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TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED MATTERS

Subtitle B—Acquisition Policy and Management

JWNDAA Section

House Conference Report 109-702

(a) Guidance on Linking of Award and Incentive Fees to Acquisition Outcomes- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall issue guidance, with detailed implementation instructions (including definitions), for the Department of Defense on the appropriate use of award and incentive fees in Department of Defense acquisition programs.

(b) Elements- The guidance under subsection (a) shall--

(1) ensure that all new contracts using award fees link such fees to acquisition outcomes (which shall be defined in terms of program cost, schedule, and performance);

(2) establish standards for identifying the appropriate level of officials authorized to approve the use of award and incentive fees in new contracts;

(3) provide guidance on the circumstances in which contractor performance may be judged to be `excellent' or `superior' and the percentage of the available award fee which contractors should be paid for such performance;

(4) establish standards for determining the percentage of the available award fee, if any, which contractors should be paid for performance that is judged to be `acceptable', `average', `expected', `good', or `satisfactory';

(5) ensure that no award fee may be paid for contractor performance that is judged to be below satisfactory performance or performance that does not meet the basic requirements of the contract;

(6) provide specific direction on the circumstances, if any, in which it may be appropriate to roll over award fees that are not earned in one award fee period to a subsequent award fee period or periods;

(7) ensure consistent use of guidelines and definitions relating to award and incentive fees across the military departments and Defense Agencies;

(8) ensure that the Department of Defense--

(A) collects relevant data on award and incentive fees paid to contractors; and

(B) has mechanisms in place to evaluate such data on a regular basis;

(9) include performance measures to evaluate the effectiveness of award and incentive fees as a tool for improving contractor performance and achieving desired program outcomes; and

(10) provide mechanisms for sharing proven incentive strategies for the acquisition of different types of products and services among contracting and program management officials.

(c) Assessment of Independent Evaluation Mechanisms-

(1) IN GENERAL- The Secretary of Defense shall select a federally funded research and development center to assess various mechanisms that could be used to ensure an independent evaluation of contractor performance for the purpose of making determinations applicable to the judging and payment of award fees.

(2) CONSIDERATIONS- The assessment conducted pursuant to paragraph (1) shall include consideration of the advantages and disadvantages of a system in which award fees are--

(A) held in a separate fund or funds of the Department of Defense; and

(B) allocated to a specific program only upon a determination by an independent board, charged with comparing contractor performance across programs, that such fees have been earned by the contractor for such program.

(3) REPORT- The Secretary shall submit to the congressional defense committees a report on the assessment conducted pursuant to paragraph (1) not later than one year after the date of the enactment of this Act.

The Senate amendment contained a provision (sec. 843) that would require the Secretary of Defense to issue detailed implementation guidance, including definitions for performance outcomes, for appropriate use of award and incentive fee contracts. The provision would require performance measures to evaluate the effectiveness of award and incentive fees; mechanisms for sharing successful acquisition strategies; and an independent evaluation of the impact of award fee payment decisions on contractor performance.

The House bill contained a similar provision (sec. 815).

The House recedes with an amendment that would require development of standards to identify the appropriate level of decisionmaking official for approval of new award and incentive fee contracts and to ensure consistent application of guidance and definitions across the military departments and defense agencies.

Senate Armed Services Committee Report 109-254

Congressional Record, House, May 11, 2006, H2520