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The True Story of the Wright Brothers' Contract
(It’s not what you think.)

by Vernon J. Edwards

July 2002

 

apoc-ry-phal adj 1 often cap : similar to the Apocrypha 2 : not canonical : of doubtful authenticity : FICTITIOUS, SPURIOUS, UNTRUSTWORTHY … 3 archaic : COUNTERFEIT, IMITATIVE, SHAM syn see FICTITIOUS

If you have been a member of the federal acquisition community for a while, then you have probably heard the story of the Wright brothers' contract with the U.S. Army for a heavier-than-air flying machine. That contract, awarded in 1908, is often held up as an example of the successful use of performance-based contracting and performance incentives. Here is what one author recently said of it:

By any standard, the U.S. Army’s performance in managing the acquisition was nothing short of exceptional. Using an abbreviated performance-based specification for delivery of a research and development prototype system, the army went from solicitation to delivery of a complex, revolutionary weapons system in less than 10 months.... There are many important lessons to be learned from this acquisition. Perhaps most important is the fact that performance-based contracting (PBC) works.1  

(Italics in original.) The contract was recently mentioned in Congressional testimony about the proposed Services Acquisition Reform Act:

Many of the best practices for service contracting, such as the use of performance-based contracting, have been around for decades. In fact, one of the earliest examples of a well-structured, well-executed, performance-based, incentive services contract was the 1908 Army award to the Wright Brothers for a “heavier-than-air” flying machine. It was a “best value” selection made from among three competitors and the low bidder was disqualified for an adverse past performance record!2 

It is a great story — the government awarded a “well-structured, well-executed, performance based services contract” back in 1908. This proves that performance-based contracting “works.” But does it, really? Can we really learn anything useful about performance-based service contracting and the effective use of incentives from the Army’s experience with the Wright brothers?

The Story the Wright Brothers’ Contract3

Wilbur and Orville Wright made their historic first powered flight on December 17, 1903, from Kill Devil Hill in Kitty Hawk, North Carolina. The longest of four flights that day lasted 59 seconds and covered a distance of 852 feet. There were few witnesses to the flights and no reporters — no CNN or nightly news broadcast, no film at 11, no National Public Radio. The telegraph was the fastest generally available means of communication from places like Kitty Hawk. The fastest means of transportation over long distances were the railroad and the steamship. The result was that the world at large would not acknowledge the Wright’s success until 1908. It would be four years before even the U. S. War Department would believe that the Wrights had actually flown a heavier-than-air, engine-powered airplane.

After their first flights, the Wrights returned to their home in Dayton, Ohio, to further develop their invention. The 1903 Wright Flyer had been irreparably damaged by high winds after the fourth flight at Kitty Hawk, so the brothers had to construct a new airplane.4 Throughout 1904 they refined their design and made test flights at Huffman Prairie, near their home. They refined the airframe and controls and developed a new, more powerful engine. By the end of 1904 they had made two circling flights of five minutes each. They believed that they had constructed an airplane that would be of practical use and they had learned many things that would enable them to further improve their design.5 They had applied for patents in the United States and Europe and had received them from Belgium, France, and Great Britain.6

The Wrights began trying to sell their invention in January 1905. The British War Office had been following the Wrights' experiments since December 1902, and sent a representative to visit them in Dayton in October 1904. On January 10, 1905, the Wrights wrote a letter to a British military officer offering to sell an airplane that could carry two men 50 miles without refueling. The Wrights requested no payment until they had successfully completed a series of test flights. They asked for 500 British pounds for each mile covered in the test flight, which, at the exchange rate at the time, meant that at 50 miles the price would be equivalent to $125,000. The British Royal Engineer Committee wrote back that the Wrights had not yet sufficiently proven the capabilities of their machine, but that the British military attaché in Washington would visit them to witness a test flight.7 

On January 18, 1905, the Wrights made a similar proposal to the U.S. War Department through their congressman, who had promised to personally deliver it to the Secretary of War. The proposal said:

Hon. R. M. Nevin
Washington, D.C.

Dear Sir:

The series of aeronautical experiments upon which we have been engaged for the past five years has ended in the production of a flying machine of a type fitted for practical use. It not only flies through the air at high speed, but it also lands without being wrecked. During the year 1904 one hundred and five flights were made at our experimenting station at Huffman prairie, east of this city, and though our experience in handling the machine has been too short to give any high degree of skill, we nevertheless succeeded, toward the end of the season, in making two flights of five minutes each, in which we sailed round and round the field until a distance of about three miles had been covered, at a speed of thirty-five miles an hour. The first of these record flights was made on November 9th, in celebration of the phenomenal political victory of the preceding day, and the second on December 1st, in honor of the one hundredth flight of the season.

The numerous flights in straight lines, in circles, and over “S” shaped courses, in calm and in winds, have made it quite certain that flying has been brought to a point where it can be made of great practical use in various ways, one of which is that of scouting and carrying messages in time of war. If the latter features are of interest to our Government, we shall be pleased to take up the matter either on a basis of providing machines of agreed specification, at a contract price, or, of furnishing all the scientific and practical information we have accumulated in these years of experience, together with a license to use our patents; thus putting the Government in a position to operate on its own account.

If you can find it convenient to ascertain this is a subject of interest to our own Government, it would oblige us greatly, as early information on this point will aid us in making our plans for the future.

Respectfully yours,

Wilbur and Orville Wright8

(The “phenomenal political victory” to which the letter refers was the election of Theodore Roosevelt to be President of the United States.)

On January 21, the congressman forwarded the letter to the Secretary of War, William H. Taft, who forwarded it to the War Department’s Board of Ordnance and Fortification. The Board sent the following reply to the congressman on January 24:

Hon. R. M. Nevin, etc.

My dear Sir:

Referring to your letter of the 21st instant to the Honorable Secretary of War inviting attention to the experiments in mechanical flight conducted by Messrs. Wilbur and Orville Wright, which has been referred to the Board or Ordnance and Fortification for action, I have the honor to inform you that, as many requests have been made for financial assistance in the development of designs for flying machines, the Board has found it necessary to decline to make allotments for the experimental development of devices for mechanical flight, and has determined that, before suggestions with that object in view will be considered, the device must have been brought to the stage of practical operation without expense to the United States.

It appears from the letter of Messrs. Wilbur and Orville Wright that their machine has not been brought to the stage of practical operation, but as soon as it shall have been perfected, the Board would be pleased to receive further representations from them in regard to it.

Very respectfully,

G. L. Gillespie,
Major General, General Staff
President of the Board9

The War Department did not want to pay for research and development; it wanted to buy a working airplane. In 1898, the department had awarded a $50,000 research and development contract to Samuel Langley, secretary of the Smithsonian Institution, for the design and construction of a working airplane for military purposes. Langley spent the money, but failed to produce a working airplane. The embarrassing outcome of the last attempted test flight, conducted on December 8, 1903, was that the pilot had to be rescued from the freezing Potomac River. Press reports of Langley’s failures resulted in public humiliation and severe Congressional criticism of the department. Once bitten and now twice shy, the War Department was interested only in what today we would call a commercial or a nondevelopmental item.10

The Wrights developed a new flyer in 1905 and, using the engine they had developed for the 1904 Flyer, conducted test flights and improved their design. On October 5, Wilbur made a 38 minute circling flight of 24 and 1/5 miles, traveling at an average speed of 38 miles per hour.11 He might have flown longer and farther if he had not forgotten to refill the fuel tank before taking off.12 On October 30, the Wrights decided to end their flights for the time being and keep their airplane under wraps pending receipt of a U. S. patent. Many persons were working at the development of a heavier-than-air flying machine, especially in Europe. The Wrights knew that they were well ahead of the field and they were worried about industrial espionage. The brothers would not fly again until May 5, 1908.

On October 9, 1905, the Wrights wrote directly to the Secretary of War, saying:

Dear Sir:

Some months ago we made an informal offer to furnish the War Department practical flying machines suitable for scouting purposes. The matter was referred to the Board of Ordnance and Fortification, which seems to have given it scant consideration. We do not wish to take the invention abroad, unless we find it necessary to do so, and therefore write again, renewing the offer.

We are prepared to furnish a machine on contract, to be accepted only after trial trips in which the conditions of the contract have been fulfilled; the machine to carry an operator and supplies of fuel, etc., sufficient for a flight of one hundred miles; the price of the machine to be regulated according to a sliding scale based on the performance of the machine in the trial trips; the minimum performance to be a flight of at least twenty-five miles at a speed of not less than thirty miles an hour.

We are also willing to take contracts to build machines carrying more than one man.

Respectfully yours,

Wilbur and Orville Wright13 

The Board of Ordnance and Fortification wrote back on October 16, saying;

Gentlemen:

Your letter of the 9th instant to the Honorable Secretary of War has been referred to this Board for action. I have the honor to inform you that, as many requests have been made for financial assistance in the development of designs for flying machines the Board has found it necessary to decline to make allotments for the experimental development of devices for mechanical flight, and has determined that, before suggestions with that object in view will be considered, the device must have been brought to the stage of practical operation without expense to the United States.

Before the question of making a contract with you for the furnishing of a flying machine is considered it will be necessary for you to furnish this board with the approximate cost of the completed machine, the date upon which it would be delivered, and with such drawings and descriptions thereof as are necessary to enable its construction to be understood and a definite conclusion as to its practicability to be arrived at. Upon the receipt of this information, the matter will receive the careful consideration of the Board.

Very respectfully,

J. G. Bates
Major General, General Staff
President of the Board14

The Wrights had no intention of providing technical data to anyone without a contract, so they wrote back to the president of the Board on October 19, saying:

Dear Sir:

Your communication of October 16th has been received. We have no thought of asking financial assistance from the Government. We propose to sell the results of experiments finished at our own expense.

In order that we may submit a proposition conforming as nearly as possible to the ideas of your board, it is desirable that we be informed what conditions you would wish to lay down as to the performance of the machine. We can not well fix a price, nor a time for delivery, till we have your idea of the qualifications necessary to such a machine. We ought also to know whether you would wish to reserve a monopoly on the use of the invention, or whether you would permit us to accept offers for similar machines from other governments, and give public exhibitions, etc.

Proof of our ability to execute an undertaking of the nature proposed will be furnished whenever desired.

Respectfully yours,

Wilbur and Orville Wright15

The Board met on October 24 and decided as follows:

That Messrs. Wright be informed that the Board does not care to formulate any requirements for the performance of a flying machine or take any further action on the subject until a machine is produced which by actual operation is shown to be able to produce horizontal flight and to carry an operator.16

The War Department still did not want to award a research and development contract or otherwise fund the development of an airplane and was as yet unaware of how far the Wrights’ work had progressed and that they were not seeking funding, but trying to sell working airplanes.

Throughout 1905 and 1906, the Wrights tried to sell an airplane.17 They continued to talk with the British, and in early 1905 they received a letter from a French military officer who wanted to buy a Wright Flyer. While negotiations with the British proceeded in fits and starts, correspondence with the French officer led to a $200,000 contract with a French consortium, signed on December 20, 1905. However, the French opted out of the contract on April 6, 1906, when the Wrights refused to grant them extended rights to exclusive use of their design. Despite this setback, the Wrights continued to negotiate with the French.18 They received U.S. patent no. 821,393 for their design on May 23, 1906,19 but several competitors were now hot on their heels and making progress toward the development of flying machines of their own, and the Wrights still had not sold an airplane.

In February 1907, the Wrights signed a contract with Flint and Company of New York to act as their agents for the marketing of airplanes to European governments.20 Then, in March, a U.S. congressman from New York became interested in them and wrote to President Theodore Roosevelt, who wrote to the Secretary of War, who wrote to the Board of Ordnance and Fortification. On May 11, the Board wrote to the Wrights asking for information. On May 22, the Wrights offered the Board an airplane that would fly 50 kilometers at 50 kilometers an hour, and flight instructions, for $100,000. But when the Board asked if the price included exclusive use of their design, the Wrights said that their contract with Flint and Company precluded such an agreement, and the communications ended.21

During the summer of 1907, the Wrights traveled to Britain, France, and Germany and engaged in protracted on-again, off-again negotiations, especially with the French. The negotiations were impeded by the Wrights’ refusal to make any demonstration flights before they had signed a contract.22 But, while in France, the Wrights met U.S. Army Lieutenant Frank P. Lahm, Jr., the son of an American businessman who had been participating in the Wright’s negotiations with the French. Lt. Lahm was impressed with the Wrights and wrote about them to a senior member of the Board of Ordnance and Fortification, urging consideration of the Wrights’ 1907 proposal. Lahm’s letter opened the door, but the Board told the Wrights that it did not have $100,000. Eager to sell their airplane, the Wrights said that they would be willing to make concessions.23 

Wilbur Wright met with members of the Board on November 25, 1907, and again on December 5, and proposed a price of $25,000. Here is Wright biographer Fred Howard’s description of Wilbur’s meetings with the Board and the competition which followed:

Wilbur stopped off in Washington on the way home [from France] and met with three members of the Board. The Board had only $10,000 to apply toward the purchase of a Flyer, he learned. It would take until March to obtain the rest of the money from Congress. Wilbur arrived in Dayton somewhat disillusioned, but when he returned to Washington on December 5 to attend a formal meeting with the Board, his frankness of manner and self-confidence worked their usual magic, and the Board assured him that the entire $25,000 would be forthcoming by drawing on an emergency fund left over from the Spanish-American War. An outright purchase was not possible, however. Bids would have to be solicited. On December 23, 1907, an “Advertisement and Specification for a Heavier-Than-Air Flying Machine” was issued by the Signal Corps, seeking bids for an aircraft capable of carrying two men at a speed of 40 miles per hour and of staying in the air for at least one hour and landing without serious damage. There were a number of other requirements — such as that it must be possible to take the machine apart, transport it on an Army wagon, and reassemble it without difficulty — all tailored closely to what the Wrights had to offer. [Italics added.]

* * *

To discourage irresponsible or impecunious bidders, each respondent was required to deposit with the Signal Corps a certified check amounting to 10 percent of his bid, to be forfeited in case of failure. Since the specifications were impossible of fulfillment by anybody but the Wrights, only one bid was expected.... 24  

And here is the account by U. S. Army officers Colonel Charles DeForest Chandler and Brigadier General Frank P. Lahm Jr., of how the specifications were developed:

After the conference [between Wilbur and the Board of Ordnance and Fortification on December 5, 1907], General Allen instructed the Chief of the Aeronautical Division to prepare a specification based on Mr. Wright’s statements as to the expected performance of their airplane, on which proposals could be asked in accordance with the desire of the Board of Ordnance and Fortification. During conference by Captain Chandler with General Allen, Major George O. Squier of the Signal Corps and Major Lawson W. Fuller, Secretary of the Board, the terms of the specification were soon agreed upon.25

Before releasing the solicitation, the Board sent the Wrights a draft of the specification and asked for their comments.26

The Army issued the solicitation on December 23. The specification was based on the discussions between Wilbur Wright and the Board of Ordnance and Fortification and the “competition” was intended to be a done deal. But on February 1, 1908, the Army received 41 bids, ranging from $850 to $1 million, and the Wrights’ proposal of $25,000 was not the lowest.27 This was a surprise, since no one in the United States other than the Wrights was known to have produced a working airplane. The Army discarded 19 of the proposals as preposterous. Only three of the remaining 22 proposals included the required certified check: the Wrights’; a proposal of $20,000 from Augustus Herring, a man with “a formidable reputation in aeronautical circles”; and a $1,000 proposal from J. F. Scott.28 Mr. Scott, having realized that his proposal was improvident, asked the Army to let him withdraw it, which the Army did.29 With Scott’s withdrawal the low bidder was now Mr. Herring, who tried to talk the Wrights into doing the work for him under a subcontract, but they refused.

The Army was now in a difficult situation, because it was convinced that the Wrights were the only people who really had developed a working airplane, but Herring had a lower price and could not be dismissed as a crank. It solved the problem by finding more money and awarding two contracts.30 The contract with the Wright brothers’ was awarded on February 10.31 In March, the Wrights finally entered into an arrangement with a French syndicate to demonstrate and sell airplanes.32 Thus, the Wrights would have to demonstrate the capabilities of their airplane design simultaneously in America and Europe. It was decided that Wilbur would fly in Europe and Orville would be the pilot for the Army tests.33

The Army contract required “complete delivery” of the aircraft to Ft. Myer, Virginia, “on or before” August 28, 1908, but delivery to Ft. Myer was not to be the basis for acceptance and payment. The specification included the following performance requirements for the airplane34:

  • [Paragraph 2] “It is desirable that the flying machine should be designed so that it may be quickly and easily assembled and taken apart and packed for transportation in Army wagons. It should be capable of being assembled and put in operation in about one hour.”

  • [Paragraph 3] “The flying machine must be designed to carry two persons having a combined weight of about 350 pounds, also sufficient fuel for a flight of 125 miles.”

  • [Paragraph 4] “The flying machine should be designed to have a speed of at least forty miles per hour in still air, but bidders must submit quotations in their proposals for cost depending upon the speed attained during the trial flight, according to the following scale:

40 miles per hour, 100 per cent.
39 miles per hour, 90 per cent
38 miles per hour, 80 per cent.
37 miles per hour, 70 per cent.
36 miles per hour, 60 per cent.
Less than 36 miles per hour rejected.
41 miles per hour, 110 per cent.
42 miles per hour, 120 per cent.
42 miles per hour, 130 per cent.
43 miles per hour, 140 per cent.
44 miles per hour, 150 per cent. 

  • [ Paragraph 8] “It should be so designed as to ascend in any country which may be encountered in field service. The starting device must be simple and transportable. It should also land in a field without requiring a specially prepared spot and without damaging its structure.”

  • [Paragraph 9] “It should be provided with some device to permit of a safe descent in case of an accident to the propelling machinery.”

  • [Paragraph 10] “It should be sufficiently simple in its construction and operation to permit an intelligent man to become proficient in its use within a reasonable length of time.”

Paragraph 13 of the specification required the Wrights to instruct two men in “the handling and operation” of the airplane at no additional cost, but it did not include a statement of work or describe any specific training requirements. The remaining paragraphs of the specification were bidding instructions.

Since the use of an incentive has often been remarked upon, the following account of how the decision was reached to use an incentive, co-written by one of the participants, is of particular interest:

The Army officers hoped that a velocity of travel exceeding 40 miles might be attained, but the law did not permit paying a bonus for velocities greater than stipulated by the specification. That obstacle was overcome in effect by instructing the bidder to quote a price for a machine having a 40-mile speed, with separate quotations for speeds of 41, 42, 43, and 44 m.p.h., also between 39 and 36 m.p.h., at a rate of 10 per cent additional for each mile above the base, similarly the same percentage for each mile under 40. If the speed was found to be under 36 m.p.h., the machine would be rejected as unsuitable for military service. 35

At this point the reader should recall that the Wrights had reached an average speed of 38 miles per hour in 1905 while flying without a passenger.

In order to establish compliance with the contract performance requirements, the Wrights had to pass two flight tests, one for speed and one for endurance.36 The test specifications were described in Army specification no. 486, as follows:

  • [Paragraph 5] “The speed accomplished during the trial flight will be determined by taking an average of the time over a measured course of more than five miles, against and with the wind. The time will be taken by a flying start, passing the starting point at full speed at both ends of the course. This test subject to such additional details as the Chief Signal Officer of the Army may prescribe at the time.”

  • [Paragraph 6] “Before acceptance a trial endurance flight will be required of at least one hour during which time the flying machine must remain continuously in the air without landing. It shall return to the starting point and land without any damage that would prevent it immediately starting upon another flight. During this trial flight of one hour it must be steered in all directions without difficulty and at all times under perfect control and equilibrium.”

  • [Paragraph 7] “Three trials will be allowed for speed as provided for in paragraphs 4 and 5. Three trials for endurance as provided for in paragraph 6, and both tests must be completed within a period of thirty days from the date of delivery. The expense of the tests must be borne by the manufacturer. The place of delivery to the Government and trial flights will be at Fort Myer, Virginia.”

The Wrights’ delivered their airplane to Ft. Myer on August 20, 1908.37 They thus had until September 20, 1908, to successfully complete the prescribed tests.38 The design of the delivered airplane was based on the 1905 Flyer, modified to accommodate a more powerful engine, to allow the pilot to sit upright and to enable the airplane to carry a passenger.39 The Wrights had developed the new engine in 1906, well before the award of the Army contract, but they had not used it in an airplane.40

Preparation for the flight tests began at Ft. Myer on Tuesday, September 1.41 First came a series of preliminary flights that were not part of the official tests.42 After a minor accident on September 2, Orville flew on September 3, but had to make a forced landing after one turn and damaged the airplane. On September 4, Orville flew for four minutes and 15 seconds. Weather prevented Orville from flying on September 5 and no flights were made on September 6 because it was a Sunday. On September 7, Orville flew for 55 seconds. The longest flight on September 8 lasted 11 minutes. The longest flight on September 9 lasted one hour and two minutes, but Orville carried no passenger. On the third flight that day he carried a passenger, but for only six minutes and 24 seconds. On September 10, Orville flew for one hour, but again carried no passenger. On September 12, Orville carried an Army officer on a flight that lasted nine minutes. The last of the preliminary flights was to be conducted on September 17.43

Orville took off on September 17 carrying U.S. Army Lieutenant Thomas R. Selfridge. He made a few turns before he heard two loud noises and the airplane began to shake. Orville killed the engine, at which point the airplane yawed, then rolled and dived. According to Orville’s later account, he heard Lt. Selfridge say, “Oh Oh!” The airplane began to come apart in the air and then it hit the ground “with terrific force.” Orville suffered a broken thigh, several broken ribs, and scalp lacerations. Lt. Selfridge suffered a fracture at the base of his skull and never recovered consciousness after surgery. He was the first passenger to be killed in an airplane accident. The airplane was destroyed.44

The crash had been caused by a mechanical failure — a propeller blade had broken, cutting a rudder stay, which caused Orville to lose control.45 The Wrights had not successfully completed either of the required tests and would not be able to do so within 30 days of the aircraft delivery date as required by the contract. They had no excuse for non-performance and thus were in default. Nevertheless, the Army extended the date for successful completion of the tests to June 28, 1909. It had little choice, since no one else had a working airplane.46 Moreover, the Army was satisfied that the Wrights had solved the problem of heavier-than-air, machine-powered flight, even if they had not satisfied the requirements of the contract.47 The other contractor, Augustus Herring, who had not yet developed a working airplane, had also failed to perform, but since the Army had extended the Wrights’ contract it had little choice but to extend Herring’s, as well.48

Despite Orville’s problems at Ft. Myer, Wilbur used an airplane of mainly the same design to make 120 flights in France between August 8, 1908, and January 2, 1909, half of which included passengers, men and women, and convinced Europe of the capabilities of the Wright Flyer.49 Four days after Orville’s accident, Wilbur flew for one hour and 31 minutes.50 On October 5, he carried a passenger for one hour and four minutes and traveled 70 kilometers.51 On October 10, he carried a 240 pound passenger for one hour and ten minutes and traveled 80 kilometers.52 This flight satisfied the flight requirements of the Wright’s French contract. Wilbur now had to train three Frenchmen to fly. On December 31, he won a 20,000 franc prize for the longest flight of the year by flying alone in freezing air for two hours, 18 minutes, and 33 and 3/5 seconds, covering a distance of 124 kilometers.53 Orville was released from the hospital and joined Wilbur in France in January 1909, after which Wilbur made more flights in France and in Italy and trained several pilots. The Wrights had become celebrities in Europe. They returned to the U.S. in May 1909 as heroes and were greeted in their hometown of Dayton, Ohio, by cheering crowds and were presented with a medal by President Taft.54 But they still had not yet satisfactorily fulfilled the requirements of their Army contract.

After their return to the U.S., the Wrights built a new airplane based on some design modifications intended to prevent a recurrence of the accident that had killed Lt. Selfridge.55 They requested and obtained a second time extension from the Army, giving them until July 28, 1909, to successfully complete the required flight tests.56 They successfully completed the endurance test on July 27 by carrying Lt. Lahm for one hour, 12 minutes, and 40 seconds;57 however, they couldn’t meet the July 28 deadline for successful completion of the speed test. The Army granted them a third time extension, giving them until midnight on July 31 to successfully complete the final test.58 On July 30, Orville carried Lieutenant Benjamin Foulois on a flight in which he achieved an average speed of 42.58 miles per hour, earning a $5,000 payment bonus.59 The Wrights had finally fulfilled the airplane performance requirements, after a delay of more than ten months.60 The Army officially accepted the airplane on August 2, 1909.61 Augustus Herring never did perform and forfeited his $2,000 bond.62

What Can We Learn about Performance-Based Service Contracting from the Wright Brothers’ Contract?

The principal purpose of the Army’s contract with the Wright brothers was to obtain an item of supply. The airplane they delivered to the Army was not a “weapon system” and was not designed to be a weapons platform.63 The only services required were to train two men to operate the airplane, and the contract included no specification or statement of work in that regard.

The Wrights developed their airplane on their own initiative and at their own expense and received a U. S. patent for their design more than a year before the Army solicited proposals. Their design was not a response to the Army’s specification; rather, the Army’s specification was a reflection of their design. The Army obtained contract funding based on the price they proposed in Wilbur’s private meetings with the Board of Ordnance and Fortification in November and December of 1907. Although the contract did include a performance incentive, the evidence is that it had no influence on the Wright’s design activity. The key features of their airframe and engine had been developed and tested long before the Army issued its solicitation.

The contract was competitively awarded in name only, the solicitation having been issued only as a device to get the Wrights under contract. Only two offerors besides the Wrights submitted proposals in conformity with the specification, and they had no realistic prospect of developing a working airplane within the time required. The Wrights failed to perform as required and had no legal excuse for their failure. Only the understanding and generosity of the Army and their public celebrity saved them from forfeiting their performance bond.

The upshot of all this is that the story of the Wright brothers’ 1908 contract with the Army has no bearing on the problems that agencies must solve in order to write performance work statements for services and to effectively implement performance-based service contracting. The Wrights’ airplane was an item of supply, a tangible thing with physical properties and performance attributes that were directly observable and objectively measurable. Long-term, complex operations and support services often do not produce any material, durable artifact that is adequate evidence of the quality of contract performance, and many important service outcomes defy attempts at clear, specific, objective and measurable description and are assessable only subjectively. As one commentator recently put it: “Performance-based contracting sounds fairly simple, but it is difficult to put into practice.”64

Does Performance-Based Contracting Work?

Does performance-based service contracting “work”? Does it save money and improve performance? It is hard to say one way or the other. Reports have been mixed or even contradictory. In October 1997, the Department of Energy’s Office of Procurement and Assistance Management reported that the use of performance-based objectives and measures had been effective in focusing contractor work efforts on results, although it also reported that implementation had not been as effective as it might have been.65 But success stories are not always reliable. The report said that an incentive applied to the Idaho National Engineering and Environmental Laboratory’s advance test reactor program had improved operating efficiency.66 Three years later, an audit report by the Department of Energy Inspector General reported that the Idaho laboratory had used a baseline other than the one in the contract to validate the contractor’s operating efficiency.67

In May 1998, the Office of Federal Procurement Policy published a report of the results of a pilot program that was designed to evaluate the effectiveness of performance-based service contracting.68 Based on a study of 26 contracts, the report claimed that participating agencies enjoyed an average price reduction of 15 percent and an 18 percent increase in agency satisfaction with contractor performance. However, the report is not clear about how the price reductions were measured and some of the results are anomalous. For instance, the report indicates that cost to the government dropped an average of 21 percent on contracts converted from cost-reimbursement non-performance-based to fixed-price performance-based. This seems strange, because if the performance requirements did not change, then the shift of risk from the government to the contractors should have resulted in fixed prices that were as high as or higher than the estimated costs and fees under the cost-reimbursement contracts. And if the performance requirements did change, then it is not valid to attribute price reductions to the shift to performance-based service contracting. The conclusion about improved customer satisfaction is based upon a simplistic opinion survey, and the results indicated only a modest improvement from low satisfactory to high satisfactory, rather than from satisfactory to excellent.  More recently, in 2001, Rand’s Project Air Force published a study of 22 performance-based service contracts at 15 Air Force bases. The authors of the study found it difficult to assess the effects of performance-based contracting on costs and were unable to attribute price changes to performance-based service contracting. They also found that while Air Force personnel generally believed that the contracts were working well, personnel at only two of the 15 bases attributed performance improvements to performance-based contracting. The authors said that they were “taken aback” by this finding.69

In May 2001, Angela Styles, the current OFPP Administrator, when asked prior to her Senate confirmation hearings why more agencies were not using performance-based contracting, told the Senate:

In part, I believe the problem with performance-based service contracts centers on a lack of clarity regarding the definition of what constitutes a performance-based service contract. Based on my experience, there is tremendous disagreement among agencies regarding the requirements to qualify a contract as a performance-based service contract. Previous attempts by OFPP to clarify the definition, including a "checklist" of minimum required elements for an acquisition to be considered performance-based, have been wholly unsuccessful. More generally, agencies have received little useful guidance regarding the transition to performance-based statements of work.70

On November 1, 2001, Ms. Styles repeated that statement almost verbatim to the House Subcommittee on Technology and Procurement Policy, Committee on Government Reform.71 In a statement to the same House subcommittee on March 7, 2002, almost a year after she was confirmed, Ms. Styles said that she was forming an inter-agency group to resolve the differences among agencies regarding the requirements for a contract to qualify as performance-based.72

Thus, more than ten years after OFPP first proclaimed performance-based contracting to be governmentwide policy, and nearly five years after the policy was included in the FAR, the government’s chief procurement policy official says that attempts to define performance-based service contracting have been “wholly unsuccessful,” and that government personnel still do not share a common understanding of the concept. In light of Ms. Styles testimony to Congress, it is hard to understand how anyone can claim that performance-based service contracting has been a success, or that it “works.”

What about incentives? Do they work? Claims of incentive effectiveness have been overwhelmingly theoretical and anecdotal. Since the late 1950s, researchers have tried to verify the effectiveness of contractual incentives through analyses of empirical data, but have been unable to do so.73 A 2001 study of U. S. Air Force award fee contracts described Air Force audit and study findings of ineffective use of award fee incentives.74 The author of the study concluded that the government’s belief in the effectiveness of award fee incentives is primarily due to training and advertising: “Government training explains that incentives motivate contractors and therefore it is believed without challenge until proven otherwise.” Reports by the U.S. General Accounting Office and the Department of Energy Inspector General have made similar findings about the use of contractual incentives.75 Nevertheless, despite continuing poor implementation and the absence of proof (as opposed to claims) of effectiveness, the Federal Acquisition Regulation requires the use of incentives in performance-based service contracts “to the maximum extent practicable.”76

Federal agencies are devoting a lot of time, energy and money to the implementation of performance-based service contracting. It is a cornerstone of the government’s competitive sourcing initiative and policymakers and other advocates, eager to market the concept, are using anecdotal “success stories” to convince nonbelievers. But while the story of the Wright brothers is interesting, often dramatic, and frequently stirring, and while their 1908 Army contract is surely a milestone in the history of military aviation, it has no bearing on the challenges that agencies must confront today when trying to implement performance-based service contracting. It does not prove that performance-based contracting “works,” or that contractual incentives effectively motivate contractors. Proponents of performance-based contracting and the use of incentives must look elsewhere for support for their ideas. Do performance-based service contracting and performance incentives work as advertised? Who knows? In light of the difficulties that agencies are reportedly having with the implementation of the policy, and the cost of the implementation effort, perhaps it is time for a rigorous policy analysis and review.


1Law, R., “Coming Full Circle,” in Contract Management, December 2001, p. 18.  (Back)
2Testimony of Jerald S. Howe Jr., March 7, 2002 in support of enactment of the Services Acquisition Reform Act, H.R. 3832.  (Back)

3There are many accounts of the Wright brothers’ 1908 contract with the U.S. Army. In what follows I have relied mainly on two works: How Our Army Grew Wings, by Captain Charles DeForest Chandler and Brigadier General Frank P. Lahm, U. S. Army, retired (New York: The Ronald Press Company, 1943, reprinted by Arno Press in 1979), and Wilbur and Orville: A Biography of the Wright Brothers, by Fred Howard (Mineola, NY: Dover Publications, Inc., 1998). Gen. Lahm was a participant in the events of 1907 – 1909. Mr. Howard’s book provides the most detailed account of the Wright brothers contacts with the Army. Other accounts include: Combs, H., Kill Devil Hill: Discovering the Secret of the Wright Brothers (Englewood, CO: Ternstyle Press, Ltd., 1979); Crouch, T., The Bishop’s Boys: A Life of Wilbur and Orville Wright (New York: W. W. Norton & Co., 1989); Culick, E.C. and Dunmore, S., On Great White Wings: The Wright Brothers and the Race for Flight (New York: Hyperion, 2001); Gibbs-Smith, C., Aviation: An Historical Survey from its Origins to the end of World War II (London: Her Majesty’s Stationary Office, 1970); Harris, S., The First to Fly: Aviation’s Pioneer Days (New York: Simon and Schuster, 1970); Hennessey, J., The United States Army Air Arm: April 1861 to April 1917 (Washington, D.C.: United States Air Force, Office of Air Force History, 1985); and Wright, O., How We Invented the Airplane: An Illustrated History (Mineola, NY: Dover Publications, Inc., 1953 and 1988).  (Back)
4Technical descriptions of the Wrights’ airplanes vary somewhat from one account to another. The Wrights did not produce detailed drawings of their airplanes. It also appears that when they manufactured more than one of a particular model, each individual airplane was somewhat different from the others of that model.  (Back)
5Chandler and Lahm, pp. 122 – 140; Crouch, pp. 273 – 286; Gibbs-Smith, pp. 101 – 102; and Howard, pp. 148 – 163.  (Back)
6Crouch, p. 312.  (Back)
7Crouch, p. 294 - 295, and Howard, pp. 165 - 166.  (Back)
8Quoted in Hennessy, p. 221.  (Back)
9Hennessey, p. 222.  (Back)
10Chandler and Lahm, pp. 93 - 98; Crouch, p. 293; Gibbs-Smith, pp. 63 - 67; Hennessey, pp. 20 - 21; and Howard, pp. 124 - 132.  (Back)
11Chandler and Lahm, pp. 136 – 138; Crouch, p. 299; Gibbs-Smith, pp. 102 – 103; and Howard, pp. 182 – 185. The speed of 38 miles per hours seems problematical, but it appears that the Wrights calculated average flight speed by averaging the speed into the wind and the speed with the wind. Depending on how that was done, it could explain the result. But it is unclear how the Wrights determined their flight speed on October 5, 1905.  (Back)
12Howard, p. 183.  (Back)
13Hennessey, p. 223.  (Back)
14Ibid., p. 223-224.  (Back)
15Ibid., p. 224.  (Back)
16Ibid.  (Back)
17Crouch, pp. 291 – 295, 303 – 312, and 328 – 330.  (Back)
18Howard, pp. 163 - 238.  (Back)
19Crouch, p. 312.  (Back)
20Crouch, pp. 327 - 330, and Howard, pp. 205 - 207 and 215.  (Back)
21Crouch, pp. 331 - 332, and Howard, pp. 216 – 217.  (Back)
22Howard, pp. 215 - 228, and Crouch, pp. 331 - 345.  (Back)
23Howard, pp. 229 - 230, and Crouch, p. 341.  (Back)
24Howard, pp. 230-231. It seems clear from various accounts of the meeting that Wilbur and the officers discussed performance, delivery and price and that the Army’s solicitation was based on those discussions. It is not clear that they reached a firm agreement on any of those things. After issuance of the solicitation, the Wrights corresponded with the Army “to ensure that they understood all of the requirements.” Crouch, p. 348. They inquired about the bond that was to accompany the proposals. Letter from the Wright Brothers to U. S. War Department, January 9, 1908, quoted in Kelly, F., Miracle at Kitty Hawk: The Letters of Wilbur and Orville Wright (New York: Farrar, Straus and Young, 1951), pp. 247 – 248.  (Back)
25Chandler and Lahm, p. 144, and Crouch, p. 347. The Chandler and Lahm account is particularly important, because Lahm was a key participant in the events and was in a position to know what happened. Hennessey, p. 26, says that the Board had asked that the specification be based on statements of the Wright brothers “and any other airplane designers,” but does not identify any other designers and cites no reference for the mention of “other designers.” Since Wilbur’s meeting with the Board took place on December 5 and the solicitation was published on December 23, it seems unlikely that the Army had time to solicit, receive, and consider comments from other designers in the interval.  However, it is possible.  (Back)
26The Wrights responded on December 18, 1907, before the issuance of the solicitation.  See:  Wilbur and Orville Wright to General James Allen, December 18, 1907, reprinted in McFarland, M., ed., The Papers of Wilbur and Orville Wright (New York: McGraw-Hill, 2001), p. 843.  (Back)
27Army bidding procedures in 1908 were not as detailed as they are today and there was no body of protest case law to consider. Accounts of the bidding suggest a procedure that was more akin to the sealed bidding procedures described in Federal Acquisition Regulation Part 14 than to the source selection procedures described in FAR Part 15. However, the procedure may have been more flexible than today’s sealed bidding.  (Back)
28Chandler and Lahm, pp. 147 - 148, say that 19 of the bids were rejected as “unworthy of serious consideration” and provide a complete list of the remaining 22 bids, 11 of which were lower than the Wrights’, the lowest being $850. Those authors say that lower conforming bids from Herring and Scott “could not be passed over without adequate reason.” See, too, Howard, p. 231. It was Howard who said that the 19 bids were rejected as “too preposterous for consideration.” None of the accounts of the bidding say that any bidder was eliminated based on poor past performance.  (Back)
29Chandler and Lahm, p. 150; Howard, p. 231. One account says that the Army actually sent contracts to all three: Herring, Scott and the Wrights, and that it was only then that Scott asked the Army to let him withdraw. Hennessey, p. 27.  (Back)
30Chandler and Lahm, pp. 148 - 150 and 167 - 168; Crouch, p. 348; Hennessey, p. 27; and Howard, p. 231.  (Back)
31Chandler and Lahm, p. 150.  (Back)
32Howard, p. 232.  (Back)
33Ibid., p. 247.  (Back)
34Chandler and Lahm, pp. 295 - 298.  (Back)
35Ibid., p. 146.  (Back)
36Ibid.  (Back)
37Chandler and Lahm, p. 152, and Howard, p. 263.  (Back)
38This is based on a literal reading of the advertisement and specification, but an alternate reading would set the date at September 28, 1908.  (Back)
39Chandler and Lahm, p. 150; Hooven, F., “Longitudinal Dynamics of the Wright Brothers’ Early Flyers: A Study of Computer Simulation of Flight,” in Wolko, H., ed., The Wright Flyer: An Engineering Perspective (Washington, D.C.: Smithsonian Institution, 1987), pp. 48 - 50; ; Howard, p. 239; Wright, W. and Wright, O., “The Wright Brothers’ Aeroplane,” in Jakab, P. and Young, R., eds., The Published Writings of Wilbur and Orville Wright (Washington, D.C.: The Smithsonian Institution Press, 2000) , p. 32.  (Back)
40Hobbs, L., The Wright Brothers’ Engines and Their Design (Washington, D.C.: Smithsonian Institution Press, 1971), pp. 34 - 46; Hennessey, p. 28; Howard, p. 239.  (Back)
41Chandler and Lahm, pp. 152 - 154, and Howard, pp. 262 - 281, provide detailed accounts of the flights leading up to the fatal crash of September 17, 1908.  (Back)
42Chandler and Lahm, p. 152 - 153.  (Back)
43Hennessey, p. 33.  (Back)
44Chandler and Lahm., p. 154; Howard, pp. 273 - 275. Howard’s description of the crash and of Lt. Selfridge’s death is heartbreaking.  (Back)
45Howard, pp. 276 - 277.  (Back)
46The contract did not include a default clause and did not list excusable delays; however, the Wrights do not appear to have had any excuse that would be considered an excusable delay under the modern default clause for fixed-price supply contracts in Federal Acquisition Regulation § 52.249-8. Termination for default would have embarrassed the Army as much if not more than the Wrights. The Ft. Myer flights had made Orville Wright a popular figure in the press and in the eyes of the public and were often attended by large cheering crowds and by President Taft. Howard, pp. 265 - 269. Moreover, the Army apparently believed that the Wrights would be able to deliver a working airplane and undoubtedly wanted them to succeed.  (Back)
47Crouch, p. 378.  (Back)
48Howard, p. 280.  (Back)
49Ibid. pp. 248 - 261 and 282 - 290, describes Wilbur’s flights in France.  (Back)
50Ibid., p. 282.  (Back)
51Ibid., p. 284.  (Back)
52Ibid., p. 285.  (Back)
53Crouch, p. 385. Howard, p. 289, sets the length of the flight as two hours, 20 minutes, and 23.2 seconds.  (Back)
54Crouch, p. 387 and pp. 390 - 394; Howard, pp. 292 - 295.  (Back 
55Chandler and Lahm, pp. 155 - 156; Hennessey, p. 33; and Howard, p. 300.  Chandler and Lahm say that one of the objectives of the new design was to increase speed, but this is not confirmed by other accounts.  (Back)
56Howard, p. 296.  (Back)
57Chandler and Lahm, p. 156; Hennessey, p. 34; and Howard, pp. 302 - 303.  (Back)
58Howard, p. 304.  (Back)
59Chandler and Lahm, pp. 159 - 160, explain that since the contract did not provide for any bonus for fractions of a mile per hour, the flight speed was rounded down to 42 m.p.h. for payment purposes.  (Back)
60Chandler and Lahm, pp. 155 - 162; Howard, pp. 302 - 306. The Army apparently did not request, nor did the Wrights provide, any consideration in exchange for the contract time extensions.  (Back)
61Hennessey, p. 34.  (Back)
62Chandler and Lahm, p. 168.  (Back)
63Chandler and Lahm make no mention of armaments of any kind. In their January 18 letter to their congressman, which he forwarded to the Board of Ordnance and Fortification, the Wrights talk of its military value as a vehicle for scouting and carrying messages, but make no mention of combat operations.  (Back)
64Quoted by Frank, D., “OMB Rethinks Contracting Goals,” in Federal Computer Week, February 4, 2002.  (Back)
65U.S. Department of Energy, Office of Procurement and Assistance Management, Assessment of the Use of Performance-Based Incentives in Performance-Based Management and Management and Integration Contracts, October 1997.  (Back)
66Ibid., p. 3.  (Back)
67U.S. Department of Energy, Office of Inspector General, Office of Audit Services, Performance Incentives at the Idaho National Engineering and Environmental Laboratory, Audit Report No. WR-B-00-05, April 2000, p. 4.  (Back)
68See: Office of Federal Procurement Policy, A Report on the Performance-Based Service Contracting Pilot Project, May 1998.  (Back)
69Ausink, J., Camm, F. and Cannon, C., Performance-Based Contracting in the Air Force: A Report on Experiences in the Field (Santa Monica , CA: Rand, 2001).  (Back)
70Pre-hearing Questions for Angela Styles to be Administrator for the Office of Federal Procurement Policy of the Office of Management and Budget, Section III, Question 4a. The text of this document may be found at: http://www.acqnet.gov/Notes/stylesprehearing.htm.  (Back)
71Statement of Angela B. Styles, Administrator for Federal Procurement Policy, Before the Subcommittee on Technology and Procurement Policy, Committee on Government Reform, United States House of Representatives, November 1, 2001, p. 11. The text of this statement may be found at http://www.acqnet.gov/Notes/sarafinal.doc.  (Back)
72Statement of Angela B. Styles, Administrator for Federal Procurement Policy, Before the Subcommittee on Technology and Procurement Policy, Committee on Government Reform, United States House of Representatives, March 7, 2002, p. 10. The text of this statement may be found at: http://www.acqnet.gov/Notes/saratestimony37.doc.  (Back)
73For a discussion of some of the research, see Edwards, V., Award Term Contracting: A New Approach for Incentivizing Performance (Vienna, VA: National Contract Management Association, 2000), pp. 1-37 through 1-40.  (Back)
74Snyder, T., “Analysis of Air Force Award Fee and Award Term Contract Implementation,” a research report submitted to the faculty of the Air Command and Staff College, Air University, Maxwell Air Force Base, Alabama, April 2001.  (Back)
75See, for example, U.S. General Accounting Office, NASA Procurement: Challenges Remain in Implementing Improvement Reforms, Chapter Report, August 18, 1994, GAO/NSIAD-94-179 and Department of Energy: Lessons Learned Incorporated Into Performance-Based Incentive Contracts, GAO/RCED-98-223, July 1998; U.S. Department of Energy, Office of Inspector General, Office of Audit Services, Performance Incentives at the Idaho National Engineering and Environmental Laboratory, Audit Report No. WR-B-00-05, April 2000.  (Back)
76Federal Acquisition Regulation § 37.602-4.  (Back)

  Vernon J. Edwards is a researcher, writer and teacher of Federal contracting.
Copyright © 2002 by Vernon J. Edwards 

 

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