GAO: NASA should tie award fees to desired outcomes

NASA Procurement: Use of Award Fees for Achieving Program Outcomes Should Be Improved [.pdf]

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NASA fails to follow its own advice when it comes to sizing up vendors’ performance on some contracts. The agency has developed guidance for the use of cost-plus-award contracts but does not always adhere to its approach, the Government Accountability Office said.

The space agency needs to tie award-fee payments to desired contract outcomes, and it should only use the cost-plus-award type of contract when the agency can justify it by evaluating costs and benefits, GAO said.

The Federal Acquisition Regulation and NASA guidance require consideration of the costs and benefits of choosing a costs-plus-award contract, but NASA did not perform those analyses. In some cases, a significant disconnect occurs between program results and fees paid, GAO said in its report.

NASA was satisfied with the contracts GAO reviewed as evidenced by the fees it paid. NASA had evaluated the contractor’s performance against criteria it established for such contracts.

NASA, however, has not evaluated the overall effectiveness of its award fees and does not have metrics in place for conducting such evaluations, said Ann Calvaresi-Barr, director of GAO’s acquisition and sourcing management, in the report.

“While NASA’s evaluations would indicate generally good contractor performance, that performance did not always translate into desired program outcomes,” she stated. “That disconnect raises questions as to the extent NASA is achieving the effectiveness it sought through the establishment of guidance on the use of award fees.”

The agency paid significant amounts of available fees on all the contracts reviewed, including those that did not deliver a capability within initial cost, schedule and performance parameters.

For example, NASA paid the contractor for the Earth Observing System Data and Information System Core System 97 percent of the available award fee -- $103.2 million -- despite a delay of more than two years in the completion of the contract and an increase in the cost of contract of more than 50 percent, from $766 million to $1.2 billion.

NASA should develop metrics to measure the effectiveness of award fees, establish a system for collecting data on the use of award-fee contracts and regularly examine the effectiveness of award fees in achieving desired outcomes, GAO said.

NASA said it would follow GAO’s recommendations, including improving the use of award-fee contracts and re-emphasizing it in training. The agency also will advise against spreading the potential award fee over too many performance evaluation factors that dilute the emphasis on particular performance evaluation criteria, NASA Deputy Administrator Shana Dale said.

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