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Funding Question: How should Award Terms be funded?


govt2310

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I have never worked on a contract type with an "award term," where, like an award fee, if the KTR performs well, the agency can award the KTR an "award term" which is like tacking on extra time to the period of performance, say, an extra year added to the base period.

My question is, how should such an award term be funded? Must the agency fully fund the award term at the time of original award? What if the base period is say, two years, so the award term won't be "exercised" (I know the award term is not an option, but I don't know what other word to use) until the end of second year of the base period -- does the agency have to fund the award term with the original year and type of funds from the time of the original award, or can it use the current year's annual appropriations?

I read an article years ago that said "award fees" had to be fully funded at the time of original award, and even if it took years until they were "due" depending on the performance of the KTR, the agency always had to pay out of the original type and year of money. So I am thinking award terms is probably treated the same, right?

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I have never worked on a contract type with an "award term," where, like an award fee, if the KTR performs well, the agency can award the KTR an "award term" which is like tacking on extra time to the period of performance, say, an extra year added to the base period.

My question is, how should such an award term be funded? Must the agency fully fund the award term at the time of original award? What if the base period is say, two years, so the award term won't be "exercised" (I know the award term is not an option, but I don't know what other word to use) until the end of second year of the base period -- does the agency have to fund the award term with the original year and type of funds from the time of the original award, or can it use the current year's annual appropriations?

I read an article years ago that said "award fees" had to be fully funded at the time of original award, and even if it took years until they were "due" depending on the performance of the KTR, the agency always had to pay out of the original type and year of money. So I am thinking award terms is probably treated the same, right?

Award Term is an additional term (usually a year) that is added or given to the contractor as a performance reward. This action, which is not an option, is an entitlement that the contractor receives, as stipulated in the contract as an added term of performance for obtaining or meeting a "specific" performance rating or target in the overal requirements of the contract. It is (or has been) widely used in the Dept of Energy National Nuclear Security Administration Management and Operations Contracts with either for profit contractors and / or Federally Funded Research and Development Centers to run its Nuclear Weapons production, storage, research or development efforts.

Short answer, it is funded when the obligation is required upon contract award extension.

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I read an article years ago that said "award fees" had to be fully funded at the time of original award, and even if it took years until they were "due" depending on the performance of the KTR, the agency always had to pay out of the original type and year of money. So I am thinking award terms is probably treated the same, right?

If by "funded" you mean "obligated", then the article was incorrect. Typically, an award-fee contract provides for payment of award fee after some, or all, of contract performance has taken place and the Government has subjectively evaluated the contractor's performance. Until that time, the award-fee is a contingent liability. Contingent liabilities are not obligations and may not be recorded as such. For more on contingent liabilities, see pp. 7-55 and 7-56 of the GAO Redbook.

In the case of an award-term contract, the Government has a contingent liability for the award term upon award. The liability does not arise unless and until the Government has determined the contractor's entitlement in accordance with the award-term provisions of the contract. As such, an obligation may not be recorded for unearned award-terms when the initial award-term contract is awarded.

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If by "funded" you mean "obligated", then the article was incorrect. Typically, an award-fee contract provides for payment of award fee after some, or all, of contract performance has taken place and the Government has subjectively evaluated the contractor's performance. Until that time, the award-fee is a contingent liability. Contingent liabilities are not obligations and may not be recorded as such. For more on contingent liabilities, see pp. 7-55 and 7-56 of the GAO Redbook.

In the case of an award-term contract, the Government has a contingent liability for the award term upon award. The liability does not arise unless and until the Government has determined the contractor's entitlement in accordance with the award-term provisions of the contract. As such, an obligation may not be recorded for unearned award-terms when the initial award-term contract is awarded.

Award Fee = Additional monetary rewarded for performance based on contract terms and conditions

Award Term = Additional period or term rewarded for performance based on contract terms and conditions

Like Mr. Hoffman says, they are both contractor's entitlements, as opposed to "options".

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'Like Mr. Hoffman says, they are both contractor's entitlements, as opposed to "options".

"Mr Hoffman" didn't that or anything else in this thread. :)

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Guest Vern Edwards
My question is, how should such an award term be funded? Must the agency fully fund the award term at the time of original award? What if the base period is say, two years, so the award term won't be "exercised" (I know the award term is not an option, but I don't know what other word to use) until the end of second year of the base period -- does the agency have to fund the award term with the original year and type of funds from the time of the original award, or can it use the current year's annual appropriations?

There is no way to answer those questions. Award term is not an official incentive except in the Environmental Protection Agency and the Department of Education. There is no official definition or description of award term in FAR. There is no standard FAR provision or clause for award term. Although award term incentives are used by a number of agencies, the only coverage in the entire FAR system is in the EPA and the Deptment of Education FAR supplements. As used by various agencies, award term my be an entitlement or a contract option. To the best of my knowledge, GAO has not issued any guidance on the rules about obligations under award term contracts.

The only way to determine funding requirements is to read the terms of particular award term contracts.

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