Is it acceptable to have an Award Fee Period for 3 years and make interim assessments (including partial payments) with the final determination made at the end of the three year period?
Award fee contracts have been discouraged at the highest levels, and we no longer teach information on creating and managing award fee contracts in our contracting certification classes at DAU. However, I, personally, am a fan of award fee contracts and believe this is another useful tool for an acquisition team to consider. OSD website provides a link, http://www.acq.osd.mil/dpap/ccap/cc/jcchb/Files/Topical/1Restricted/award.fee.oct08.pdf, to the Air Force’s Award Fee Guide as this is the most comprehensive guide/information available for the DoD and is useful to all services performing Award Fee contracting. In this guide, it states on page 20, section 6.4 – Evaluation Period Length and Allocation, “When determining the appropriate length for evaluation periods, there are pitfalls to be avoided. Evaluation periods that are too short can prove administratively burdensome. Short evaluation periods can also lead to hasty evaluations, late determinations, or insufficient time for the contractor to improve areas of weakness. Evaluation periods that are too long jeopardize effective formal communication between contractor and Government and diminish opportunities to influence the contractor’s performance. Evaluation periods should not exceed six months for small businesses or one year for large businesses. Performance feedback to the contractor should be provided formally at scheduled intervals as well as informally on a continuous basis. Continuous communication between the Government and the contractor is critical to their performance as a team and program success.”
Open full Question Details
That being said, if you are choosing to allocate the award fee pool based on time rather than milestones, that time must be sufficient to motivate the contractor as well as communicate effectively. One year (for large businesses) is reasonable as this supports normal contract administration/COR or PM functions. CPARS are performed annually, while writing CPAR inputs, award fee inputs should be the same or similar. CORs or PMs will be conducting monthly meetings or, or at the very least, quarterly assessments - use these as interim evaluations in order to minimize any extra administrative burden. Using three year award fee periods is not conducive to motivating the contractor. It is too long to be effective. It is unlikely, that the Government would be successful in reducing the award fee pool which had already been distributed. And, it is not reasonable to expect the contractor to wait years for fee dollars earned. Finally, you must consider whether the money allocated for each year of the award fee pool can be obligated or deobligated longer than three years; are these one year O&M dollars or Working Capital Funds? It is not advisable to have periods longer than one year for many reasons; these are a few.