Contracting 101: Award-Fee Contracts

See the latest from GovWin editor Lindley Ashline

Whenever possible, the government uses objective criteria to measure contract performance. However, there are times when the contractor performance cannot be measured objectively due to subjective criteria (e.g., quality/appearance, adhering to schedule/handling delays, technical ingenuity), but the government still wants to build some sort of incentive to motivate a contractor.

Award fee provisions are one solution. They can be used with both fixed-price and cost-reimbursement contracts. Award fees must be tied to identifiable interim outcomes, discrete events or milestones as often as possible. They must also be structured in ways that focus the government’s and contractor’s efforts on meeting or exceeding cost, schedule and performance requirements.

wealth of pennies

(Image: wealth of pennies, a Creative Commons Attribution (2.0) image from r-z’s photostream)

The fee has two parts: a fixed portion, and an amount to be awarded for excellence in specific contract areas such as quality, timeliness, ingenuity and cost effectiveness. The amount that is actually paid is determined by the government’s evaluation of the contractor’s performance based on the criteria established in the contract. This determination is made unilaterally by the government and is not subject to the disputes clause. It is usually paid in increments of three, four or six months based on the contractor’s performance during that period. The ability to earn award fees is directly linked to achieving desired program outcomes.

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