GAO: Poorly Structured Incentives for Defense Contractors Waste Billions

The Department of Defense has paid out about $8 billion in

award fees for a portion of its contracts regardless of

whether acquisition outcomes fell short of, met, or exceeded

the department’s expectations, the Government Accountability

Office has said.

It said that despite the payments, DoD has not compiled data

or developed performance measures to assess its belief that

award and incentive fees actually improve contractor

performance and acquisition outcomes.

With the department spending over $200 billion annually to

acquire products and services, the federal government’s

growing fiscal challenges demand better return on investment

and the best value, according to GAO-06-409T.

It said the Pentagon’s use of award and incentive fees is

related to two high-risk areas vulnerable to fraud, waste,

mismanagement and abuse — contract management and weapon

system acquisition.

DoD often cannot assure that it is using sound business

practices to acquire the goods and services that war fighters

need, GAO said, and suggested that the persistent and

long-standing nature of acquisition problems has made a range

of key DoD decision makers complacent about cost growth,

schedule delays, quantity reductions, and performance

shortfalls.

For example, DoD evaluates contractors on award-fee criteria

that are not directly related to key acquisition outcomes,

pays contractors a significant portion of the available fee

for “acceptable, average, expected, good, or satisfactory”

performance, and gives contractors at least one additional

opportunity to earn initially unearned or deferred fees,

according to GAO.

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