“Satisfactory” Work Good Enough Agencies may continue to pay incentive fees to contractors whose performance is no better than “satisfactory,” according to a memo from the Office of Federal Procurement Policy. The Government Accountability Office has recommended that incentive or award fees be paid only for “above satisfactory performance.” In a 2005 report, GAO said, “[T]he purpose of these fees is to motivate excellent performance.” (SAA, 4/7/06) But OFPP Administrator Paul Denett said contractors can earn the fees as long as their performance is not “below satisfactory.” He said companies whose performance is better than satisfactory should receive a higher portion of the available fee. The Defense Department adopted a similar policy earlier this year. In its review of Defense Department contracts, GAO found that most contractors were paid 90% of the available award fees over a five-year period. In a Dec. 4 memo to chief acquisition officers, Denett said incentive fees should be “linked to acquisition outcomes such as cost, schedule and performance results.” That was another GAO recommendation. He also urged agencies to limit the use of “rollovers,” which give the contractor a second chance to earn a fee. OFPP issued a checklist for handling incentive fee contracts. It states that the contract must clearly define the standards of performance for each rating category (such as satisfactory or excellent) and specify the percentage of the fee the contractor will earn for each rating. Denett’s memo is available at www.caoc.gov/documents/Incentive_Contracts.pdf. More Performance-Based Contracts OFPP announced it is increasing the goal for performance-based acquisition to 50%, from 45% in fiscal 2007. In a memo, Denett said it appears agencies exceeded the goal. The memo is at www.caoc.gov/documents/2008_Performance-Based_Acq.pdf