Linking Contractor Performance

to Acquisition Outcomes via

Incentive Contracts

1
 Presenters

Sal Cianci Susan L. Coté

Professor of Contract Mgmt. Vice President
Defense Acquisition University Corporate Contracts, Pricing & Supply Chain
Salvatore.Cianci@dau.mil Northrop Grumman Corporation
Susan.Cote@ngc.com

Randall Gibson Cynthia Hyland

Professor of Contract Mgmt. Vice President
Defense Acquisition University Contracts, Pricing & Supply Chain
Randall.Gibson@dau.mil Northrop Grumman Information Systems
Cynthia.Hyland@ngc.com

Miriam Varend
Corporate Director, Contracts
Northrop Grumman Corporation
Miriam.Varend@ngc.com

2
 Purpose

“This two hour course will examine the

trade space between cost, schedule &
performance when using incentive
contracts to motivate contractor
performance and learn how to link
incentive arrangements to performance
outcomes. This course will present both
the government and industry viewpoints
on appropriate use of incentives.”
3
 Outline

•Incentive Contract Terminology

•Benefits of Incentive Contracts
•Two Critical Incentive Contract Tenets
•Recent Publicity & Resulting Policy
•October 2009 FAR Interim Rule
•Proposed DFARS Rule
•Linking Contractor Effort to C-S-P Trade Space
•Lessons Learned
•Questions
4
 Incentive Contract Terminology

• Incentive Contracts (FAR 16.4 Incentive Contracts)

– Incentive Fee (“objective”)
• Predetermined, formula-type incentives
– Award Fee (“subjective”)
• Neither feasible or effective to use incentive fee
• Enhances contractor to meet acquisition objectives
• Provides flexibility for Govt. to evaluate actual performance and the
conditions under which it was achieved
• “Award fee contracts are a type of incentive contract.” [FAR 16.401(e)]

5
 Incentive Contract Terminology
“A cost-plus-award-fee contract is a cost-reimbursement contract that provides for a fee
consisting of (1) a base amount fixed at inception of the contract, if applicable and at the
discretion of the contracting officer, and (2) an award amount that the contractor may earn in
whole or in part during performance and that is sufficient to provide motivation for
excellence in the areas of cost, schedule, and technical performance.” FAR 16.405-2

“Award-Fee Board means the team of individuals identified in the award-fee plan who have
been designated to assist the Fee-Determining Official in making award-fee determinations.
Fee-Determining Official (FDO) means the designated Agency official(s) who reviews the
recommendations of the Award-Fee Board in determining the amount of award fee to be
earned by the contractor for each evaluation period.
Rollover of unearned award fee means the process of transferring unearned award fee,
which the contractor had an opportunity to earn, from one evaluation period to a subsequent
evaluation period, thus allowing the contractor an additional opportunity to earn that
previously unearned award fee.” FAR 16.001

“A Provisional Award Fee payment is a payment made within an evaluation period prior to a
final evaluation for that period.” DFARS 216-405-2(b)

Base Fee < 3% of estimated cost and is not part of award fee. DFARS 216.405-2(c)
6
 Incentive Contract Terminology

Specific Incentive Contract Types

• FPI: Fixed-Price-Incentive
– FPIF: FPI -- Firm Target (FAR 16.403-1)
– FPIS: FPI – Successive Targets (FAR 16.403-2)
• FPAF: Fixed-Price-Award-Fee (FAR 16.404)
• CPIF: Cost-Plus-Incentive-Fee [FAR 16.405-1]
• CPAF: Cost-Plus-Award-Fee [FAR 16.405-2]
• FPIF with performance or delivery incentives
• FPIF/AF
• CPIF with performance or delivery incentives
• CPIF/AF

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 Incentive Contract Terminology

“The contracting officer may use a firm-fixed-price contract in

conjunction with an award-fee incentive (see 16.404) and
performance or delivery incentives (see 16.402-2 and
16.402-3) when the award fee or incentive is based solely on
factors other than cost. The contract type remains firm-fixed-
price when used with these incentives.” FAR 16.202-1

Award Term
– Not in FAR or DFARS as an official contract type. In the absence of
its own official contract type, Award Term could be viewed as an
element of whatever official contract type with which it is affiliated.
However, Award Term is unique in that it involves an extension to
the existing contract period of performance (“term”).

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 Cost Incentive (or Constraint)

16.402 Application of predetermined, formula-type incentives.

16.402-1 Cost incentives.

(a) Most incentive contracts include only cost incentives, which take
the form of a profit or fee adjustment formula and are intended to
motivate the contractor to effectively manage costs. No incentive
contract may provide for other incentives without also providing a
cost incentive (or constraint).

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 Multiple-Incentive Contracts

16.402 Application of predetermined, formula-type incentives.

16.402-4 Structuring multiple-incentive contracts.
A properly structured multiple-incentive arrangement should—
(a) Motivate the contractor to strive for outstanding results in all incentive
areas; and
(b) Compel trade-off decisions among the incentive areas, consistent with
the Government’s overall objectives for the acquisition. Because of the
interdependency of the Government’s cost, the technical performance,
and the delivery goals, a contract that emphasizes only one of the
goals may jeopardize control over the others. Because outstanding
results may not be attainable for each of the incentive areas, all
multiple-incentive contracts must include a cost incentive (or
constraint) that operates to preclude rewarding a contractor for
superior technical performance or delivery results when the cost of
those results outweighs their value to the Government. (emphasis
10
added)
 Benefits of Incentive Contracts
Let’s Remember the “Win-Win” Paradigm
Benefit to Government Contractor Drivers
Timely, high quality Positioning for follow-on
Mission Success business; performance incentive
products
Affordable programs and Financial incentives to perform;
Program Execution good cash flow
realistic budgets
Future availability of Attractive shareholder returns
systems and capabilities
Industrial Base enable continuing investment
Allocation of company funds for
Continuing U.S. superiority Pushing The Envelope technology and risk reduction

• “Win-Win” achieved through commitment and partnership

– Effective communication and collaboration enable tough challenges to
be overcome
– We must work together to execute successfully

We have a common objective: Deliver promised

performance on time and on cost
Banner
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 Benefits of Incentive Contracts

• Create more direct link between fee/profit and

Cost, Schedule, & Performance (C, S, P).
• Program Managers (PMs) track (& are
tracked by) C, S, P.
– Govt. PMs tracked predominantly on C, S, P which are the
means to Mission Success.
– Industry PMs also tracked by company on revenue &
profit.
• Stronger, closer relationship between:
– the Contracting Professional & PM Team
– the Govt. & the Contractor

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 Two Critical Incentive Contract Tenets

Fee Cash Flow

• Incentive Contracts: Fee paid based on
successful execution – tied to C-S-P
• Base Fee & Provisional Award Fee Payments
increase fee cash flow
• Lengths of award fee evaluation periods &
timeliness of payouts impact fee cash flow
• Cost incentive fee also can provide critical,
initial fee cash flow
• Keep KR motivated throughout life of contract

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 Two Critical Incentive Contract Tenets

Improved Communication
• Award Fees
– Via FDO within contract framework
– Manage expectations with FDO on AF
process
– Manage expectations with KR on rating scale
• Incentive Fees
– Via predetermined formulas in contract
language
– Discourages requirements creep

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 Recent Publicity & Resulting Policy
• GAO Report. Defense Acquisitions: DOD Has Paid Billions in Award
and Incentive Fees Regardless of Acquisition Outcomes GAO-06-66,
December 19, 2005
• DUSD(A&T) Memo dtd Mar 29, 2006, Subj: Award Fee Contracts
• GAO Testimony. Defense Acquisitions: DOD Wastes Billions of
Dollars through Poorly Structured Incentives GAO-06-409T, April 5, 2006
• GAO Report. NASA Procurement: Use of Award Fees for Achieving
Program Outcomes Should Be Improved GAO-07-58, January 17, 2007
• DPAP Memo dtd Apr 24, 2007, Subj: Proper Use of Award Fee
Contracts and Award Fee Provisions
• DPAP Memo dtd Apr 24, 2007, Subj: Award and Incentive Fees – Data
Collection
• DPAP Memo dtd May 15, 2007, Subj: Proper Use of Award Fee
Contracts and Award Fee Provisions
• OFPP Memo dtd Dec 4, 2007, Subj: Appropriate Use of Incentive
15
Contracts
 Recent Publicity & Resulting Policy
(continued)
• GAO Report. Federal Contracting: Guidance on Award Fees Has Led to
Better Practices but Is Not Consistently Applied GAO-09-630, May 29, 2009
• GAP Testimony. Federal Contracting: Application of OMB Guidance Can
Improve Use of Award Fee Contracts GAO-09-839T, August 3, 2009
• DPAP Memo dtd Sep 22, 2009, Subj: Award and Incentive Fees – New GAO
Report and Evaluation of Data
• DPAP Memo dtd Apr 26, 2010, Subj: Class Deviation 2010-O0011 - Award Fee
Reduction or Denial for Jeopardizing the Health or Safety of Government
Personnel

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 October 2009 FAR Interim Rule

• FAR Case 2008-008 – 14 OCT 2009

– Award Fee Language Revision
– Issued as Interim Rule via FAC 2005-37
– Public comments were due by 14 DEC 2009
and can be viewed at www.regulations.gov
– Awaiting final FAR rule

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 October 2009 FAR Interim Rule

• Head of Contracting Activity must execute

determination & finding for all incentive-fee &
award-fee contracts
• Rollover of unearned award fee prohibited
• Must use prescribed award fee
ratings/descriptions/percentages
– “Contracting officers may supplement the
adjectival rating description.” FAR 16.401(e)(3)(iv)
• No AF payout when performance < satisfactory
• Agency data collection & analysis
• Agency best practices

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 October 2009 FAR Interim Rule
FAR Table 16-1
Award-Fee Adjectival Award-Fee Pool Available To Be Description
Rating Earned
Excellent 91%--100% Contractor has exceeded almost all of the significant award-
fee criteria and has met overall cost, schedule, and technical
performance requirements of the contract as defined and
measured against the criteria in the award-fee plan for the
award-fee evaluation period.

Very Good 76%--90% Contractor has exceeded many of the significant award-fee
criteria and has met overall cost, schedule, and technical
performance requirements of the contract as defined and
measured against the criteria in the award-fee plan for the
award-fee evaluation period.

Good 51%--75% Contractor has exceeded some of the significant award-fee

criteria and has met overall cost, schedule, and technical
performance requirements of the contract as defined and
measured against the criteria in the award-fee plan for the
award-fee evaluation period.

Satisfactory No Greater Than 50%. Contractor has met overall cost, schedule, and technical
performance requirements of the contract as defined and
measured against the criteria in the award-fee plan for the
award-fee evaluation period.

Unsatisfactory 0% Contractor has failed to meet overall cost, schedule, and

technical performance requirements of the contract as
defined and measured against the criteria in the award-fee
plan for the award-fee evaluation period. 19
 April 2010 DFARS Proposed Case

• DFARS Case 2006-D021 – 30 APR 2010

– Proposed Award Fee Changes
– Public comments due by 29 June 2010 and
can be submitted via www.regulations.gov

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 April 2010 DFARS Proposed Case

Proposes (not an interim rule)

• Elimination of Provisional Award Fee
• Requiring at least 40% of award fee pool
be deferred to final evaluation period
• New DFARS clause

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 April 2010 DFARS Proposed Case

Proposed new DFARS clause 252.216–70XX Award fee.

AWARD FEE
The Contractor may earn award fee from a minimum of zero
dollars to the maximum amount stated in the award-fee plan
in this contract. In no event will award fee be paid to the
Contractor for any evaluation period in which the Government
rates the Contractor’s overall cost, schedule, and technical
performance below satisfactory. The Government may
unilaterally revise the award-fee plan prior to the beginning of
any rating period in order to redirect Contractor emphasis.
(End of clause)

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Linking Contractor Effort
to C-S-P Trade Space

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 Cost Incentive (or Constraint)

16.402 Application of predetermined, formula-type incentives.

16.402-1 Cost incentives.

(a) Most incentive contracts include only cost incentives, which take
the form of a profit or fee adjustment formula and are intended to
motivate the contractor to effectively manage costs. No incentive
contract may provide for other incentives without also providing a
cost incentive (or constraint).

24
 Multiple-Incentive Contracts

16.402 Application of predetermined, formula-type incentives.

16.402-4 Structuring multiple-incentive contracts.
A properly structured multiple-incentive arrangement should—
(a) Motivate the contractor to strive for outstanding results in all incentive
areas; and
(b) Compel trade-off decisions among the incentive areas, consistent with
the Government’s overall objectives for the acquisition. Because of the
interdependency of the Government’s cost, the technical performance,
and the delivery goals, a contract that emphasizes only one of the
goals may jeopardize control over the others. Because outstanding
results may not be attainable for each of the incentive areas, all
multiple-incentive contracts must include a cost incentive (or
constraint) that operates to preclude rewarding a contractor for
superior technical performance or delivery results when the cost of
those results outweighs their value to the Government. (emphasis
25
added)
 Understanding How to Apply Incentive Fees

• Think Range of Incentive Effectiveness (RIE)

– What are your RIEs ?
– Minimum-to-Maximum (or Max-to-Min) Range
– Is the RIE continuous or in “blocks” (i.e. step-ladder) ?
– How much fee is at stake ?
• Cost Control Example
– 6% underrun to 8% overrun
• Target Fee of 4%, Min. Fee: 0%, Max. fee: 7%, 50/50 Shareline
• Schedule Example
– 0-90 days late, 25% fee decrement on 1st, 31st, 61st, and 91st days
• Performance Example
– Deltas of thresholds-to-objectives or thresholds-to-proposed-
values for Key Performance Parameters (KPPs) and non-KPPs
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 Example of a Systems Acquisition:
CPIF/CPAF Fee Breakdown
CPIF/CPAF
Baseline: 13% *Only if underrun of 5% with 100% ratings
Maximum: 18%* on all milestones and full mission success

Cost Control Fee (C) Interim Milestones (S, P) End Deliverable (S, P)
(Target: 4%, Maximum: 7%) (4% AF with Incentives) (4% IF with AF if not perfect)
Schedule RIE: 1 day (50% cut in Milestone AF). Performance RIE: None.
Cost Range of Incentive
If a milestone schedule is not met, maximum “All-or-None” KPP-based Fee
Effectiveness (RIE) is 15%
fee payout is 50% of the allotted fee pool for that Success assessed via comparing
(5% underrun to 10% overrun)
milestone. final test/analysis results against
Minimum fee is 0% and
Govt. sets a few milestone dates (e.g., IBR) performance specification
maximum fee is 7%
Offerors set remaining milestone schedules Schedule RIE: 0-90 days.
40/60 shareline under Target Cost
Govt. sets the milestones & fee percentages Incremental (days 1, 31, 61, 91)
60/40 shareline above Target Cost
Performance RIE: 0-100. Govt. rates each
Incrementally fund with 4% target fee
milestone for tech/mgmt. performance only

IF w/AF: (b) 0-2% (C, S, P)

IF: (a) 1% (part of baseline) (C, S, P)

If the contractor meets or underruns target cost AND achieves 100% payout for end deliverable, the Govt. will
pay contractor: (a) additional 1% fee; and (b) Govt.’s underrun savings (up to 2.0% of target cost) based on
milestone schedules met and the performance ratings of such milestones

Balances, Integrates, and Incentivizes Working within C-S-P Trade Space.

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 Interim Milestone Award Fees with
Performance & Schedule Parameters

Government determines the event-based milestones.

Contractor-proposed dates based on development approach and Integrated
Master Schedule (IMS). (IMS is not part of the contract.)
If the Contractor successfully completes the milestone after its proposed
schedule date, then the milestone payment is reduced by 50%.
Specific exit criteria (CDRLs) provided for each Milestone.
– CDRL acceptances are “Go vs. No Go” only.
Award Fee Rating: Fee Determining Official only looks at technical/mgmt.
(performance).
– EVMS data (e.g., CPI and SPI) are not the basis of a rating.
– Effectiveness & effective use of IMS may be assessed, not the
contractual schedule which is covered under an IF.

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 Interim Milestone Award Fees with
Performance & Schedule Parameters

Milestones Successful Completion Date (in Fee Pool Percentages

DACA or MACA) (applied to Target Cost)
1. Integrated Baseline Review NLT 4 MACA .10%
2. Preliminary Design Review Phase To Be Proposed (TBP) .40%
3. Critical Design Review Phase TBP .70%
4. CAI FQT NLT 39 MACA .20%
5. JTeL Certification ------- .10%
6. System Test Readiness Review #1* TBP .08%
7. Physical Configuration Audit TBP .15%
8. Production Readiness Review TBP .15%
9. Initial Satellite Control Segment Installation at NAVSOC NLT 45 MACA .25%
10. Final Satellite Control Segment Installation at NAVSOC NLT 55 MACA .15%
11. System Test Readiness Review #2* TBP .07%
12. 1st Satellite FIST TBP .20%
13. Initial Ground System Installation for 1st Satellite TBP .25%
14. Satellite #1 Encapsulation TBP .45%
15. 2nd Satellite FIST TBP .20%
16. Remaining Ground System Installation TBP .15%

17. Satellite #2 Encapsulation TBP .40%

Yellow Shaded Cells Determined by Program Office. Green Shaded Cells Completed by KR. 4.0%
29
 Interim Milestone Award Fees with
Performance & Schedule Parameters
Milestone
(Determined by Program Office)
1. Integrated Baseline Review
(IBR)
3. Critical Design Review (CDR)
Phase
Exit Criteria
(Determined by Program Office)
IBR Successfully Complete. Successful completion of the IBR is achieved when all the following exit
criteria are met:
a) Review conducted;
b) All action items closed or documented in a plan of closure; and
c) Performance Measurement Baseline established;
d) EVMS system in place with Responsibility Assignment Matrices, Work Authorization
Documents, Program Schedules, and Control Account Plans mutually and thoroughly
understood and agreed to by the Contractor and the Government; and
e) Government approval of the associated deliverables: Program Management Plan; Contingency
Plan; Contract Funds Status Reports; System Engineering Management Plan; Integrated Digital
Environment Plan; Risk Management Plan; Data Management Plan; Configuration Management
Plan; Technical Performance Measures Plan; Environmental, Safety and Occupational Health
Compliance Plan; Pollution Prevention Plan; System Safety Program Plan; Integrated Logistics
Support Plan.
All System and Segment Level CDRs successfully complete. Successful completion of the system
and segment level CDRs is achieved when all the following exit criteria are met:
a) Segment and System level reviews conducted;
b) All action items closed or documented in a plan of closure;
c) Product Baseline established;
d) Delivery of the final System Performance Assessment Model; and;
e) Government approval of the associated deliverables: Software Test Description; Final System
Test and Integration Master Plan; Segments Test Plans; Software Test Plan; Final Satellite
Design Analysis and Verification Reports; Software Installation Plan; Interface Control
Documents; Final Material Review Data Packages; Operational Support Plan; Mission
Assurance Program Plan; Interface Requirements Specification; Launch Assurance Program
Plan; Launch Operations Plan; Concept of Operations; Security Verification Plan; and
TEMPEST Control Plan.
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 Award Fee Definitions (Systems)
IDEAS FOR CONTRACTING OFFICER SUPPLEMENTARY LANGUAGE TO FAR TABLE 16-1:

Excellent (91-100%): An excellent grade reflects successful milestone completion with no

resulting problems from this milestone that may be expected to negatively impact sufficient
program cost, schedule, and technical performance.

Very Good (76-90%): A very good grade reflects successful milestone completion with minor
problems, if any, that can be readily addressed to sufficiently maintain program cost, schedule, and
technical performance.

Good (51-75%): A good grade reflects successful milestone completion with some problems that
must be proactively address to sufficiently maintain program cost, schedule, and technical
performance.

Satisfactory (No greater than 50%): A satisfactory grade reflects successful milestone complete
despite some problems that must be proactively addressed with significant Government assistance
to sufficiently maintain program cost, schedule, and technical performance.

Unsatisfactory (0%): An unsatisfactory grade indicates that, while the Contractor may have
successfully completed the milestone, performance was below the satisfactory level. An
unsatisfactory grade reflects performance that negatively impacts program cost, schedule, and
technical performance.
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 CPIF/CPAF Fee Relationships
4% Incentive Fee for Cost Control
0-3% Contractor Underruns for More Incentive Fee
4% Award Fee with Incentives for Milestones
4% Incentive Fee (with AF if not perfect) for End Deliverable

1% IF Part (a) Cost Control

Target Incentive Fee
0-2% IF with AF Part (b) –Govt. shares its underrun savings
4% (Maximum of 7%)
18% Maximum Fee

IF
Parts (a) & (b)
Milestones 1% & 0-2%
4%

End
Deliverable
4%
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 C-S-P Fee Relationships
4% Incentive Fee for Cost Control (Cost)
0-3% Contractor Underruns for More Incentive Fee (Cost)
4% AF with incentives for Milestones (2% Perf., 2% Schedule)
4% IF with AF for End Deliverable (2% Perf., 2% Schedule)

1% IF Part (a) (Cost-Sched-Perf) Cost Fees

0-2% IF with AF Part (b) (Cost-Sched-Perf) 0-7%

18% Maximum Fee

IF
Parts (a) & (b)
1% & 0-2%
Schedule
Fees
Milestones- 4%
End
Deliverable – 4%
Performance
Fees 33
 Ensure Fees are Performance-Based & Backloaded*
*but not too much

Sat #1 On-orbit
Delivery

Sat #2 On-orbit
Delivery

CDR
CAI FQT
PRR

NAVSOC Final
JTeL Cert Install
STRR #1 STRR #2
PDR NAVSOC 1st Sat FIST
Install PCA

IBR
Final Ground Install
2nd Sat Encap.

Initial Ground Install

1st Sat Encap.
2nd Sat FIST

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Understand Contractor’s Fee Cash Flow per Type of Fee (IF vs. AF, C-S-P)
 Option CLINs -- FPIF/AF Structure

Production Units
Production Cost Control

Target Profit TC X 12%

Shareline 50/50
Ceiling Price
TC X
(excluding Mission
120%
Success Profit)
Mission Success Profit TC X 4%

TC = Target Costs (Proposed by Offeror)

Government set Target Profit Rates, Sharelines, Ceiling Price
Percentages, and Delivery Success Profit Percentages
Mission Success Profit: Per on-orbit test results verifying capabilities
delivered and schedule achieved.

Whenever possible, include FPIF/AF production options on the CPIF/AF development contract.
Establish the CPIF/AF and FPIF/AF structure around extent of COTS, COTS integration, and
technology readiness levels for your system. The more integration involved and the lower the
TRLs, the more the incentive parameters should shift risk to the Govt. If industry pushes back too
hard on FPIF/AF options, your requirements may be unrealistic.
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 Post-Award Changes
to Incentive Contract Fee Structure

• The Contractor is more motivated to proactively identify, share, and

address cost, schedule, or performance risks that jeopardize
Mission Success if:
– Incentive and Award Fees are integrated & balanced across C-S-P;
– Significant fee amount is at risk; and
– It has C-S-P trade space.
• If the Contractor cannot stay within the trade space (i.e. lose
significant fee) or will lose too much fee if pushing towards the edge
of the trade space (i.e. extreme end of one or more RIEs), it is
motivated to negotiate with the Government to minimize its fee loss
and offer “consideration” as part of re-balancing the C-S-P fee
structure.
• Apply the fee structure leverage judiciously and only as needed
throughout the life of the contract (and do not abuse this advantage).

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 Lessons Learned for Systems Buy
• Start Early!!!!
– Maximizes your trade space for schedule
• Maximize Pre-Solicitation Industry Exchanges
– Multiple one-on-one mtgs. and share as much info as possible
• Continuous Joint PM-PCO-Industry Effort
– Examine the C-S-P trade space
– Continuously, before and after award
• Get insight into prime-subcontractor C-S-P trade space
– Encourage IF/AF subcontracting arrangements
• Incentive Contracts result in PM-PCO working closer together from
RFP development through post award administration
• It will take longer to negotiate post award changes
– T&Cs get same attention as cost/price
– More program office involvement
– Benefit is more realistic ECP planning

37
 Award Fee Definitions (Services)
IDEAS FOR CONTRACTING OFFICER SUPPLEMENTARY LANGUAGE TO FAR TABLE 16-1:
Excellent (91-100%): An excellent grade is considered to be exceptional and awarded
infrequently, reflects all of the following: very efficient and very effective performance (including
types and hours of labor), results are very reliable with high validity, results add value that is
vital to program decision-making and/or outcomes, and all other traits in this rating description
are reflected in the subcontract management as well.
Very Good (76-90%): A very good grade is the expected, consistent baseline of performance
and reflects all of the following: efficient and effective performance (including types and hours
of labor), results are reliable and valid, results add significant value to program decision-making
and/or outcomes, and good, proactive subcontract management.
Good (51-75%): A very good grade is the expected, consistent baseline of performance and
reflects all of the following: efficient and effective performance (including types and hours of
labor), results are consistently reliable and valid, results add value to program decision-making
and/or outcomes, and good, proactive subcontract management.
Satisfactory (No Greater than 50%): A satisfactory grade reflects some or all of the following:
mostly efficient and mostly effective performance (including types and hours of labor), the
results are somewhat reliable and valid, results add some value to program decision-making and/or
outcomes, and adequate subcontract management.
Unsatisfactory (0%): An unsatisfactory grade indicates that, while the Contractor successfully
completed the requirements, performance was below the satisfactory level. An unsatisfactory grade
reflects some or all of the following: inefficient or ineffective performance (including types and hours of
labor), results that may be unreliable or not valid, results add little or no value to program decision-
making and/or outcomes, and poor subcontract management.
38
 Ideas to Streamline
Award Fee Process
• Award Fee Board (AFB) evaluates subjective matters only.
– Maximizing objective measures (IFs) means less work for the AFB.
• Avoid attaching a voluminous award fee plan to the contract.
– Add AFB membership, FDO, and definition info via award fee
clauses.
• No mandated “dog and pony” shows.
– Govt. reserves right to require KR to submit written self-evaluation.
• Focus on the differences between the award fee definitions.
– No “bottoms up” or “top down” scoring.
• No award fee report by AFB or FDO.
– PowerPoint presentation with FDO signature. Share with KR.
• No PCO letter to KR.
– Just the unilateral award fee modification.
• Avoid changes to the award fee criteria each evaluation period.
– Use comprehensive award fee definitions.

39
 Lessons Learned
• Do not shy away from incentive contracts
• Remember it is simply linking fee/profit to C-S-P
with corresponding, viable cash flow
• Supplement FAR Table 16-1 adjectival rating
descriptions
• Continue work to reduce administrative burden of
the award fee process
• Stay in tune with GAO Reports & DPAP Policy
Vault memoranda
– Failure to self-monitor & improve practices leads to
increased regulations & challenges
• Continue to work with your PM Team and Industry
to structure contracts to focus on C, S, P and
the trade space
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 A Few Resources
on Incentive Contracts

Acquisition and Community Connection:

Award and Incentive Fee Contracts
https://acc.dau.mil/CommunityBrowser.aspx?id=105550&lang=en-US

**Note: This site will link you to many other great resources on
Incentive Contracts.**

DAU Continuous Learning Center

http://www.dau.mil/clc/default.aspx
CLC 034 Provisional Award Fee

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Questions ?

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