Performance-based contracting involves the use of contracts that define the work to be achieved and not necessarily how the work is performed. Contractors have the freedom to determine how to meet performance objectives as long as appropriate performance quality levels are achieved. Payment to the contractor is made only for services that meet those levels. Performance-based contracts contain four attributes: a statement of objectives that describes the desired outcome, measurable performance metrics, a quality assurance plan to monitor the contractor’s performance, and incentives to encourage better performance.

A recent OIG audit looked at the U.S. Postal Service’s controls for overseeing performance-based contracts. We determined Postal Service contracting officials did not have adequate controls to oversee performance-based contracts. Contracting officials did not track these contracts and did not always take advantage of contract benefits. We identified six contracts with incentives valued at $602 million as well as two additional contracts that could have been awarded as performance-based but were not. These contracts contained all attributes except a statement of objectives.

Officials did not see a business need to track performance-based contracts, could not explain why they were not used, and indicated there was a lack of training and clear guidance on the use of these contracts. By not tracking and promoting the use of performance-based contracts, the Postal Service could miss opportunities to increase revenue and efficiencies.

During our audit, we also identified six improperly coded contracts valued at $120 million and one contract with about $18 million in improperly certified payments. Inaccurate data and inadequate contract oversight increase financial risk to the Postal Service. Management corrected the six incorrectly coded contracts to reflect the correct contract type and enforced internal controls for certifying invoices on the other contract.

We’d like to hear your thoughts on the Postal Service’s oversight of performance contracts. Are the Postal Service's controls for overseeing performance-based contracts adequate? Let us know on our blog.

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