Regulators urged to lighten up on award-fee rules

Government officials have urged regulators to avoid more burdensome rules on award fees for contractors and reporting requirements to see whether the fees work.

Harvesting information on award fees and contractors’ performances will produce a lot of data, but it may be just another less-than-profitable chore for contracting officers, officials told the Senate Homeland Security and Governmental Affairs Committee’s Federal Financial Management, Government Information, Federal Service and International Security Subcommittee on Aug. 3.

Richard Gunderson, acting chief procurement officer at the Homeland Security Department, said he expects agency officials to struggle to get something useful out of the data on award fees. The agencies would have to hunt for ways to analyze it beneficially.

“We can collect a lot of data, but what the data will really show us is going to be difficult thing to get through,” he said.

Edward Simpson, director of the Energy Department’s Office of Procurement and Assistance Management, said that information can be good to have, but it can come at a high cost.

“I think we do need to be careful we’re not creating more work for an already overly stressed workforce,” he said.

Acquisition regulators have been drafting an interim Federal Acquisition Regulation rule regarding incentive and award fees. The award fees are given to contractors that do a good job on a contract and meet specific preset marks.

The fiscal 2009 National Defense Authorization Act mandated new rules to link award fees to contract outcomes. The goal is to make agencies apply a standard of judgment. On July 13, the Office of Federal Procurement Policy agreed with a draft rule. Jeff Zients, deputy director for management at the Office of Management and Budget, told the subcommittee that the Federal Acquisition Regulation Council is preparing to release the new rule in late September or October.

Zients said the primary intent of the amendments to the FAR is collecting more data on award fees and evaluating whether the awards work.

Meanwhile. officials reiterated that they want the ability to be flexible with their contracts with each situation as it best suits the need.

“There always a risk in creating such a prescriptive regulatory framework,” Simpson said.

Bill McNally, assistant administrator for procurement and deputy chief acquisition officer at NASA, said he hoped regulations would allow agencies to have a full tool chest of contracting options available to get their work accomplished.

The Government Accountability Office found problems with agencies and how they hand out award fees. Five departments that paid billions in contractor award fees are inconsistent in how they apply those rewards, according to a GAO report.

The Defense, Energy, Health and Human Services, and Homeland Security Departments and NASA awarded 95 percent of the contractor award fees in 2008, said John Hutton, GAO’s director of acquisition and sourcing management.

From fiscal 2004 to fiscal 2008, agencies spent $300 billion on contracts that included award fees, GAO found. It examined 645 evaluation periods for 100 contracts in which contractors were paid a total of $6 billion in award fees.

Hutton said officials couldn’t tell GAO whether contractors’ successful outcomes could be attributed to the awards or other factors, such as a firm's desire to keep a good reputation. And officials haven’t developed methods to assess their awards.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Fri, Aug 7, 2009 M Reston, VA

Psst! You ought to have a talk with your contract officers. If the bids are inflated, get serious about competition. If performance is less than agreed, don't pay! If you hate contractors so much, ask yourself who really controls the contracts and why these bad things happen. Profit is a good thing. It enables us to tax and partially pay your salary. (The Saudis and Chinese pay the rest, and your children will have to pay them back.)

Fri, Aug 7, 2009 Paul Maryland

Award fees work for T&M contracts. If the contractor comes in ahead of time and under budget they save the Gov $$ on the overall contract. The intent of the Award Fee is to give some of that cost savings to the contractor as an incentive to complete ahead of schedule. These incentives don't work with FFP contracts and should not be offered in those cases, likewise they may not be appropriate for all T&M contracts either but some (i.e. road projects, facility build-outs, etc.) they could be very useful.

Fri, Aug 7, 2009

Re: Award fees. I work for the Dept. of Defense and I do not agree with the Award Fee theory. The contractors have a contract that they agreed to, which is usually iflated anyway. It Appears that a substantial percentage of them don't produce as required anyway. Award fees just add expense to the contracts. Why should a contractor be paid extra to do what they agreed to do in a contract? If I remember correctly some of the catch phrases in the mission statements were "We walk The Talk" and "We Do What We Say" and various others. The bottom line is that the contractor is there to get all the $$$$ they can from the contract. Anyway they can. Most of them have been feeding at the federal trough for years and have refined their process to a fine science to to gain maximum dollars from the contract.

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