New Rules Planned on Award Fees The Obama administration will soon tighten rules governing the payment of award fees. Jeffrey Zients, deputy director of the Office of Management and Budget, said the goal is to stop “allowing contractors to receive fees for unsatisfactory performance or routinely tying fees to effort rather than achievement of cost, schedule and performance goals.” He said an amendment to the Federal Acquisition Regulation will be proposed within the next 60 days. Zients testified Aug. 3 before the Senate Homeland Security and Government Reform Committee’s subcommittee on financial management. The Government Accountability Office reported in June that some agencies continue to pay award fees for performance that is graded unsatisfactory and to routinely allow contractors a second or third chance to earn a fee, a practice known as “rollover.” GAO has urged that the fees be paid only for better-than-satisfactory performance. (SAA, 7/10) Zients outlined four elements of the new rule: •Improve acquisition planning to determine whether an award-fee contract is appropriate; he said such contracts should be used sparingly. •Create standards to bring consistency to performance grades and to determine what percentage of a fee should be paid for each level of performance. •Prohibit award fees for unsatisfactory performance. •Provide clear guidance on rollovers. He said the administration is considering a ban on rollovers. The Defense Department has banned the practice, with certain exceptions. GAO estimated that would save the department$450 million through 2010. Subcommittee Chairman Tom Carper, D-DE, complained that agencies have done nothing to determine whether award fees achieve their purpose of improving contractor performance. “I don’t see the logic of using award fees to incentivize contractors when we don’t know whether or not it works,” he said. Zients said the administration will require agencies to improve monitoring and data collection to track how the fees are being used.