Sign In
  • Question

    Are you aware of or have any examples where a construction project (such as a bridge or building project) used an Incentive Type contract, FFP-Incentive fee, etc. ? Thanks for your help!


    Answer

    I have seen Fixed price incentive fees used in complex, critical, high dollar value construction contracts. The incentive fee and plans are tailored to the individual construction requirements usually through risk analysis and prioritization of requirements. However, almost all contracts have at least one cost reimbursement line item in them.
     
    CONSIDERATIONS:  What elements are considered critical to the end user? Is the government willing to pay additional money for a high quality product or a construction project completed early??? Are all elements in the incentive plan achievable? Is the government willing and are funds available to pay if the contractor exceeds all incentive plan objective criteria?  Is the government will to make the necessary concessions to make the effort work? The financial incentive MUST be enough to motivate the contractor to exceed the minimum government requirements. (You cannot ask a contractor to spend $1 to get only 50 cents in return. That is not an incentive to exceed stated contract requirements.)
     
    I do not have a current contract or incentive fee plan but I can provide you
     an actual scenario for a construction effort that was successful. You can usually find a solicitation that will meet 50% to 80% of your requirement on FedBizOps.
     
    Scenario:
     
    Air Force needed a 10,500 Ft concrete and asphalt runway and ramps removed and replaced.
    All aircraft (83 combat) along with crews, maintenance and support personnel, parts, vehicles, etc had to be deployed to another Air Force Base until contract completion and curing of new concrete. All existing asphalt, concrete, base course, unsuitable dirt, and lighting/electrical had to be removed and replaced. All possible material had to be recycled and reused. The initial briefing estimated the runway would be closed to all aircraft for 365 days. The construction project alone was estimated to cost $12M - $15M. The estimated cost to deploy the aircraft, crews and support personnel (over
     1000 people) and equipment was $1M per week. For one year the non-contract cost was estimate at $52M.
     
    Task: how to reduce the performance time and reduce the non-contractual costs significantly.
     
    Solution: Incentive fee was only one element of the plan to reduce runway closure time and all elements had to be considered and fit together to include ensuring the Government could perform their requirements as well. Actions: A trade off source selection was used. A draft solicitation was issued and the contractors asked if they could reasonably start and complete
    the project in less than the estimated 365 days. Without disclosing publicly, six contractors indicated they could develop a plan to complete in less than 365 days.
     
    The government issued an RPF requesting proposals with evaluation criteria including past performance, production plan, management plan, construction time and cost/price among a very few other factors and sub-factors. An incentive clause was included in the solicitation that would pay the contractor $20,000+ per day for every day of early completion of the runway
    from first day closed to first day open for traffic.
     
    The winning contractor proposed a completion period of 90 calendar days which included up to 15 weather days based on the following. The government would issue a two part notice to proceed and allow the contractor to purchase and store 90 to 100% of material (and all critical material) on site prior to closing the runway. The government would allow the contractor to build a portable concrete and asphalt plant on the base beside the runway. The government would allow the contractor to open a new temp gate for delivery of materials, equipment, etc to a controlled area (relief from normal base security), the government would allow the contractor to work 24/7 and the government would support with any necessary inspectors/engineers/security/contracting officers, etc.
     
    Bottom line: The contractor proposal was accepted and the contractor completed the project in 62 calendar days after the runway was close. The contract performance period was 90 calendar days for the closure phase. The contractor earned over $500K incentive fee and the wing saved more than $40M in deployment expenses.
     
    It is not just an incentive fee but all the pieces to the contract fitting together.
     
    Let me know if you have additional questions. 
     

    Open full Question Details