Defining the fundamental framework of an effective performance-based logistics (pbl) contract

Highly capital-intensive systems in domains such as transportation, infrastructure, defense and aerospace, and telecom have long operational life cycles and their stakeholders expect them to exhibit the necessary operational and performance characteristics during these long operational life spans. Often the results have been less than satisfactory, which has led many to envision alternative approaches to effectively sustaining such systems. Among the alternative approaches is Performance Based Logistics (PBL), whose essence is to define key system readiness and effectiveness criteria and to contract for threshold values of these criteria. The emphasis is in contracting for results, and not for resources as traditionally done. This article is based on a literature survey conducted on the papers published in connection with this topic since the advent of the PBL initiative, as well as on numerous personal interviews entertained in programs in which the authors have been involved, and briefly surveys current practices in PBL-based contracting, highlighting the lessons learned and outlining the primary drawbacks observed. Finally this article proposes a framework for formulating more efficient and effective PBL contractual agreements and identifies the main topics or aspects of a successful PBL initiative. Experience shows that in order for a PBL contract to yield the desired results it is essential to have a thorough agreement on the metrics to be used to represent system effectiveness, as well as an agreed reward scheme that links reward to achieved effectiveness.