Award fees, properly used, are a valuable tool for motivating contractors to improve performance while creating opportunities for improved Government – contractor communication, including ongoing feedback, thus permitting problems to be resolved sooner. Award fee discussions should be held on a regular basis; monthly or quarterly is usually recommended.
Guidelines for Risk Award Fees
The award fee process can be successfully implemented on a range of contract goals and elements, including risk management. The guidelines below can help PMs establish a risk management program using award fee criteria:
- Analyze the SOW and attendant requirements to determine which contract performance requirements should be subject to awards
- Specify the criteria against which contractor performance will be measured
- From the total award fee amount to be made available, specify evaluation periods and the corresponding amount of award fee available each period
- Explain the general procedures that will be used to determine the earned award fee for each evaluation period
When analyzing the SOW and attendant requirements, an important first step is the identification of critical areas of program risk. Chapter 5 of this publication provides an initial set of critical technical process risk areas that can be used as a starting point in this effort. As a general rule, historically high-risk processes and processes involved with new technologies are usually good candidates for consideration as award fee elements.
Tailor the contract performance elements (i.e., areas of critical program risk) selected for award fees to key events, then assign them to appropriate award fee periods. The results become the basis of the request for information from potential bidders, as contained in the Instructions to Offerors, without having to ask for extraneous detail. A well thought out list of critical risk areas provides an excellent roadmap for the solicitation.
Award fee contracts based on contractor process improvements normally require some objective measurements to use as a basis for evaluation and award fee percentage determination. Give the contractor regular, structured feedback to preclude great disparity between what the contractor expects as an award fee payment and what the Government actually pays.
The simplicity of this approach is the very characteristic that makes the use of award fee criteria to establish a technical risk management program so effective.
Table 3-1 provides guidance for using award fee criteria in implementing technical risk.
Table 3-1. Award Fee Considerations
|Performance Feedback – Regular, structured feedback to prime contractors on their performance with respect to award fee criteria at significant program reviews|
Process Improvement – Process improvements can only be achieved if process changes are implemented
- Verify implementation via test results documentation and operational use
- Witness the actual implementation of new processes and procedures
Award fee flowed down to subcontractors
Watch Out For
No regular performance feedback provided by the Government to the prime contractor during the first evaluation period|
Award fee contracts based on contractor process improvements without objective measurements to use as a basis for evaluation and award fee determination
Relatively short contract performance periods, making it difficult to establish a metric baseline, implement a process change and validate an actual improvement in the resulting metric during the contract period