New Rule Addresses Award-Fee Contracts and Ends Roll Over of Fees

Responding to criticisms over the last few years asserting contractors were receiving substantially all their available award fee pools when they had major cost overruns or delivery delays the FAR Council has issued an interim rule addressing the use and management of award and incentive fee contract types. The rule implements the 2009 DOD authorization act and OFPP guidance. It also prohibits the practice of the “roll over concept” whereby any unearned award fee available to the contractor during one performance contract period can be carried over to another evaluation period.

The rule changes FAR Part 16 to provide agencies additional guidance where, for example, the head of a contracting activity must justify use of an incentive or award fee type contract. It requires that award fees be linked to acquisition objectives in the areas of cost, schedule and technical performance and that award fee not be earned if overall performance is judged to be below satisfactory. All award fee contracts must have an award-fee plan that establishes the procedures and an award-fee board for evaluating award-fee determinations. The rule also includes a table providing award-fee adjectival ratings where, for example, excellent earns 91-100 per cent of fee, very good earns 90-76 percent, etc. (Fed. Reg. 52856)

{TAG_FORM_TITLE}