The US Government requires services outside of their own internal capabilities to function effectively. These services can augment a current capacity, or it can provide a whole new level of expertise on specific capabilities. These skills can range from administrative support to additive manufacturing.
According to the GAO, the Federal Government awarded $753B on contracts in FY23, an increase of $33B from the year before (https://files.gao.gov/multimedia/Federal_Government_Contracting/index.html). Service contracts accounted for 63% of those which totaled $478B.
Service contract popularity followed a drawdown of Federal employees in the early 1990s. Between 1990 and 1995, the Federal Government cut 45,000 jobs annually. In response to this increased demand and due to its complexity and limitations, the FAR created a specific part that details the “shall” and “shall-nots” when contracting for services, FAR Part 37. Performance-based services became the norm to further limit any undue influence on contractors and to put a limit on their actions. Now, limits and undue influence sound drastic, so let’s get a little more into it.
When contracting for services, FAR Part 37 explains there are two main conditions:
The first is the avoidance of personal services. FAR 37.104(a) defines personal services as “a contract that is characterized by the employer-employee relationship it creates between the Government and the contractor’s personnel.” Why doesn’t the US Government want this relationship with a contractor? It’s because the employer-employee relationship must be established during a competitive hiring process, not a contract competition. An employer-employee relationship is also characterized by the blanket sentence often found at the end of a job description that states: “And perform other tasks as required.” Contractors have a defined set of tasks they must perform to fulfill their contracts and nothing else.
The second is the avoidance of inherently governmental functions. During the acquisition planning, requirement generators learn of the examples of functions that are designed to be performed only by Government personnel under FAR 7.503(c); and while this list is not all inclusive, it provides a picture of what the Government wants to avoid. Only personnel that have been appointed or assigned and have performed an oath of office must act on certain functions.
When defining the requirement for a service, customers will list the tasks they need accomplished, not the number of people they need to help them fulfill their mission. These tasks become either a performance work statement (PWS) or a statement of work (SOW) which then is added to the solicitation or request for proposal. When the solicitation is publicly posted on SAM.gov, the potential contractors will submit their own proposed plan to accomplish those tasks. This type of contract allows industry to use their expertise and ingenuity to compete against other vendors when crafting a plan to help the Federal Government.
While price remains a major factor in deciding the winner of a contract, in performance-based services other factors can be of equal or higher importance. These evaluation factors include past performance and technical approach. If a contractor has an innovative technical approach with an impressive track record, the government may find their proposal compelling enough that they may be willing to pay a little more if the price meets the fair and reasonable standard.
Performance-based service requirements will continue to expand in the Federal Government. Understanding its flexibility and limitation will allow contracting officers to create a better strategy and requirement description while encouraging contractors to propose higher quality and innovative approaches to support the agency’s mission.