Performance-based contracts (PBC)

What is PBC?

Performance-Based Contracting (PBC) is a procurement strategy focused on outcomes rather than the procurement of specific goods or services but also a transformative approach encompassing processes, human aspects, and technology across the organization to achieve better results by reducing risks. Under a PBC model, payment is tied to the achievement of clearly defined performance targets, ensuring that the contractor’s success is directly aligned with the customer’s objectives. Rather than compensating for individual tasks or materials, PBC emphasizes the delivery of desired results, such as system availability or operational efficiency.

This approach grants the contractor greater flexibility in determining how to meet performance goals, while simultaneously holding them accountable for underperformance. The result is a collaborative, shared-risk environment where both parties are incentivized to achieve long-term effectiveness and mutual success.

Why does PBC matter?

In today’s complex logistics environments, especially within Integrated Product Support (IPS), the ability to guarantee long-term efficiency and sustainability is paramount. PBC is designed to improve the effectiveness of logistical services by transferring performance risks to the contractor, incentivizing them to deliver results that meet the customer’s needs. This approach ensures that the contractor’s success – whether it’s related to cost savings, performance improvement, or time efficiency – is tightly aligned with the customer’s goals.

The new guidance documents: a two-part solution

At ASD, we recognised the need for clearer, more practical guidelines on how to approach PBC within the aerospace and defence industry. While PBC concepts have been explored in international literature, there has been a gap in offering a structured, step-by-step framework that can be adapted to a variety of organizations and project stages.

Our new guidance documents are designed to fill this gap, offering a comprehensive roadmap for implementing PBC, tailored specifically for European operators. The documents provide tools, methodologies, and practical steps to ensure success, whether you are developing a PBC approach from scratch or optimizing an existing model.