DOD Says "Performance Matters" in Award Fees The Defense Department is developing policies to tighten controls over award fees to contractors, said Kenneth Krieg, undersecretary of Defense for acquisitions, technology and logistics. He said the message to industry is, “Performance matters.” Award fees will be closely linked to results, as recommended by the Government Accountability Office. “As much as possible, put the awards — center the awards and the incentives on the outcomes you’re seeking — tangible, real outcomes,” he said at a Pentagon briefing March 14. “You know, whether that’s cost, whether that’s schedule, whether that’s performance, it’ll be a different combination based upon what the program is and what the needs are.” In a 2005 report GAO estimated that contractors were paid 90% of the available award fees, totaling $8 billion, over a recent five-year period. The auditors urged DOD to stop paying award fees for merely satisfactory performance, but the department rejected that recommendation. (SAA,4/7/2006) In guidance issued last year, DOD said it would reward higher-performing contractors by giving them a larger percentage of the award fee than lower performers. Krieg said the department has adopted GAO’s recommendation to require award fees to be reviewed by higher-level officials. In its report, GAO said DOD has not been basing award fees on results but on such factors as the contractor’s responsiveness to feedback from department officials. It said regulations “state that the purpose of these fees is to motivate excellent performance.”