NASA Procurement:

Use of Award Fees for Achieving Program Outcomes Should Be Improved

GAO-07-58: Published: Jan 17, 2007. Publicly Released: Feb 16, 2007.

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Cost-plus-award-fee contracts accounted for almost half of the National Aeronautic and Space Administration's (NASA) obligated contract dollars for fiscal years 2002-2004. Since 1990, we have identified NASA's contract management as a high-risk area--in part because of a lack of emphasis on end results. Congress asked us to examine (1) the extent NASA's guidance on award fees addresses problems previously identified with the use of award-fee contracts and (2) whether NASA follows its guidance in using award fees to achieve desired outcomes. We reviewed the top 10 dollar value award-fee contracts active from fiscal years 2002 through 2004.

NASA guidance on the use of cost-plus-award-fee (CPAF) contracts provides criteria to improve the effectiveness of award fees. For example, the guidance emphasizes outcome factors that are good indicators of success in achieving desired results, cautions against using numerous evaluation factors, prohibits rollover of unearned fee, and encourages evaluating the costs and benefits of such contracts before using this contract type. However, NASA does notalways follow the preferred approach laid out in its guidance. For example, some evaluation criteria contained input or process factors, such as program planning and organizational management. Moreover, some contracts included numerous supporting subfactors that may dilute emphasis on any specific criteria. Although the Federal Acquisition Regulation and NASA guidance require considering the costs and benefits of choosing a CPAF contract, NASA did not perform such analyses. In some cases there appears to be a significant disconnect between program results and fees paid. For example, NASA paid the contractor for the Earth Observing System Data and Information System Core System 97 percent of the available award fee despite a delay in the completion of the contract by over 2 years and an increase in the cost of the contract of more than 50 percent. NASA officials expressed satisfaction with the results of the contracts we reviewed, and this was further evidenced by the extent of fee paid. NASA's satisfaction was based on its evaluations of contractor performance against criteria established in the award-fee plan. While NASA's evaluations would indicate generally good contractor performance, that performance did not always translate into desired program outcomes. That disconnect raises questions as to the extent NASA is achieving the effectiveness it sought through the establishment of guidance on the use of award fees. NASA has not evaluated the overall effectiveness of award fees and does not have metrics in place for conducting such evaluations.

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To increase the likelihood that the award fees NASA pays incentivize high-performance from its suppliers, the NASA Administrator should reemphasize to the NASA centers the importance of tying award-fee criteria to desired outcomes and limiting the number of subfactors used in evaluations.

    Agency Affected: National Aeronautics and Space Administration

    Status: Closed - Implemented

    Comments: In its agency comments, NASA stated that it will reemphasize its guidance, address it in training, and cover this area in ongoing internal reviews of Center procurement operations. Two letters, both dated April 6, 2007, were issued to all of NASA's Centers to re-emphasize the Agency's guidance to ensure that award-fee contracts are used appropriately. The first letter was signed by the NASA Administrator. The second letter was signed by the Assistant Administrator for Procurement and was addressed to all Procurement Officers. Also following the publication of GAO-07-58, NASA added the topic of award fees to its Procurement Management Survey and conducted its first survey including the new topic at Glenn Research Center. Questions were included to assess compliance with NASA policy and guidance related to the selection of award fee as a contract type and administration of award fee contracts. In addition to a file review, the survey team conducted interviews with procurement officials and managers to assess business processes that may not be adequately documented in the contract file. The findings of the survey team are presented to the Center Director, Procurement Officer and others as appropriate and the final report will be published and made available to the NASA Procurement Community on the NASA Acquisition Internet Service (NAIS.) The report includes findings, considerations and weaknesses. The next Procurement Management Survey will take place at Goddard Space Flight Center in July 2007.

    Recommendation: To increase the likelihood that the award fees NASA pays incentivize high performance from its suppliers, and to ensure that cost-plus-award-fee contracts are used only when their benefits outweigh the costs, the NASA Administrator should direct the centers to consider costs and benefits in choosing this contract type by requiring documentation explaining how the perceived benefits will offset the additional cost associated with its administration as required by the Federal Acquisition Regulation.

    Agency Affected: National Aeronautics and Space Administration

    Status: Closed - Implemented

    Comments: In its agency comments, NASA stated that although the FAR does not require written documentation of the cost benefit analysis, NASA would amend its FAR Supplement to do so. NASA stated that it will reemphasize this existing requirement, address it in training, and cover this area in its ongoing internal reviews of Center procurement operations. Following the publication of GAO-07-58, NASA issued Procurement Notice 04-27, dated June 29, 2007, revising the NASA FAR Supplement to require a documented cost/benefit analysis to support the use of award fee contracts. The revisions also reemphasized the importance of tying award fee criteria to desired outcomes and limiting the number of criteria. A letter issued by NASA on April 6, 2007, also stated that all approvals to use an award fee contract would require a credible cost benefit analysis. Further, NASA added the topic of award fees to its Procurement Management Survey and conducted its first survey including the new topic at Glenn Research Center. Questions were included to assess compliance with NASA policy and guidance related to the selection of award fee as a contract type and administration of award fee contracts. Specifically, the survey included questions to determine if contract files contained sufficient documentation to support the decision to use an award fee contract, including an analysis of whether the additional administrative effort and cost required to monitor and evaluate performance were justified by the expected benefits, and whether other contract types were considered.

    Recommendation: To increase the likelihood that the award fees NASA pays incentivize high performance from its suppliers, the NASA Administrator should require the development of metrics for measuring the effectiveness of award fees, establish a system for collecting data on the use of award-fee contracts, and regularly examine the effectiveness of award-fees in achieving desired acquisition outcomes.

    Agency Affected: National Aeronautics and Space Administration

    Status: Closed - Implemented

    Comments: In its agency comments, NASA stated that it would explore the best way to develop and use metrics for evaluating the effectiveness of award fees, as well as set up a system for collecting data on the use of award-fee contracts. The agency stated that this system will allow NASA to measure whether the fees awarded are commensurate with the contract goals achieved. Two letters issued by NASA on April 6, 2007, both state that metrics will be developed to measure the effectiveness of award fee contracts. NASA is in the process of determining what data it should collect to develop meaningful metrics. This is expected to be a long term project. Since the report was issued, NASA has instituted the Baseline Performance Review (BPR) to monitor program and project performance, and to identify the root cause factors for performance issues. Major NASA program and projects and their associated contracts are reviewed quarterly. The data tracked include key milestones toward contract release, cost growth on existing contracts, award fees over time, and pending modifications. The BPR facilitates the generation of information for trending, integration of mission support with mission performance measures to understand their impact on mission success, evaluation of performance against project baselines, and discussions with the appropriate stakeholders to determine root causes of performance issues. The BPR links project performance to contract performance, and allows integration of award fee evaluation results with performance results. This enables NASA to regularly assess contractor performance as well as contract management performance.

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