Wifconers:

What do you make of this?

FAR 16.404(a) says: "Award-fee provisions may be used in fixed-price contracts when the Government wishes to motivate a contractor and other incentives cannot be used because contractor performance cannot be measured objectively."

FAR 16.405-2(b)(1) says: "The cost-plus-award-fee contract is suitable for use when--(i) The work to be performed is such that it is neither feasible nor effective to devise predetermined, objective incentive targets applicable to cost, technical performance, or schedule."

FAR 2.101 says, "Performance-based contracting means structuring all aspects of an acquisition around the purpose of the work to be performed with the contract requirements set forth in clear, specific, and objective terms with measurable outcomes as opposed to either the manner in which the work is to be performed or broad and imprecise statements of work." Underlining added.

FAR 37.602-4 says: "These [performance] incentives shall correspond to the specific performance standards in the quality assurance surveillance plan and shall be capable of being measured objectively." Underlining added.

Should these FAR passages be interpreted to mean that one shouldn't use an award-fee (subjective) incentive in a performance-based contract? If not, then how should they be interpreted? I know that people are using award-fee incentives in what they call performance-based contracts. Are they doing the wrong thing? What did the FAR Council mean when it wrote 37.602-4?

By formerfed on Friday, April 12, 2002 - 07:43 am:

Vern,

I've read those FAR passages many times and never noticed your point until now. My intrepretation is that many people who now use subjective incentives are doing it wrong. However many compelling reasons exist to use subjective measures so I hope the FAR Council makes revisons soon. All the examples of performance-based I remember seeing about the time the FAR coverage was drafted used only objective incentives and placed much emphasis on specific standards with monitoring and quality surveillence. I'm assuming this provided the only perspective for the FAR Council at the time.

By Chuck Solloway on Monday, April 15, 2002 - 12:31 pm:

There has long been confusion here. In OFPP Policy Letters on service contracts, OFPP called for the use of deducts (which aren't really deducts) and incentives on firm fixed price contracts. However, there is/was no contract type that included fixed price and incentive except for the FPI. The FPI is not firm fixed price so it could not be used. Thus we had a government directive without a corresponding contract type.

It was my understanding that the FAR folk attempted to solve this problem by inventing the FPAF contract. However, they strangely limited the use of the contract type to situations where subjective measurements are made.

The OFPP Policy Ltrs - apparently - actually meant to say:

a. Pay the contractor only for acceptable service.

b. Provide for rewards (either objectively or subjectively measurable or both) for better than acceptable service.

c. Do the above to "the maximum extent practicable"

Those who are following the OFPP Policy seem to be "rolling their own" with respect to contract type and are writing firm fixed price contracts that provide for "rewards" (as opposed to "incentives" or "awards") that are either objectively measureable (the cab driver picked me up earlier than the 15 minute performance standard) or sujectively measureable (the cab was clean and the driver was courteous., or both.

By Rose McWms. on Wednesday, April 17, 2002 - 05:07 pm:

Vern's questions that started this thread demonstrate why he perceives a need for relational contract language (as discussed in the Mar 25th thread). How does Vern's "relational" contract differ from a Cost Plus Award Fee "D" (task order) type contract? Just like Vern's relational contract, a CPAF gives you the ability to write task orders (thereby mitigating the need for specific ex ante specs), and you can include an Award Fee Plan that's subject to changing Government needs/priorities. It seems as if the precedent has been already been set that Award fee and Incentive type contracts can be considered performance based contracts. In my opinion, in determing whether a contract is performance based, the emphasis has always been on ensuring that the contract is results, as opposed to, process driven - tell the contractor the end state but not how to perform.