FEATURED PAPER
By Bob Prieto
Chairman & CEO
Strategic Program Management LLC
Florida, USA
Over the course of my career I have looked at a number of underperforming mega-projects. In every instance there was a common element of underperformance, the lack of clarity around the strategic business outcomes[1] to be accomplished. Conversely, some of the best performing projects exhibited high clarity of recognized and shared outcomes.
This paper looks at the imperative to continue the shift to outcomes based contracts versus more traditional output based contracting forms. This shift is discussed from the perspective of the engineering and construction industry in the United States but draws upon the experience in other countries and other sectors.
Outcomes based contracting strategies hold promise for delivery of large complex projects that today face unsustainable performance challenges with over two thirds of large complex projects in the sector failing.[2]
A range of outcomes based strategies are available and are discussed in this paper and three core principles outlined.
It is useful to begin by defining outcomes based contracts, in part because they go by different names in different sectors.
Definition of Outcomes Based Contracting
Outcome based contracting (OBC) has been defined as a:
- “contracting mechanism that allows the customer to pay only when the firm has delivered outcomes, rather than merely activities and tasks” [3]
The authors[4] of “A guide to outcome-based agreements; A better way to do business” define an outcomes based agreement (OBA) as:
- “An agreement between a customer and supplier in which the supplier is contracted to directly achieve business outcomes for and with the customer – rather than being contracted in terms of delivery of the supplier’s inputs, outputs or deliverables.”
Bramwell[5] states that:
- “Outcomes-based contracts focus on achieving required outcomes rather than a contract for the supply of a set of prescribed specifications.
The agreement thus represents a joint endeavor between both supplier(s) and customer and is dependent upon working relationships and shared understanding. Interests are aligned. It is also possible to contract for partial achievement (a defined contribution to a defined outcome).
In the US government sector, the Government Performance and Results Act of 1993[6] made formal, outcomes based performance evaluations mandatory for federal programs. It continued and broadened the federal government’s efforts to realign the focus of government accountability and performance analysis away from activities and process measures and toward results or outcomes.
Specifically, the act requires federal agencies to develop:
- a strategic plan that specifies agency goals and how they will be achieved
- an annual performance plan that specifies quantitatively measurable goals and performance indicators, as well as levels of performance to be achieved
- an annual program performance report that compares actual performance with performance goals
From the legislation…. `outcome measure’ means an assessment of the results of a program activity compared to its intended purpose.
The US Department of Defense (DOD) utilizes different terminology when considering outcome based contracts referring to them as a Performance-Based Services Acquisition (PBSA)[7]. DOD defines a PBSA as “one that allows a contractor to deliver the required service by following its own best practices. Since the prime focus is on the end result, contractors can adjust their processes, as appropriate, through the life of the contract without the burden of contract modifications provided that the delivered service (outcome) remains in accordance with the contract. The use of incentives further motivates contractors to furnish the best performance of which they are capable.” The parenthetical “outcome” is DOD’s. The Department of Energy (DOE) similarly uses PBSA where practical.
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How to cite this paper: Prieto, R. (2020). Strengthening Outcomes Based Capital Project Delivery; PM World Journal, Vol. IX, Issue VI, June. Available online at https://pmworldlibrary.net/wp-content/uploads/2020/05/pmwj94-Jun2020-Prieto-strengthening-outcome-based-capital-project-delivery.pdf
About the Author
Bob Prieto
Chairman & CEO
Strategic Program Management LLC
Jupiter, Florida, USA
Bob Prieto is a senior executive effective in shaping and executing business strategy and a recognized leader within the infrastructure, engineering and construction industries. Currently Bob heads his own management consulting practice, Strategic Program Management LLC. He previously served as a senior vice president of Fluor, one of the largest engineering and construction companies in the world. He focuses on the development and delivery of large, complex projects worldwide and consults with owners across all market sectors in the development of programmatic delivery strategies. He is author of nine books including “Strategic Program Management”, “The Giga Factor: Program Management in the Engineering and Construction Industry”, “Application of Life Cycle Analysis in the Capital Assets Industry”, “Capital Efficiency: Pull All the Levers” and, most recently, “Theory of Management of Large Complex Projects” published by the Construction Management Association of America (CMAA) as well as over 700 other papers and presentations.
Bob is an Independent Member of the Shareholder Committee of Mott MacDonald. He is a member of the ASCE Industry Leaders Council, National Academy of Construction, a Fellow of the Construction Management Association of America and member of several university departmental and campus advisory boards. Bob served until 2006 as a U.S. presidential appointee to the Asia Pacific Economic Cooperation (APEC) Business Advisory Council (ABAC), working with U.S. and Asia-Pacific business leaders to shape the framework for trade and economic growth. He had previously served as both as Chairman of the Engineering and Construction Governors of the World Economic Forum and co-chair of the infrastructure task force formed after September 11th by the New York City Chamber of Commerce. Previously, he served as Chairman at Parsons Brinckerhoff (PB) and a non-executive director of Cardno (ASX)
Bob can be contacted at rpstrategic@comcast.net.
[1] Project Management Theory and the Management of Large Complex Projects; PM World Journal; Vol. IV, Issue VI – June 2015. https://pmworldlibrary.net/wp-content/uploads/2015/06/pmwj35-Jun2015-Prieto-Project-Management-Theory-and-Management-of-Large-Complex-Projects.pdf
[2] Is it Time to Rethink Project Management Theory? PM World Journal; Vol. IV, Issue III – March 2015. https://pmworldlibrary.net/wp-content/uploads/2015/03/pmwj32-Mar2015-Prieto-time-to-rethink-project-management-Commentary.pdf
[3] Outcome-based contracts as a driver for systems thinking and service-dominant logic in service science: Evidence from the defence industry; Ng, Maull, and Yip, 2009: 377; views performance-based contracting as its narrower equivalent
[4] Intellect’s Outcome-Based Agreements Group
[5] What is Performance Based Building? 2003
[6] Pub. L. 103–62
[7] PBSA involves acquisition strategies, methods, and techniques that describe and communicate measurable outcomes rather than direct performance processes; Guidebook for Performance-Based Services Acquisition (PBSA) in the Department of Defense
