Analysis / Acquisition

Incentives in Performance-Based Logistics Contracting

Photo courtesy of U.S. Air Force:

Performance-based logistics (PBL) contracts, which have been used by private industry for decades, (particularly in the airline industry as a way to manage complex fleets) have only relatively recently begun to be used in the public sector worldwide. Research on PBL application indicates that PBLs can be successful in lowering costs and improving performance in both government and private contracting. In both cases, PBL contracts depend on the ability of the customer to properly structure and implement contract incentives to promote vendor behavior that reduces costs and improves performance while delivering the customer’s desired outcomes.

This report examines how such incentives are used in PBL contracting and looks further towards how incentives can best be utilized in a PBL contracting environment. This report is structured in three parts: a review of the available literature on the use of incentives in PBL contracting, a data analysis of where and how PBL contracts are used in the DoD, and a summary of initial findings from the experts CSIS has interviewed on the subject.

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This material is based upon work supported by the Naval Postgraduate School Acquisition Research Program under Grant No. N00244-16-1-0009. The views expressed in written materials or publications, and/or made by speakers, moderators, and presenters, do not necessarily reflect the official policies of the Naval Postgraduate School nor does mention of trade names, commercial practices, or organizations imply endorsement by the U.S. Government.