Advertisement

City contractors need flexibility

I read with great interest the letter from retired contractor Sidney M. Levy ("Baltimore can control unexpected infrastructure costs," July 18) on how better contracting can potentially lessen cost overruns. Certainly, Baltimore is suffering from aging infrastructure, exacerbated by deferment of repairs due to budget constraints. Cost control on these projects is imperative.

Mr. Levy's proposals are worthy, but there are other innovative contracting methods that should be considered. For close to 20 years, the U.S. Department of Defense has been making extensive use of "Performance Based Contracting," commonly referred to as Performance Based Logistics (PBL) as a means to save costs for the sustainment of defense weapons systems. This type of contracting pushes the majority of cost risk to the contractor while simultaneously providing contractors more flexibility to use their subject matter knowledge and expertise to find more innovative solutions that will save both upfront and recurring costs over the life of the project.

Advertisement

These contracts typically are variations on a fixed price contract with the most common form as a "fixed price incentive" contract. In this approach, the buyer (in this case, the city of Baltimore) provides a statement that specifies what is desired as an outcome but does not cite specific lower-level details about how the end outcome is to be achieved. This enables the contractor to move from a compliance behavior to a more innovative approach while still ensuring that the end product will be fully compliant with all construction code, safety and related requirements. The contractor bids a fixed price which ensures they will have done due diligence to include all potential contingencies in their bid. Since there will still be "unknown unknowns," there is a cost target component in the contract, above the fixed price component, and a share ratio is negotiated in which both the contractor and the city share any cost overruns, but also benefit from any cost underruns of the cost target. The share ratio is negotiated, but for simplicity it could be 50-50, which means that if the project exceeds the cost target, the contractor and the city each pay half of the cost overrun.

In the final analysis, these types of contracts have consistently resulted in lower total cost to the buyer while still ensuring that the buyer receives the desired end product meeting their full requirement. Given its successful track record in government contracting, it is worthy of consideration in Baltimore's civil construction and maintenance projects.

Jerry Cothran, Baltimore

Advertisement
Advertisement