GENERAL POLICY GUIDANCE

Suppliers should be rewarded for adopting business processes and principles designed to reduce costs and cycle time while maintaining schedule, achieving performance expectations and maximizing efficiency. DoD business strategies should focus on the overarching business considerations related to each acquisition strategy and address the following objectives:

• Use incentives tailored to the specific business case to achieve maximum benefit for both parties.
  
  
• Assess the most critical issues related to specific acquisitions, and design incentives to ensure optimal results.
  
  
• Design strategies to reflect an understanding of the business case from industry's perspective. Profit, earnings per share, cash flow and return on investment are important industry considerations in entering into business relationships.
  
  
• Recognize and reward contractors that strategically focus on efficient and effective management practices, thereby reducing unneeded capacity and maximizing overall value to the customer (e.g., lean industry principles and best practices should be recognized and rewarded including maximum practicable use of small businesses in subcontracting.
  
  
• Recognize that a requirement's structure drives business solutions. Match the essential program objectives and potential Incentive arrangements early on, and communicate objectives to industry.
  
  
• Agree on Incentives and remedies to ensure successful business relationships.
  
  
• Strive to be creative and resourceful; maximize continuous Improvement and joint problem solving, with a focus on performance outcomes.
  
  
• Integrate commercial and commercial-like best practices into defense acquisitions to the maximum extent possible to achieve efficiency and effectiveness for both parties.
  
  
• Make incentives realistically reflect performance objectives and standards so that they are measurable and attainable.
  
  
• Communicate expectations, assessments and any change in focus clearly to maximize the potential performance.

Performance incentives include a broad spectrum of business considerations and range from economic to noneconomic and cost-based to non-cost-based tools, processes and practices. They can also be multidimensional or targeted to specific deliverables or effort. Some incentives may be traditional while others new and innovative, reflecting an understanding of the increasingly rapid pace of change in the commercial marketplace. Performance goals should be achieved through an appropriate contract structure - one that may reflect multiple Incentives or rewards.