Federal contracting: guidance on award fees has led to better practices but is not consistently applied
| Date | 01 March 2009 |
| Pages | 420-463 |
| Published date | 01 March 2009 |
| DOI | https://doi.org/10.1108/JOPP-09-03-04-2009-B005 |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 9, ISSUES 3 & 4, 419 2009
SELECTED REPRINTS
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Copyright © 2009 by PrAcademics Press
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 9, ISSUES 3 & 4, 420-463 2009
FEDERAL CONTRACTING:
GUIDANCE ON AWARD FEES HAS LED TO BETTER PRACTICES BUT IS
NOT CONSISTENTLY APPLIED
U.S. Government Accountability Office*
ABSTRACT. In prior work, GAO found that contractors were paid billions of
dollars in award fees regardless of acquisition outcomes. In December
2007, the Office of Management and Budget (OMB) issued guidance aimed
at improving the use of award fee contracts. GAO was asked to (1) identify
agencies’ actions to revise or develop award fee policies and guidance to
reflect OMB guidance, (2) assess the consistency of current practices with
the new guidance, and (3) determine the extent agencies are collecting,
analyzing, and sharing information on award fees. GAO reviewed the
Departments of defense (DOD), Energy (DOE), Health and Human Services
(HHS), and Homeland Security (DHS) and the National Aeronautics and
Space Administration (NASA)—agencies that constituted over 95 percent of
the dollars spent on award fee contracts in fiscal year 2008.
RESULTS IN BRIEF
In response to the increased attention on the effective use of
award fee contracts, DOD and NASA have revised or reemphasized
their policies to clarify practices that allow for better use of award
fees in contracts and are generally consistent with OMB guidance. For
example, DOD’s guidance now states that award fees must be linked
to desired outcomes, defines the level of performance used to
evaluate contractors, and prohibits payment of award fees to
contractors for unsatisfactory performance. NASA’s guidance now
requires a documented cost-benefit analysis to support the use of an
award fee contract. While DOD and NASA have improved their policies
---------------------------------
* Reprinted from the U. S. Government Accountability Office (2009, May).
“Federal Contracting: Guidance on Award Fees Has Led to Better Practices
But Is Not Consistently Applied” (GAO-09-630). Washington, DC. Several
modifications are made, including endnotes and exclusion of its
Administrator’s transmittal memorandum.
Copyright © 2006 by PrAcademics Press
FEDERAL CONTRACTING: GUIDANCE ON AWARD FEES HAS LED TO BETTER PRACTICES 421
on the use of award fees, the extent to which DOE, HHS, and DHS
have done so at a departmentwide level varies, despite the fact that
acquisition professionals at each agency told us they need additional
guidance on using award fees. Further, many acquisition
professionals at these agencies told us that they were unaware of the
contents of the governmentwide OMB guidance, and the application
of this guidance was inconsistent among and within these agencies.
Current agency practices for using award fee contracts often are
not consistent with the new OMB guidance. However, where the
revised policies have been applied, the results have been hundreds
of millions of dollars in cost savings and better use of government
funds through linking fees to acquisition outcomes, limiting rollover,1
emphasizing excellent performance, and prohibiting payments for
unsatisfactory performance.
At DOD, savings have been achieved through limiting the use of
rollover and through tying award fee criteria to acquisition outcomes.
For the 50 DOD contracts we reviewed, we estimated that from April
2006 through October 2010, DOD will save in excess of $450 million
by not routinely offering contractors a second chance at unearned
fees and more than $68 million by using more clearly defined criteria.
For example, on an Air Force contract, the program ceased rolling
over unearned fees to subsequent award fee periods to conform to
the new policy and saved $20 million. Additionally, the Joint Strike
Fighter program, while not required to follow DOD’s new guidance,
changed its award fee plan to tie payments more directly to
acquisition outcomes, allowing the program to more accurately
evaluate the contractor’s performance. However, these practices are
not being implemented consistently at DOD as some programs
continue to roll over unearned fees and award up to 84 percent of
available award fees for satisfactory performance. Allowing
contractors a second chance at 100 percent of their unearned fees
has also occurred at some other agencies.
At NASA, the Deputy Director instructed staff in August 2008 to
use award fee contracts only in limited circumstances. The
reemphasis on following NASA’s guidance and the addition of a
requirement for a documented cost-benefit analysis is too recent for
us to judge its effect. However, NASA has added the management of
award fee contracts to the issues it will review during its annual space
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