When are performance-based payments allowed to be used?

Performance-based payments are an important concept in federal contracting, designed to promote efficiency and ensure that contractors are compensated based on their performance. The use of performance-based payments is specifically tailored to scenarios where they can be most effective.

In circumstances where the contracting officer (CO) and the offeror agree on performance-based items, the terms become critical. The contract needs to be of a fixed type, which generally means that the contractor agrees to complete the work for a set price, providing clarity on deliverables. Additionally, the absence of progress payments is significant because performance-based payments are considered an alternative to traditional progress payments. This setup encourages contractors to focus on achieving specific performance goals rather than simply progressing through stages of the project without necessarily hitting performance targets.

This arrangement fosters a performance-oriented approach, ensuring that payments are aligned with the delivery of tangible results rather than merely the passage of time or completion of certain phases. Performance-based payments are not just applicable to any contract type, nor are they exclusively for small businesses or limited to contracts that allow for other forms of progress payments. Their effective use hinges on mutual agreement and the fixed-price structure, making option C the appropriate context for their application.