Better PBL Contracts - An Analytical Approach Research Paper and Presentation

This research paper and accompanying presentation were developed by Systecon AB of Stockholm, Sweden and WPI Services of Juno Beach, FL.  According to this paper “successful Performance Based Logistics (PBL) can reduce total ownership costs for government while maintaining or increasing capability. The chance of success depends heavily on the terms in the PBL contract. Performance targets, incentive models and measurement approach must be carefully selected in order to give the supplier both motivation and freedom to provide logistics functions that will enable high system performance. When designing and negotiating such a contract it is imperative for all involved parties to have proper decision support. The consequences of different alternatives must be thoroughly analyzed in advance. A Monte Carlo simulation model of the logistics scenario can offer valuable insight to the how the outcome may change as different variables are altered and what results to expect with a statistical confidence level. Such information can be of great use when formulating PBL contract terms. In this paper, some key success factors and a step wise approach for setting the terms of a PBL contract is presented." According to this report, “the way that performance targets, incentive models and measurement approach are specified has a great impact on the chance of success, and should give both the customer and the supplier possibilities to achieve their goals. Setting the terms of a PBL contract without proper decision support means significant risks. The methodology described in this paper has been used in several business cases with great success. Examples of customers where this methodology has been used are Saab Dynamics, BAE Systems Hägglunds and the Swedish/Norwegian NH90 program.” It goes on to say that “the presented approach makes it possible for both customer and supplier to evaluate the PBL contract and assess the risks for not meeting the contract objectives. The suggested simulation approach is also highly suitable for the supplier when designing and optimizing the logistic support solution to fulfil the customer requirements at an acceptable cost and with an acceptable margin.”  Disclaimer: This report and presentation are posted here for informational and academic use purposes only, which does not necessarily constitute endorsement of the authors, their companies, or their findings by either the Department of Defense or the Defense Acquisition University.