OMB guidance on award fees meant to curb the default payment of incentives has led to better practices, but they are not consistently applied, GAO has said.
It said contractors have been paid billions in award fees regardless of acquisition outcomes.
GAO reviewed DoD, the Department of Health and Human Services, Energy, DHS and NASA, which constituted over 95 percent of award fee contracts in fiscal 2008, finding that DoD now prohibits payment of award fees for unsatisfactory performance, and NASA requires a documented cost-benefit analysis to support the use of an award fee contract.
However, it said DoE, DHS, and HHS vary in the extent to which their agency-wide guidance reflects the OMB guidance, generally relying on operational divisions to develop award fee guidance.
However, according to GAO-09-630, many acquisition professionals at these agencies were unaware of the contents of the OMB guidance, which includes principles such as limiting the opportunities for earning unearned fees in subsequent periods, linking award fees to acquisition outcomes, designing evaluation criteria to motivate excellent performance, and not paying for performance that is unsatisfactory.
Current practices for using award fee contracts at agencies GAO reviewed often are inconsistent with the new guidance, but revised policies have resulted in hundreds of millions of dollars in cost savings and better use of government funds.
Among other recommendations , GAO called on DoE, HHS, and DHS to develop implementing guidance covering, for example, developing criteria to link award fees to acquisition outcomes such as cost, schedule, and performance, and prohibiting payments of award fees for performance that is judged to be unsatisfactory or does not meet contract requirements.
