Agencies play by different rules on contractor award fees, says GAO
Five agencies gave out the majority of the rewards in 2008. GAO also finds
Five agencies and departments that paid billions in contractor
award fees are not being consistent in how they apply those rewards, a
Government Accountability Office executive has testified.
The Defense, Energy, Health and Human Services, Homeland
Security departments and NASA awarded 95 percent of the contractor
award fees in 2008, John Hutton, GAO' director of acquisition and
sourcing management, told a Senate subcommittee August 3.
From fiscal 2004 to fiscal 2008, agencies spent $300 billion on
contracts that included award fees, GAO has found. The auditing agency
said it examined 645 evaluation periods for 100 contracts in which
contractors were paid a total of $6 billion in award fees.
The Office of Management and Budget (OMB), in guidance issued in
2007, said the award fees are to be linked to favorable acquisition
outcomes that involve costs, schedules and performance. OMB also said
agencies should eliminate “rollovers” in which contractors are given
second or third chances to earn an award, motivate excellent
performance and prohibit payments for unsatisfactory performance.
However, some of the five agencies examined by the GAO have
implemented those guidelines more effectively than others, Hutton said.
“By implementing the revised guidance, some DOD components reduced
costs and improved management of award fee contracts. Potential changes
at NASA — such as documented cost-benefit analyses — are too recent
for their full effects to be judged. At [Energy], DHS and HHS,
individual contracting offices have developed their own approaches to
executing award fee contracts which are not always consistent with the
principles in the OMB guidance or between offices within these
departments,” Hutton told the Senate Homeland Security and Governmental
Affairs’ Committee's Federal Financial Management, Government
Information, Federal Services and International Security Subcommittee.
However, all those agencies and departments have difficulties
evaluating whether the awards inspire better contractor performance,
“None of the five agencies has developed methods for evaluating
the effectiveness of an award fee as a tool for improving contractor
performance,” Hutton said. “Instead, program officials noted that the
effectiveness of a contract is evident in the contractor’s ability to
meet the overall goals of the program and respond to the priorities
established for a particular award fee period. However, officials were
not able to identify the extent to which successful outcomes were
attributable to incentives provided by award fees versus external
factors such as a contractor’s interest in maintaining a good
Officials also said it would be difficult to develop performance
measures that could be used for multiple programs, Hutton added.
Jeffrey Zients, deputy director for management at OMB, testified
that the Federal Acquisition Regulation Council is preparing to release
a new FAR rule on contractor award fees to be published in the next 30
days to 60 days.
Meanwhile, officials from DOD, DHS and NASA said
they are following guidelines and making improvements in use of award
fees. Edward Simpson, director of the office of procurement and
assistance management at Energy, said the agency will make changes to
improve the use of award fees for motivating excellence and ban award
fees for unsatisfactory performance. “DOE will address GAO’s concern
immediately,” Simpson testified. HHS officials were not represented at