Have feds cheapened contract bonuses?

Oversight officials still unhappy about companies' expected performance fees

A formula for managing cost-plus-award-fee contracts

The Environmental Protection Agency’s Office of Inspector General, which criticized the agency’s use of cost-plus-award- fee contracts, has recommended three ways the agency could improve its use of those agreements.

  • Improve the documentation of performance ratings. The IG said EPA needed to fully explain and justify bonus fees and performance ratings in its post-contract documentation.

  • Assess whether cost-plus contracts are worth their associated costs. The IG said EPA needs to perform a cost/benefit analysis to determine if cost-plus is the correct contracting method to use.

  • Avoid using contractors’ evaluations to determine award fees.

The IG said contractor self-evaluations should be either eliminated or the agency must justify the need for them.

— Wade-Hahn Chan

Federal agencies might be too generous in rewarding contractors, according to oversight officials who have examined agencies use of use of cost-plus-award-fee contracts.

Some members of Congress recently criticized the Census Bureau’s handling of a contract for the automated data collection portion of the 2010 census. The bureau gave two award fees to Harris, the prime contractor on the Field Data Collection Automation (FDCA) contract. Harris is supplying handheld computers that Census plans to use when it sends census-takers into the field to survey households that do not respond to mailed surveys.

Commerce Secretary Carlos Gutierrez told the Senate Homeland Security and Governmental Affairs Committee that he and Census officials gave Harris the award fees because they were pleased with the company’s work. However, the bureau now is considering scaling back its plans to use handheld computers and possibly reintroducing paper-based field surveys.

Cost-plus contracts remain controversial with Congress and other oversight officials. The contracts are intended to reward contractors for above-average performances in terms of timeliness, quality of work, technical ingenuity or savings. However, agencies often use shaky justifications when rewarding contractors.

“That’s a concern,” said Sen. Tom Coburn (R-Okla.) at a recent hearing held by that committee.

Agencies have awarded bonus fees so frequently that administration officials recently chided them for the practice. Paul Denett, administrator of the Office of Federal Procurement Policy, issued a memo in December to remind agencies that award fees should be used only to reward contractors that have met specific objectives.

Award fees are not to be used to reward contractors for effort the agency believes the company put into the contract, he said.

Establishing those objectives has been a problem for Census officials managing the FDCA contract. The bureau has given Harris several updated objectives, the latest of which it issued in mid-January.

Those objectives “should have been defined and validated soon after award, not two years later,” said David Powner, director of information technology management issues at the Government Accountability Office.

The oversight agency recently placed the 2010 census on its high-risk list.

Oversight officials recently reprimanded another agency for its overly generous use of award fees. In a February report, the Environmental Protection Agency’s Inspector General’s Office raised questions about EPA’s practice of giving cost-plus contractors consistently high performance ratings and award fees. Among 32 contracts the IG sampled, all the contract-holders received at least satisfactory ratings.

The majority of them received “exceeds fully successful” and “outstanding” ratings.

“Satisfactory” ratings seemed to carry a negative connotation to EPA’s Performance Evaluation Board, according to the report, which states that “award fees are more of an expectation for contractors rather than a factor that motivates excellence.”

The report also states that EPA did not justify the ratings it gave in its documentation.

For example, some contractors received higher ratings than their interim grades, and EPA’s post-contract documentation does not explain why. The IG asked EPA to conduct a cost/benefit analysis before awarding contracts.

The IG found that most cost-plus contracts required the agency to spend extra time and resources evaluating the contracts.

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