Award-Term Incentives Essay

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We have just exercised the last option on the current Navy contract and must start the process to re-compete the next contract for this on-going requirement. The new contract will be valued at over $150 million. The current contract is a fixed price award fee, but recently we went to a briefing given by the Air Force on a relatively new type of contract incentive called Award Term and are considering this as an option. There has been much discussion on what type of contract we will use for the re-compete for the follow on contact. In this paper I will cover the background of the award term incentive acquisition, compare different types of contracts, discuss the pros and cons of the award term method, and whether it meets the Competition in Contracting Act (CICA) requirements. If you search the Federal Acquisition Regulation (FAR) for award term incentive, you won’t find it there. It was designed by Mr. Thomas Jordan in 1997 at Kelly Air Force Base. He used it on a task order contract for the Air Force’s Aeronautical Systems Centers award to McDonnell Douglas Corporation for services on the F-15C aircraft. The contract had a seven year base period, which the contractor could extend to 15 years by rendering excellent service. This type of incentive was not in the Federal Acquisition Regulation (FAR), but was comparable to the award-fee incentive-type contract found in the FAR Part 16.405-2 [1]. Acquisitions that have included award term incentives have been conducted by the Air Force, but the National Aeronautics and Space Administration (NASA), the Naval Facilities Engineering Command (NFEC), the Naval Sea Systems Command (NSSC), the Army’s Ft. Drum in New York, and the General Services Administration have all conducted or announced plans to conduct acquisitions that include award term incentives. Those acquisitions include or plan to include provisions that will enable the contractor to extend its performance for periods ranging from a maximum of seven years (Naval Facilities Engineering Command) to a maximum of 20 years (Air Force Electronic Systems Center) [2]. The award fee incentive described in FAR 16.405-2 is an amount of money which is added to a contract and which a contractor may earn in whole or in part during performance. This process is sufficient to provide motivation for excellence in such areas as quality, timeliness, technical ingenuity, and cost-effective management. But award-term incentives typically include a base period of performance with a number of option periods during which the government observes and evaluates the contractor’s performance. During this time, the contractor can accumulate credit toward earning contract extensions called award terms. Instead of rewarding a contractor for excellent performance with additional fee, they reward the contractor by extending the contract period of performance without a new competition cycle. With the lack of regulatory guidance relating to award term, the structure of the incentive and the evaluation methodologies employed have grown very diverse. This has caused some confusion over appropriate use and necessary features for successful employment of this non-monetary incentive. Some agencies have come out with guidance. NASA has a Procurement Information Circular, 06-02 which attempts to answer and guide users in the proper use of award term incentive. [5] The Air Force Guide, Award Term / Incentive Options, January 2003. [6] There are many advantages to the award-term incentives such as long-term relationships which may provide a more powerful incentive than extra profit, capital investment, process improvement, stability—both for the government and industry, motivation to invest in performance-enhancing technologies, and reduced cost or production efficiency. Additionally, the government will save money by not having to develop new contract awards which are expensive, frequently delay contract award, and can be a source
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