Unearned award fees persist

Lawmakers continue to criticize the practice of giving bonuses to contractors who produce unsatisfactory results

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Lawmakers continue to assail the  practice of awarding bonuses to contractors when their companies produce unsatisfactory results. Congress and industry representatives debated a recent example of the alleged practice at a July 11 hearing on weather satellite programs managed by the National Oceanic and Atmospheric Administration.

NOAA has been forced to delay the launch date for the National Polar-orbiting Operational Environmental Satellite System by four years and accept satellites with fewer capabilities than it wanted.

However, those failures didn’t prevent NOAA from awarding Northrop Grumman, the prime contractor, a $123 million bonus. Lawmakers expressed their unhappiness about the fee.

“The fact that we awarded bonuses [after] cutting sensors [from the satellites]…is just a failure,” said Sen. Maria Cantwell (D-Wash.), a member of the Commerce, Science and Transportation Committee.
Award-fee contracts give contractors signing bonuses related to the outcome of the contract. If a company meets the requirements and delivers the work on schedule, it earns the bonus.

Alan Chvotkin, counsel and senior vice president of the Professional Services Council, said he understood why members of the committee felt frustrated from an oversight standpoint. However, he added, if a contractor does what it is supposed to — orders materials, brings workers to a site and so forth — but can’t produce satellites on schedule because the agencies change their requirements, the contractor is still entitled to the bonus.

“Government requirements change, environments change, but [if] nothing the contractor has done shows up as deficient…the award fee-determining official can make the award,” Chvotkin said. “Before holding people accountable, you should look at the business arrangement and where…the culpability lies.”

Some agencies, including the Defense Department and NASA, have changed their policies on award-fee contracts. Shay Assad, DOD’s director of procurement and acquisition policy, issued a policy memo on award-fee contracts in mid-April, and NASA addressed the issue when it released revised contract rules June 29.

DOD procurement policy now states that companies must meet minimum contract requirements to earn the award fee, regardless of problems outside the contractor’s control.  NASA revised its contract rules in response to a Government Accountability Office report that recommended linking award fees to contract outcomes.

NOAA officials told lawmakers the agency has increased its oversight of award fees for satellite contracts. “We have changed both the structure of the award-fee process and the fee-determining official,” said Mary Kicza, assistant administrator of NOAA’s satellite and information service.

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