General Government: Award Fee Contracts (2011-49)
Year Identified: 2011
Area Number: 49
Area Type: Cost Savings & Revenue Enhancement
◐- Partially Addressed
○- Not Addressed
◉- Consolidated or Other
⊘- Closed-Partially Addressed
⊗- Closed-Not Addressed
Last Updated:March 6, 2013
Sustained progress in the use of award fees will require that contracting agencies adhere to changes to the Federal Acquisition Regulation, which in 2009 prohibited the practices of rollover of unearned award fees and awarding fees to contractors that have performed unsatisfactorily.1 Further efforts are needed by agencies to identify methods to evaluate the effectiveness of award fees as a tool for improving contractor performance.
The five contracting agencies that have accounted for at least 95 percent of award fee contract dollars obligated in fiscal years 2004 through 2011 have made sustained progress in implementing the 2009 Federal Acquisition Regulation changes regarding award fees and taken actions to evaluate the effectiveness of award fee contracts as a tool for improving performance, as GAO recommended in May 2009. As GAO reported in February 2012, all five agenciesthe Departments of Defense (DOD), Energy (DOE), Health and Human Services (HHS), and Homeland Security (DHS) and the National Aeronautics and Space Administration (NASA)have issued or updated agency regulations or guidance to be more consistent with the Federal Acquisition Regulation. These actions were aimed at improving award fee contracting by, for example, ensuring that all award fee plans include criteria related to cost, schedule, and performance and that award fees are earned only for successful outcomes. As shown in the figure below, all five agencies have also taken actionsat either the headquarters or component levelto monitor their use of award fees, identify and share best practices, and develop methods for evaluating the effectiveness of award fees as a tool for improving contract performance. All of these actions, if effectively implemented, should help ensure consistent application of the Federal Acquisition Regulation for award fee contracts.
Figure 1: Agency Actions to Sustain Progress in the Use of Award Fee Contracts
aHHS demonstrated that 1 of its 10 operating divisions takes this action. Other actions are taken at the departmental level.
bDHS plans to use the information it is gathering in its award fee database once it is fully populated to identify best practices.
In addition, all five agencies demonstrated that they are not using unearned award fee rollovers. Specifically, in a review of 28 award fee contracts, all of which were awarded by the five agencies after the 2009 Federal Acquisition Regulation change prohibiting the use of award fee rollovers, GAO found no indication of unearned award fees from a previous evaluation period transferred to or made available in a subsequent period. Elimination of such award fee rollovers can produce savings for the government.
Moving forward, it will be important for the five contracting agencies to sustain their progress and continue adhering to guidance to help ensure their use of award fees achieves the desired effects of motivating contractor performance while also achieving cost savings.
 Rollover of unearned award fee occurs when unearned award fees are transferred from one evaluation period to a subsequent period, thus allowing contractors additional opportunities to earn previously unearned fees.