Performance-based contracting (PBC) in a digital era
In performance-based contracts, payment to companies is not based on production-related measures such as the quantities of material used and the number of working hours. Instead, payment is based on meeting measurable performance requirements specified by clients. This new, service-oriented value proposition revolves around performance, often enabled by a comprehensive bundle of services such as maintenance, repair and energy management. Performance contracting-related business models are typically data-driven: without sufficient (big) data, predictive (smart) maintenance and digital twins cannot be realized. Performance-based contracts offer several potential advantages over traditional method-based contracts, both for the provider of these services and its clients. However, developing and implementing a performance contracting type of business model comes with various challenges and implications in the socio-managerial domain. These challenges and implications can be studied at the level of the firm and/or at the broader industry level. Performance contracting has been used in industries such as road construction, energy, military and commercial aircraft, maritime, process industry and printing.