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    Do the BBP memos recommend avoiding Award Fee contracting and drive more towards a Incentive Fee contract type? If Incentive Fee contracts are to be used how would a program incentivise schedule adhereance?


    Answer

    The movement away from Award Fee incentives started a long time before the BBP memos. If you want to read the report that started the concern with Award Fee, then see the GAO report, Dec 2005 "Defense Acquisitions, DoD has paid billions in award and incentive fee regardless of acquisition outcomes." The FAR/DFARS and PGI have all been updated since this time. It has changed so much that I highly encourage you to read all of FAR 16.4, DFARS 216.4 and PGI 216.4. The rules on award fee have changed to include mandatory grading criteria.

    The short excerpt below helps you to understand that objective criteria is preferred and that the use of award fee is permissible but must be justified in a D&F that is signed by the head of the contracting activity or designee no lower than one level below the head of the contracting activity. This signature is at a high level to prevent the misuse of this contract type.

    (Revised September 16, 2011)

    PGI 216.4—INCENTIVE CONTRACTS

    PGI 216.401 General.

    (e) Award-fee contracts.

    (i) It is DoD policy to utilize objective criteria, whenever possible, to measure

    contract performance. In cases where an award-fee contract must be used due to lack of objective criteria, the contracting officer shall consult with the program manager and the fee determining official when developing the award-fee plan. Award-fee criteria shall be linked directly to contract cost, schedule, and performance outcomes objectives.

    (ii) Award fees must be tied to identifiable interim outcomes, discrete events or milestones, as much as possible. Examples of such interim milestones include timely completion of preliminary design review, critical design review, and successful system demonstration. In situations where there may be no identifiable milestone for a year or more, consideration should be given to apportioning some of the award fee pool for apredetermined interim period of time based on assessing progress toward milestones. In any case, award fee provisions must clearly explain how a contractor’s performance will be evaluated.

    (iii) FAR 16.401(d) requires a determination and findings (D&F) to be completed for all incentive- and award-fee contracts, justifying that the use of this type of contract is in the best interest of the Government. The D&F for award-fee contracts shall be signed by the head of the contracting activity or designee no lower than one level below the head of the contracting activity. The D&F required by FAR 16.401(d) for all other incentive contracts may be signed at one level above the contracting officer. This authority may not be further delegated.

    You say that you want to have a delivery incentive. I recommend that you use a Cost Plus Incentive Fee contract. Incentives contracts are distinguishable from Award Fee contracts because they utilize objective criteria. The objective criteria allow the incentive(s) to be communicated through a quantitative plan comprised of a target cost, target profit/fee, and profit/fee adjustment formula. The adjustment formula will also outline a ceiling price along with minimum/maximum profit parameters. There are a few primary guidelines specific to the use of incentives.

    You should look at FAR 16.405/ DFARS 216.405 and PGI 216.405 to understand how CPIF contracts work. I also recommend that you go to

    FAR 16.402-1(a) prohibits use of performance or delivery incentives without a cost incentive. An incentive formula should also be tied to a target measurement rather than a threshold (minimum) requirement. For example, a troop carrier solicitation that specifies a fuel efficiency requirement of 8.0 miles per gallon (mpg) could establish an incentive at a target level of 10.5 mpg. Finally, because a component of every incentive plan is target cost, the contractor must have an adequate accounting system and adequate cost or pricing information to establish target cost.https://acc.dau.mil/cprg , Volume 4, Chapter 1 "Establishing and Monitoring Contract Types". It shows you how to set up a CPIF contract.

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