Chapter 21 - Performance-Based Contracting and Service Level Agreements

21.9.2 Modular strategies

Modular contracting is an important incentive strategy. Rather than awarding mega contracts that give suppliers a lock on huge amounts of agency business for years, the agency instead constructs its procurement strategy in successive “chunks.” In a mega contract, the incentive is to win the contract, not necessarily to provide superior performance after award. Under modular contracting, future business is much more dependent on successful contract or task performance, and suppliers have an increased incentive to perform at a high level so they are awarded the next task, option, or contract. Modular contracts lend to easier project governance and control, and in some cases, to annual budget constraints. Likewise, if a supplier is under performing, terminating a part of a project may be less detrimental to all parties than terminating a mega contract in the middle of its term. If the project is part of a larger federal or state technology initiative, the modular approach allows time for the project to align with any legacy or interfacing dependencies and schedules so the agency isn’t at risk of a schedule slip wherein a supplier would demand some remuneration for its need to put resources or other dedicated project assets on hold for the Commonwealth. So, concurrent with the contract-type decision, is the consideration of whether modular strategies are appropriate.