Contractor award fees paid inconsistently, GAO says

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, Hutton said.

“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 reputation.”

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 the hearing.
  


About the Author

Alice Lipowicz is a staff writer covering government 2.0, homeland security and other IT policies for Federal Computer Week.

Reader Comments

Wed, Aug 5, 2009 M Reston, VA

GAO might look a little closer. They will find inconsistency in almost everything to do with federal acquisition. The problem is the law. The law and it's associated regulation has evolved into a Gordian knot. But hey, if you can't blame contractors, or mid-level federal bureaucrats, then what to do? How about this time GAO goes back to it's Congressional masters and tell the truth: "You have to do your job, serve the people, and streamline the laws." The problem is Congress.

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Our databases track awards back to 2013. Read More

  • Navigating the trends and issues of 2016 Nick Wakeman

    In our latest WT Insider Report, we pull together our best advice, insights and reporting on the trends and issues that will shape the market in 2016 and beyond. Read More

contracts DB

Washington Technology Daily

Sign up for our newsletter.

I agree to this site's Privacy Policy.