Defense ARJ - Defense Acquisition University

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Defense Acquisition Review Journal contractor’s performance. The contractor’s performance is measured by four metrics: Engine Availability, Durability, Cost, and Small Business Participation. In each program year, the amount of the fee pool and the weights assigned to the four incentive metrics are determined based on the events of the particular program year. These metrics are considered to be of key importance in achieving the overall performance goal, which is to improve the mean time between depot return (MTBDR) from the current 700 hours to 1,400 hours at a reasonable cost by the end of PY 3. In each program year, the contractor will be challenged to exceed the government threshold. If contractor performance is considered satisfactory, the contractor will not receive any incentive fee. In other words, incentive fee is only paid for exceeding the threshold/satisfactory performance level. This incentive approach is tied directly to the metrics creating a strong link to favorable outcomes. Additionally, incentive funds not earned for a period may remain in the incentive fee pool as rollover. The program office is judiciously using the rollover incentive funds and realizes that the contractor still has to earn all incentive fee payouts. As can be seen, this incentive strategy is a highly leveraged construct that requires the achievement of many goals designed to enable the contractor to reach the overall performance goal of 1,400 hours MTBDR within specific cost objectives. Using a fixed- price contract with incentives that also allows rollover is certainly a challenging strategy for the contractor to meet, but it may be necessary to achieve success. Whether the contractor will meet cost, schedule, and performance incentive parameters is too early to tell, but the Army’s communicative and innovative approach makes success much more likely. aeronautical systeMs center (asc), f-15 aircraft suite 6 softWare uPGraDe for a-e MoDels The F-15 Aero Systems Group uses a unique CPAF contract to perform this effort. While a typical CPAF contract uses only subjective criteria, the F-15 Aero Systems Group used both objective and subjective criteria as they deemed appropriate. They used government-contractor integrated process team (IPT) sessions to establish the criteria used in the award fee periods, which has been very successful. Each award fee period is tied to key deliverables and has preplanned adjustments. In the first award fee period, cost and schedule were weighted more heavily than the other criteria. Cost and schedule were each weighted at 30 percent, and program management and subcontract management were each weighted at 20 percent. The subjective evaluation 144 Using a fixed-price contract with incentives that also allows rollover...may be necessary to achieve success.
HoW to Make incentiVe systeM of anD systeMs aWarD DeVeloPMent fees Work criteria are program management and subcontract management. The program office created a strong link to favorable outcomes and reduced program risk by developing the award fee objectives and linking the award fee periods to key deliverables. It is interesting to note that the contractor initially preferred an award fee with only subjective criteria, and expressed concern at the use of objective criteria. However, when the program office structured a base fee of 3 percent, the contractor accepted the government’s plan. This demonstrates how the base fee can be leveraged, thereby requiring excellent performance to receive the “award portion” of award fee. This CPAF contract is still in the early stages of performance; however, the use of the IPT in developing the award fee objectives, linking the award fee periods to key deliverables, and leveraging the base fee by only awarding the award portion of award fee for excellent performance, should provide a solid foundation for successful contract performance. Each of the four example programs cited here was quite different, but they used specific incentive strategies that related very well to their desired contractual outcomes. incentiVe PHilosoPHy recoMMenDations anD take-aWays Every government buying activity/command should have a clearly defined incentive philosophy that is consistent with the FAR, DFARS, and Service/Agency policy. This incentive philosophy should be clearly communicated to all personnel and potential contractor sources. traininG Each of the four example programs cited here was quite different, but they used specific incentive strategies that related very well to their desired contractual outcomes. The amount of training depends on the team’s experience. Experienced teams may only need refresher type training (e.g., Phase 3 below). Inexperienced teams should consider a three-phased approach to training. The first phase is a comprehensive core block of instruction on incentive contracting for Defense Acquisition Workforce Improvement Act (DAWIA) Level II business and technical personnel. This provides a basic body of business and acquisition knowledge for the individual acquisition members. The second phase is just-in-time training using a continuous learning module on incentives. The third phase is lessons learned on a community of 145
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