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Performance Based Logistics (PBL) Contract Lengths

ALCL 097

DAU GLOSSARY DEFINITION

Alternate Definition

Attributes of an effective PBL arrangement include appropriate contract length, terms, and funding strategies that encourage delivery of the required outcome. To facilitate and incentivize industry investment in product and process improvements necessary to deliver these effective PBL arrangements (including areas such as reliability, maintainability, supportability, supply chain management, and proactive obsolescence and Diminishing Manufacturing Sources & Material Shortages (DMSMS) mitigation to name just a few), short-term arrangements are likely to be insufficient.

Alternate Definition Source

Acting Assistant Secretary of Defense for Logistics and Materiel Readiness (ASD(L&MR) memo entitled "Performance Based Logistics Comprehensive Guidance" dated 22 Nov 2013

DoD PBL Guidebook

General Information

Since the original 2014 memorandum entitled "Actions to Improve Department of Defense Competition" and the "Guidelines for Creating and Maintaining a Competitive Environment for Supplies and Services in the Department of Defense" were established, workforce members engaged in developing and implementing PBL Product Support Arrangements (PSA) might find themselves wondering whether shorter-duration contract lengths are an appropriate strategy to facilitate increased competition for executing these important product support strategies. DoD PBL policy and guidance in fact indicate this is generally not the case.

In addition to the information provided in the definition above, the DoD PBL Guidebook also specifically states that:

  • "Performance-based product support is successful…because it aligns the interests of the Contractor and the Government, creating 'internal competition' that ultimately saves money for the taxpayer while focusing on support to the Warfighters. "Internal Competition" refers to a company being motivated to improve their product quality (reliability) and the efficiency of their processes to increase their profit. This is the same type of pressure that comes from external competition in the marketplace."
  • The Government's options for commercial competition and stand-up of organic capability is contingent upon securing the relevant technical data, license agreements, software documentation, software, and any other applicable Intellectual Property (IP).

Long-term contracts, particularly in the cases of PBL product support strategies (where industry serves as a Product Support Integrator (PSI) and/or Product Support Provider (PSP)) and Services Acquisition contracts for PBL PSAs are acknowledged and/or authorized by multiple sources including:

  • 10 USC 3403 (formerly 2304a), paragraph (f) reads as follows: "(f) Contract Period.-The head of an agency entering into a task or delivery order contract under this section may provide for the contract to cover any period up to five years and may extend the contract period for one or more successive periods pursuant to an option provided in the contract or a modification of the contract. The total contract period as extended may not exceed 10 years unless such head of an agency determines in writing that exceptional circumstances necessitate a longer contract period.
  • Federal Acquisition Regulation (FAR) 17.204(e) reads as follows: "(e) Unless otherwise approved in accordance with agency procedures, the total of the basic and option periods shall not exceed 5 years in the case of services, and the total of the basic and option quantities shall not exceed the requirement for 5 years in the case of supplies. These limitations do not apply to information technology contracts. However, statutes applicable to various classes of contracts, for example, the Service Contract Act (see 22.1002-1), may place additional restrictions on the length of contracts."
  • Defense FAR Supplement (DFARS) 217.204(e)(i) states that "notwithstanding FAR 17.204(e), the ordering period of a task order or delivery order contract (including a contract for information technology) awarded by DoD pursuant to 10 U.S.C. 2304a— (A) May be for any period up to 5 years; (B) May be subsequently extended for one or more successive periods in accordance with an option provided in the contract or a modification of the contract; and (C) Shall not exceed 10 years unless the head of the agency determines in writing that exceptional circumstances require a longer ordering period."
  • Defense Procurement & Acquisition Policy (DPAP) 18 Feb 2009 policy memo "Review Criteria for Acquisition of Services" states "Service contract length should typically be 3-5 years with certain exceptions (e.g. performance-based logistics and energy-savings performance contracts)." (emphasis added)

Although not specifically related to contract length and while not called out specifically in the Award Fee and Incentives discussions in the FAR/DFAR (FAR 16.4, DFARS 216.4), Award Term appears to be gaining acceptance as a type of performance incentive. Award Term rewards contractors serving as PSI/PSP with additional period(s) of performance (term) based on performance. The Award Terms are not structured as options, but rather as an incentive that contractors can potentially earn. Award-term contracting can serve as a powerful method of rewarding contractor performance based upon a pre-determined plan. It is "another tool in the toolkit" for contracting officers and program managers to incentivize high levels of performance, and is analogous to award-fee contracts, but instead of rewarding the contractor monetarily, they can be rewarded by a contract term extension—or reduction. Typically, there is a core contract term (e.g., 5 years), and a minimum period (e.g., 3.5 years). Barring statutory limits, contracts can then extend 10 to 15 years as the stated maximum, if the contractor continues to perform well.

A related article entitled "The Five-Year Limit on Government Contracts: Reality or Myth" provides additional perspectives relating to several other FAR provisions including FAR § 16.505(c)(1), FAR § 17.104(a), FAR § 17.204(e), and FAR § 22.1002-1. This non-DoD article is among the nearly 300 references available in the PBL Community of Practice (PBL CoP) Reference Library. In addition, the Services Acquisition Mall (SAM), and the Acquisition Center of Excellence (ACE) for Services are useful related resources.

Click here to view a video on PBL Best Practices, featuring perspectives by Ms Lisa P. Smith, DASD(PS), and two Service practitioners describing successful PBL arrangements at the subsystem/component and system (platform) level.