By Emelie Rutherford
The Pentagon is “trending away” from using cost-plus-award-fee contracts as it continues to refine its policies and procedures regarding fees paid to contractors, a senior defense official said.
Shay Assad, the director of defense procurement and acquisition policy, told a Senate panel this week there has been a “sea change” in the way the Pentagon uses award-fee contracts.
It has implemented statutory changes enacted in recent years by Congress, including a ban on paying award fees following unsatisfactory performance. And defense officials in 2006 and 2007 issued Pentagon policy-changing documents intended to ensure that award and incentive fees paid to contractors match up with the companies’ performance, he said. Those changes include a requirements that contracting officials justify in writing the need for cost-plus contracts.
“To the extent we continue to use cost-plus-award-fee contracts, we are now focused on outcomes and results and not process indicators,” Assad said in written testimony to the Senate Homeland Security and Governmental Affairs Committee’s subpanel on Federal Financial Management, Government Information, Federal Services, and International Security.
The Pentagon noticeably has moved away from using pure award-fee contracts, and toward using incentive-fee contracts or those with a mixture of incentive and award fees, he said. A Pentagon analysis of large contacts shows 10 award-fee deals were awarded in 2008 and 30 were granted in 2007, compared to an average of 65 per year from 2004 to 2006.
Now, the Pentagon is in the process of codifying contracting policy changes via the regulation-approval process, Assad said. He cited addition ongoing work, including senior defense procurement officials writing policies and procedures for evaluating the effectiveness of award and incentive fees.
Assad said senior defense officials have established a data-collection process that allows them to monitor amounts paid to contractors to ensure the payments mesh with performance. Also, Pentagon officials have drafted an Award Fee Guide so contracting and program officials know that department policy requires that objective material be used to measure contractor performance, he said.
The Pentagon also has added to the acquisition-strategy-approval and peer-review processes requirements for thorough reviews of award-fee criteria and other incentive arrangements.
“The various levels of review will enable us to continuously improve our management of award and incentive fee contracts,” Assad said in writing.
The Senate panel focused during Monday’s hearing on federal agencies’ use of cost-plus-award-fee contracts.
President Obama launched in March a campaign to reduce the use of such contracts across the federal government (Defense Daily, March 5).