Award Fees: “Satisfactory” Is Good Enough Some agencies have saved hundreds of millions of dollars through tighter controls on award fees, but the controls are inconsistently applied, the Government Accountability Office reported. GAO found that most contractors’ performance is graded satisfactory or better, enabling them to win more than 80% of the available fees. But the auditors questioned whether the grading is based on results rather than subjective evaluations. One Air Force contracting official told the auditors that a contractor “has to do a pretty bad job to receive a rating of ‘good.’” “The Pentagon and other federal agencies seem to live in a world where every contractor is above average,” Sen. Bernie Sanders, I-VT, commented on the report. The Office of Federal Procurement Policy issued new guidance on payment of award fees in December 2007, urging that the fees be earned on the basis of acquisition outcomes such as cost, schedule and performance. GAO found the Defense Department has embraced the new guidance, but many contracting officials in the departments of Homeland Security, Energy and HHS were unaware of it. Acquisition regulations specify that award fees should be used as incentives to motivate excellent performance. But GAO said agencies continue to pay the fees even when they recognize “that the contractor had room to improve.” GAO examined contracts at Defense, Energy, DHS, HHS and NASA. While DOD pays no more than 50% of the award fee for “satisfactory” performance, the other agencies paid 70% to 84%. GAO said “satisfactory” means “the minimum level acceptable to the government.” It has recommended that no fee be paid for performance that is merely satisfactory, but the Office of Federal Procurement Policy disagreed. Auditors found that some agencies continue to pay award fees even for unsatisfactory performance. The new guidance urged agencies to eliminate “rollovers,” the practice of giving a contractor a second chance to win an award fee if it falls short the first time around. DOD has adopted that practice, although with some exceptions, and GAO estimated the department will save $450 million through 2010 as a result. But the auditors found that other agencies continue to allow rollovers. NASA now requires a cost-benefit analysis before a contract can include an award fee, but other agencies’ guidelines are not so stringent.