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On 12/20/2019 at 8:54 AM, Clatch said:

... how do CO's determine that a proposed fee on a CPAF contract is reasonable?

Not a contracting officer, but I had always thought that the CO assumes the maximum fee will be awarded and that is the value for which a reasonableness determination is made. I would be interested to learn whether that is how it's done, or not.

I'll add that (from a contractor perspective) the development of the proposed award fee plan and ratio of base to incentive is as much a part of the competitive strategy as anything else.

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Here is an example of an award fee plan.  Some things to ponder.

  • 5.3:  Award Fee Score.  Look at Good and "51 - 75"  What do you think about score for good?  A more thorough grading scale is provided in Attachment C.  Is a good rating consistent with the description provided in Attachment C.
  • 5.1:  Performance Areas and Evaluation Criteria.  There are 3 areas.  The first 2 areas have a weight of 80% of award fee.  In those 2 areas, there are 18 subfactors to be evaluated.  What do you think of having 18 subfactors for 80 percent of the award fee.  Is the effectiveness of the award fee diluted?
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  • 2 weeks later...

In my opinion,  award fees may work and can provide improvements in performance.  But they usually don’t because of two reasons - plan not well thought out initially and use/implantation poorly done.  GAO found numerous examples of contractors awarded for essentially doing little.

in this example, most of the areas just address items the contractor is supposed to be doing anyway.   Under technical performance, maybe some of technical requirements, innovation, communications and risk management might be appropriate to incentivize.  Nothing I see in business management is valid.  Perhaps cost control might work. The rest of the plan is about the contractor doing what the contract says.  There shouldn’t be any reward in that.

The behavior you want to see with an award fee mechanism is the contractor sitting down regularly with the government and ask what can they do better and how can they proactively improve.  It’s similar to an employee wanting to improve their job performance and the annual performance appraisal.  A motivated employee and a supervisor who’s also coaching employees want open and frank discussions.  The questions from the employee are what am I doing well and not do well, and how I can I improve?  It’s about what do you see that I can do to make this office better?  Instead it’s more like the employee saying what their performance plan calls for and why they should earn a good rating.

In my opinion, a good plan has no more than a half dozen elements.  Much of it is subjective.  You want the contractor to improve, innovate, and be responsive on the few areas you see as important.  You also want the carrot  large enough to capture their attention.

 

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  • 1 month later...

Agree with formerfed. Some lessons learned from doing a few of these:

  • Keep it simple.
  • Slant it towards customer satisfaction, not for completion of tasks that are required anyway.  That means it will be subjective; so what? That ;s the point of building the partnering relationship. Some agencies have created huge bureaucratic exercises over the award of a simple fee which disincentives the use of it except in really large contracts, and forces everything towards paying rater than not paying. Actually they are very useful in smaller contracts. In the cases where I did these, the vendors who were into customer service made remarkable changes when they didn't get their first incentive payment, and the vendors who were just into extracting money never did make the changes and in some cases seemed happy being terminated for cause.
  • Weight the fee payments to incentivize continued excellence, e.g. 1/3 at the middle and 2/3 at the end of the work. Many vendors try to straight-line the fee so that they have collected most of it as early as possible, at which point the customer loses the leverage they were trying to buy
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