What are Performance-Based Payments (PBP)?

Performance-Based Payments (PBP) are a form of payment arrangement in contracting where payments are linked to specific performance milestones or outcomes rather than simply the passage of time or the completion of deliverables. This method encourages contractors to meet or exceed performance expectations and is used to align incentives more closely between the contractor and the government or client.

The characteristics of PBP make it a strategic approach to contract management, as the payments are made based on negotiated schedules that are directly related to the achievement of designated results or accomplishments. This promotes efficiency and encourages contractors to prioritize the quality of their work.

In contrast, payments made for accepted items focus on the delivery of specific tangible items, which does not capture the performance aspect that PBP encompasses. Payments based solely on incurred costs do not take into consideration the results delivered, which is a key component of PBP. Lastly, payments made at the completion of a contract do not align with the ongoing assessment of performance throughout the life of the contract, missing the opportunity to motivate continuous performance improvement. Thus, the essence of Performance-Based Payments is best captured by the description that ties them to negotiated schedules linked to performance outcomes.