cp/docs/Performance_Based_Payment_(PBP)_Guide.pdf

Older version of DOD guide (2001) contains some examples and guidance on proposal evaluation http://www.acq.osd.mil/dpap/Docs/PBPGuideNov2001.pdf

DOD Inspector General 2013 report on use of performance based payments http://www.dodig.mil/pubs/documents/DODIG-2013-063.pdf

DOD Inspector General 2014 report on use of performance based payments http://www.dodig.mil/pubs/documents/DODIG-2014-039.pdf

Google for download: Naval Air Systems Command (NAVAIR) User Guide to Performance Based Payments

ACQuipedia entry on performance based payments, includes additional links https://dap.dau.mil/acquipedia/Pages/ArticleDetails.aspx?aid=860ea534-4115-435d-9034-738b50283974

Defense Contract Management Agency instruction on performance based payments http://www.dcma.mil/policy/116/DCMA-INST-116.pdf

A good discussion with illustrations https://www.suu.edu/faculty/christensend/pdf/evb/koppelman.pdf

Some background from the National Contract Management Association http://practicalbrilliance.com/apogeeconsulting/media/CM_May06_p12.pdf

The key is to propose substantive payment events (milestones) or criteria and to link the payment amounts accordingly. It seems more complicated than it is. If you're familiar with milestone billings, it's quite similar.

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The above information comes from a National Treasure - and I mean it.  

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Concur with Joel and want to add that we all need to move away from reliance on such "national treasures" and focus on doing our own literature searches. Quite a bit of Vern's information could be found by anybody with competent Google skills.

I will commit here and now to doing my own research first before posting questions here.

H2H

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Thanks for this information.  Help sorry if it seemed as if I had done no research on my own.  I do consider myself competent with Google and I probably dug up most of what Vern provided before I posted.  I must be, as Vern noted, making it more complicated than it is.  Which might be because if you go to the DOD PBP tool it quickly becomes more complex than just traditional milestone billing. Showing estimated expenditure timeline, etc.

Don the solicitation does not contain FAR 52.232-28, Invitation to Propose Performance-Based Payments.  It pretty much just says offerors must propose a PBP based upon tasks completed, submission of approved deliverables and task order milestones achieve in the contract period.  It's going to be a hybrid contract with FFP and T&M line items.  So I think we're going to keep it as simple as possible and it sounds like since there are no specific guidelines we won't sweat over a specific format. 

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The PBP plan will apply to the fixed-price CLINs, not the T&M CLINs.   Yes, keep it simple, and follow the guidelines in the FAR citations provided.  Pick a few (or several) meaningful milestones and assign a reasonable value percentage to each -- not value of expended costs, but value towards percent complete -- and let them add up to 90% of the CLIN price.

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Michael11 --

My comment was not directed at you. It was a public commitment on my part, to help me remember to do my own work. Apologies if it appeared otherwise.

 

ETA: The PBP plan *does* require work and analysis, especially in this anti-PBP era in which we are all working. Not only do the trigger events need to correlate with program milestones, but the value of each trigger event must be defended against the assertion that it represents an advance payment. In addition, the DOD cash flow model/spreadsheet/tool must be used and will have a tendency to reduce the profit rate that the weighted guidelines would otherwise have suggested. Something that was at one time fairly straightforward has been turned into a bureaucratic process, although the fact that I'm disappointed and surprised by that "evolution" from simple to complex in these days of "should-cost" and BBP is itself surprising.

That said, keep it as simple as you can, because that will make it easier for the CO to do their work.

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Guest Vern Edwards
On April 19, 2016 at 7:29 PM, Michael11 said:

A PBP plan is required for an upcoming proposal.  I'm actively researching some of the requirements but I've never done one and neither has my company.  One thing I haven't been able to find online is a simple example.  Can anyone share any best practices or where I may find a guide to create one?  

The OP is interesting in retrospect. Look at the last two sentences. He hadn't been able to find an example, but he didn't ask for one, he asked for "best practices" or "a guide." I should have read between the lines. He later revealed that he already had most of what I spent time finding for him.

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Thank you all and my apologies Vern.  I did have some but not all of your citations/research.  What you provided was extremely helpful.  I never did find that simple example though.  

If I build the PBP to 90% of the value what happens to and how is the remaining 10% administered?

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Guest Vern Edwards
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If I build the PBP to 90% of the value what happens to and how is the remaining 10% administered?

See FAR 52.232-32, paragraph (d), for the terms that govern liquidation of the PBPs upon final delivery.

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Michael11,

Your latest follow-up question leads me to wonder whether or not you understand that PBPs are a form of contract financing and are not payments for deliveries. That is an important distinction that impacts a contractor's revenue recognition (among other things). From an accounting perspective, receipt of contract financing payments are not treated the same as receipt of payments from submission of an invoice/public voucher. If you are unclear on the myriad implications of contract financing payments then you may be in for a rude surprise in the future.

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Help, just curious.  Does the absence of a formal FAR prescription or FAR 52.232-28, Invitation to Propose Performance-Based Payments change your mind at all?  All it says it pretty much  provide a PBP plan based upon tasks completed, submission of approved deliverables and task order milestones achieve in the contract period.

There's no other information and no one asked any questions because that would have made too much sense.

I'm not saying that I would, but you could argue a traditional milestone schedule may still be considered a performance based payment plan? 

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Michael11,

Just to be crystal clear, you are telling us that the RFP requires that a PBP plan must be submitted along with the proposal, but the required FAR provision 52.232-28 was not included in the RFP. That fact, if indeed it is what you're posting, doesn't change my mind regarding anything I've posted, but it does lead me to wonder about the competence of the CO's team and its ability to evaluate what it will be receiving from offerors.

H2H

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Help that is exactly what i am saying.  it says to "as this is a performance based acquisition, the contractor is required to propose a performance based payment schedule based upon tasks completed, submission of approved deliverables and task order milestones achieved within each period."  PBP is not called for in the underlying agreement and there is no more mention of it in the rfp.

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Without meaning any offense ... let me say that any CO who thinks that a performance-based acquisition mandates use of performance-based payments is not competent to administer the acquisition.

Don Mansfield, how can a CO pass the requisite DAU courses and still be this demonstrably clueless? (Not that it's YOUR fault....)

H2H

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The more I read the language in the RFP the less I think they're actually expecting a performance based plan (PBP) as described in FAR 32.10.  They want a performance based payment schedule. None of the aforementioned PBP clauses are included.  And no mention of contract financing.

Can you have a performance based payment schedule, but not as a means of contract financing (an actual PBP)?  It's our fault that we're guessing and there's no time for clarifications.

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Michael11 - "task order", "underlying agreement", "rfp"?   So is what you are saying is there was some type of indefinite delivery solicitation/contract RFP, which you responded to, and received award on (agreement) and now you are responding to a request to price/propose on a specific task and the quote you have provided is in the request you have received to price/propose on the task?

Matter? Yes, to a point as it is a prime example of the fractured info that causes for responses that may be misleading.   If the above representation of the situation is true even more cause for the question being posed TO THE CONTRACTING OFFICER.   Yes, ask the CO this question - Can you provide me an example of  the content you expect to see for "a performance based payment schedule based upon tasks completed, submission of approved deliverables and task order milestones achieved within each period" and if possible point me to some best practices guides regarding the creation of such a schedule. 

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On 4/23/2016 at 2:40 PM, here_2_help said:

Without meaning any offense ... let me say that any CO who thinks that a performance-based acquisition mandates use of performance-based payments is not competent to administer the acquisition.

Don Mansfield, how can a CO pass the requisite DAU courses and still be this demonstrably clueless? (Not that it's YOUR fault....)

H2H

H2H,

It's pretty clear to me that the CO received their training through FAI.

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