GAO Says Award Fees Are Too Easy To "Earn" The Defense Department routinely pays award fees to contractors without little regard for whether their performance is outstanding, the Government Accountability Office found. DOD pays the fees for “‘acceptable, average, good, expected or satisfactory’ performance when federal acquisition regulations and military service guidance state that the purpose of these fees is to motivate excellent performance,” GAO said. “These practices undermine the effectiveness of award fees as motivators of performance and compromise the integrity of the fee process.” GAO auditors estimated that most contractors were paid 90% of the available award fees, for a total of $8 billion, over a recent five-year period. In some cases, when no award fee was paid, the contractor was allowed a second opportunity to earn it. The report says DOD does not assess a contractor’s performance based on the outcome of the acquisition – whether the product or service was satisfactory and was delivered on time and on budget – but on such factors as the contractor’s responsiveness to feedback from department officials. GAO recommended that the department issue guidance to ensure that award fees are paid on the basis of outcome and are given only for performance that is better than satisfactory. DOD generally agreed with the recommendations. The report is GAO-06-66, available at www.gao.gov.