I use an award fee that covers many different areas of performance, we assess performance every 6 months and issue an award fee. My experience has been that in some areas of the assessment must be re-evaluated and the determination official needs more information. Rather than waiting for a complete determination on all elements, I will issue the award fee payment for elements not in question, much a like a provisional payment.

In your case, is the entire award fee based on the successful launch? If the failure were due to contractor negligence I would say you have a bigger problem than the award fee.

I would not call it an advanced payment, because the payment should have been based on contractor performance to that point in the contract, to me that means services rendered.

Maybe I am missing something.

By Anonymous on Friday, August 18, 2000 - 11:55 am:

Mr. Edwards,

You state that: "The payment is "interim" because the Government has not made a final assessment of the contractor's performance. The payment is subject to adjustment based on the Government's final assessment of the contractor's performance."

Let me put forth a scenario. You're the SPD of a launch vehicle SPO. You have one award fee contract that contains a provision for annual award fee determination. Part of the award fee plan calls for interim payments with adjustment based on the Government's final assesment. Everything is peachy the first six months so the contractor receives a hefty interim payment. Two months later the SPO suffer a catastrophic launch failure and the Govt loses a billion dollar satellite. Four months later as the SPD you determine the contractor will receive 0 for award fee. The interim payment you made six months earlier was it not in fact an advanced payment in this scenario???? Anyone else have any thoughts on the matter. Thanks.

By Ramon Jackson on Friday, August 18, 2000 - 11:15 am:

If the partial award fee "reflects the Government's interim assessment of the contractor's performance" then it appears to be a mini period with "assessment" -- not something "billed" by right. I'd have much less unease if there is a formalized process for that assessment in which there is real evaluation of performance having direct tie to the partial payment's size.

Personally I feel it is questionable as a sound approach to the job award fee is intended to do regardless of it being within the allowable possibilities. I'll also venture to guess there are no solid performance metrics being collected on award fee contracts with and without this feature so I could be convinced my gut reluctance is unsound. That is a real shame.

There is a system under which my reservations would vanish. I've often said, each formal meeting with the contractor under AF should involve a mini AF review as it is beneficial to the government to force itself to address performance. Ideally, in my opinion, the more frequent "informal" evaluation should be as thorough at the working level as the less frequent "formal" evaluations. The only thing missing is the corporate and government management above the program level that gets involved in the formal reviews. If someone wanted to suggest elevating the informals to formal levels, perhaps with fewer "executive" strap hangers, then I'd have no problem at all. I could be downright enthusiastic about tying fee periods for non management criteria to functional milestones. In essence, if you are going to award profit, do the work. But then we already have so much complaining of how much trouble these things are so I guess that stands a snowball's chance.

By Vern Edwards on Thursday, August 17, 2000 - 07:54 pm:

An interim award fee payment is not an advance payment. An advance payment is a payment made before any work is done in order to finance the contractor's effort.

An interim award fee payment is based on work that the contractor has done, but not finished. It reflects the Government's interim assessment of the contractor's performance in accordance with the award fee plan. The payment is "interim" because the Government has not made a final assessment of the contractor's performance. The payment is subject to adjustment based on the Government's final assessment of the contractor's performance.

It is important to keep in mind that FAR does not prescribe any rules for how award fees are to be determined or paid. This is usually a matter of negotiation between the contracting parties. Some agencies, especially NASA and USAF, have prescribed rules for the payment of award fees in their FAR supplements. The NASA guide to award fee contracts and the Air Force Materiel Command guide provide useful information in this regard.

By Ramon Jackson on Thursday, August 17, 2000 - 04:33 pm:

I'm sure there are various reasonable sounding schemes on paper, but still have a gut feeling it is ill advised from the customer perspective. Award fee, unlike other fee schemes, is not quite an earned right as measured by empirical factors such as passage of time, widgets made, etc., it is subjective. One hopes it is based on facts and things other than opinion and feelings, but I don't believe that is a hard requirement.

My "gut" reaction here is probably based on some judgment that this could become an unusually contentious issue in a case where there must be a hit on fee. I've noticed some pretty hard feelings over a justified hit of relatively small percentage in the normal course of things. My somewhat educated guess here is that a significant hit that became a refund of partial payments would be a ferocious bone of contention that could poison the contract.

I also wonder how easily recovery would be in fact. Of course one could withhold unrefunded money from future fee, but that is likely to just make the issue fester and degenerate into hostility. Recovery efforts could just be gas on a fire.

One criticism of AF is that the government tends to negate its usefulness by being too generous or too lazy to really use the tool. If everyone gets 100% or even 80% in all periods something is probably amiss. This is not Lake Woebegone where all the children are above average. To be useful it has to be used. That means 100% for real excellence overcoming difficulties, not just cruising. It also means a sharp, harsh lesson and probable lost jobs as a result of awards of less than 60% and even an occasional zero. Somehow I have the feeling that come award fee review time the fact that 60% of the available pool is already turned over will be an added discouragement to effectively wield the stick that may be needed with a "give it back" message.

There may be cash flow issues, but the government expects responsible contractors (and those on AF had better be among the best) to be good planners. If they can't plan well enough to work around profit intervals tied to something like six month intervals or milestone events something is lacking. Contractors bill for costs, progress payments and such. Your earlier comment of "billing" fee under an award fee contract type seems to miss the point. It is, as the name states, an award, not a something that is billed. Turning it into something that is "billed" under the assumption it will be earned certainly seems to be mixing messages.

Whatever the legal fine print may be on technical "advance payments," in reality this is a case of an advance payment no matter how wrapped. The fee is earned when the award fee determining official reviews the input, determines the message to be sent and signs off on the fee to be awarded. Payments before this event appear to me to be payments in advance of the crucial event.

By Anonymous on Thursday, August 17, 2000 - 12:53 pm:

I have seen Award Fee provisions which allow for monthly billings of fee not to exceed some reasonable percentage of the available pool - say 60%. They include, however, stipulations calling for reimbursement of the award fee in the event the total amount billed exceeds the amount earned in the period.

By Ramon Jackson on Wednesday, August 16, 2000 - 12:48 pm:

The technical advance payment question aside I'm curious about another aspect. Award fees are tied to performance over a specific period or, possibly better, to specific milestones. This scheme seems to indicate payment before the evaluation marker has been reached -- before the award is actually earned -- and thus defying the logic behind an award fee.

I understand the contractor's interest in cash flow, but to allow that to drive a premature "award" seems to be like that cartoon about those who miss the whole point of something. I can see it now down in Australia. Olympic diving. The diver wants five points before diving with the other five when it is done perfectly. Oops. The dive becomes a real mess, arms and legs everywhere and a monster splash, but the diver got five.

This seems an accommodation to the contractor's financial needs that does not compute. Even if they pass monthly, informal evaluations and get partial payments based on that success the last month can change everything. It is one reason sensible award fee plans always have a significant "kicker" for the last period. You don't want someone getting enough of the pie to decide they can walk away from the last bit.

Do you know of any of the AF plans on line? I'd like to read them. Maybe they have done something to avoid the traps, but I'm having a hard time imagining one without an almost immediate "yeah, but" popping up.

By Anonymous on Wednesday, August 16, 2000 - 11:42 am:

Contractors have long sought for interim award fee payments for cash flow purposes. Recently, the A.F. has established a few test case programs to try out interim award fee payments. Among, the troops there has been much discussions as to whether or not this constitutes an advanced payment. Any thoughts????

Thanks.