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Award Fee Criteria for Corporate Management

By Ramon Jackson on Friday, June 30, 2000 - 10:50 am:


The usual sound advice with one qualification. One of the oft stated reasons to let an award fee contract is to engage corporate management's attention. If the nature of the contract is insignificant in dollar amount or some other feature to the corporations likely to offer there is no sense in going to the extra effort in the first place. That is something that should be in the early analysis of contract type well before the solicitation hits the CBD.

If an agency has a relatively small dollar effort with no significant impacts on future agency business, technology or business experience gains, or other "bait" it is (tools again) using a nail gun to drive a single nail with way too much preparation and effort for the job at hand.

Seperately, but I think equally important, the agency must actually use the award fee. If the contract is worth the effort in setting up an award fee contract the work must be done to make it realistic post award. A record of "standard" fees across a wide range of contracts indicates rote use of the method. I'd almost go so far to say that it would be unlikely to have exactly the same award profile as there usually is variance in actual performance. I suspect an agency has picked a method they are unwilling to invest the effort to effectively use where all awards fall in a narrow range.


By Vern Edwards on Thursday, June 29, 2000 - 11:05 am:


I've been thinking about your request for award fee language that will motivate contractor corporate management to improve the support it gives to the division working on your contract. Here is a question and some thoughts:

Question: How big is your contract/program in terms of the total sales of the corporation in question?

Thoughts: Unless your contract represents a very significant share of the contractor's present or prospective sales, and unless the increment of additional profit that the the corporate management would earn by changing their behavior to suit you would be very large, then your incentive is not likely to change their behavior. Moreover, it is usually difficult for corporate management to make short term structural changes in order to reduce indirect cost rates on specific contracts.

If the contractor folks working on your contract are encouraging you to do this, I suggest that (a) they are trying to get you off their back by pointing the finger (perhaps justifiably) at their headquarters, or (b) they sincerely believe that changing the award fee plan would change their management's behavior, in which case I refer you back to the preceding paragraph.

By the way, if you ask the contractor's management if what I say is true, they will say no. They will figure that if you don't already understand know that, then they are not going to be the ones to burst your bubble. They won't want you going around saying that they said something like that; it might make them sound unresponsive, God forbid.

In my opinion, if you allocate any part of your precious award fee pool to objectives which the people working directly on your program cannot achieve on their own, then you will be casting your seeds on stony ground.

If your program represents significant potential sales, of if NAVSEA is otherwise a very large customer of that contractor, then a letter from a flag-rank program manager or the NAVSEA Commander to a high-level corporate executive is likely to have a much bigger impact on management behavior than an increment of award fee.


By Ramon Jackson on Friday, June 23, 2000 - 12:26 pm:


Please don't cut and paste. Define your issues and then specify the goals and behavior you want to see. It wouldn't hurt to also identify some examples of the types of things you will definitely hit them on, but be clear that those are just examples and not the limits of "hits."

From your post an example could be something along the lines of "Evaluation will be made on the degree to which corporate management at all levels supports the accomplishment of the project. Specific evaluation will be made of corporate management's support of project cost control, timely resource allocation and availability to government program and contract management for issue resolution. These are not the exclusive areas that will be examined as total corporate commitment and support to project support is expected."

Since a theoretical purpose of an award fee is to get top management attention it seems a bit odd to me that this wasn't always explicit. One of the purposes is to get those senior faces into the brief where they can hear they "did good" or paid a price. It is also the place where you can look them in the eye and say that, since they have just taken a small hit for being asleep and not helping with resources, you are making an adjustment that will make the price of further dozing painful enough to awaken anyone.

I hope you have also preserved the ability to adjust award fee criteria to address specific issues. The most senseless application is the scheme under which pre-contract criteria are or can never be tempered for a future period based on track record. It makes the whole exercise about as sane as someone buying a specified shoe for their kid for life. It won't fit and will cause all sorts of problems. I've seen some people who want to make one set of criteria for all contracts for all periods -- gets to my old saw about hammering screws. While management criteria probably should look quite similar across the board they sure shouldn't look the same in all cases.

If this is a problem now, move it up in importance for next period, if that brings refreshing change keep it, but consider adjustment in importance for the one after.


By Rick Gunderson on Friday, June 23, 2000 - 09:58 am:

I am looking for award fee criteria language which can be used to evaluate how the corporate management supports the divisions/segments of a company. We have had some difficult times on a major weapon system development contract due to corporate decisions which have resulted in both cost (rates) and schedule (resources) problems at the division level. We would like to be able to let the corporate leaders know that we are evaluating them as well as our "direct" partner.