FAR 37.601—General.
Plain-English Summary
FAR 37.601 explains the basic content requirements for service solicitations and performance-based service contracts. It covers two acceptable solicitation approaches—a performance work statement (PWS) or a statement of objectives (SOO)—and then sets the minimum elements that must appear in a performance-based contract for services. Those required elements are a PWS, measurable performance standards, a method for assessing contractor performance against those standards, and performance incentives when appropriate. The section also ties incentives to the performance standards in the contract, with a cross-reference to FAR 16.402-2 for incentive contract principles. In practice, this section is meant to push agencies away from vague, input-based service descriptions and toward clear, outcome-based requirements that can be measured, managed, and enforced.
Key Rules
Use PWS or SOO
Solicitations for services may be written using either a performance work statement or a statement of objectives. The choice affects how much detail the Government provides up front, but either approach must support a clear service requirement.
PWS required in performance-based contracts
A performance-based contract for services must include a performance work statement. The PWS defines the work to be performed in terms of results or outcomes rather than prescribing how the contractor must do the work.
Set measurable standards
The contract must include measurable performance standards, such as quality, timeliness, or quantity. Standards must be specific enough to allow objective evaluation of whether the contractor met the requirement.
Define assessment method
The contract must state how contractor performance will be assessed against the performance standards. This means the solicitation and contract should explain the evaluation process, metrics, surveillance method, or other means used to judge performance.
Use incentives when appropriate
Performance incentives are not mandatory in every case, but when used they should be included only where they make sense for the requirement. Incentives must be aligned with the performance standards in the contract.
Tie incentives to standards
Any performance incentives must correspond to the performance standards set forth in the contract. This prevents paying for results that are not actually measured or rewarding performance on factors outside the contract’s stated objectives.
Responsibilities
Contracting Officer
Choose an appropriate solicitation format, ensure the contract includes a PWS, measurable performance standards, and a method of assessment, and include performance incentives only when appropriate and properly tied to the stated standards.
Agency/Requirement Owner
Define the service need clearly enough to support a PWS or SOO, identify meaningful outcomes and measurable standards, and help ensure the assessment method reflects how performance will actually be monitored.
Contractor
Review the PWS, standards, and assessment method to understand exactly what performance is required, and manage work to meet the measurable outcomes and any incentive-linked targets.
Acquisition Team
Develop service requirements in a way that supports performance-based acquisition, ensuring the solicitation language, evaluation approach, and contract terms are consistent with one another.
Practical Implications
This section matters because it forces service requirements to be written in measurable terms, which reduces ambiguity and makes contract administration easier.
A common pitfall is using a vague PWS or SOO without real performance standards, which makes it hard to determine whether the contractor is succeeding or failing.
Another frequent mistake is including incentives that are not directly tied to the stated standards, which can create disputes and weaken the incentive structure.
Contracting officers should make sure the assessment method is practical and documented; if performance cannot be measured, the contract is not truly performance-based.
Contractors should look closely at the standards and surveillance method during proposal preparation, because those terms will drive both compliance expectations and any opportunity for incentive payments.
Official Regulatory Text
(a) Solicitations may use either a performance work statement or a statement of objectives (see 37.602 ). (b) Performance-based contracts for services shall include- (1) A performance work statement (PWS); (2) Measurable performance standards ( i.e., in terms of quality, timeliness, quantity, etc.) and the method of assessing contractor performance against performance standards; and (3) Performance incentives where appropriate. When used, the performance incentives shall correspond to the performance standards set forth in the contract (see 16.402-2 ).