06-02

Procurement Information Circular


January 25, 2006

USE OF AWARD TERM INCENTIVE

 

PURPOSE:  To provide guidance on the transition of the Award Term Contracting Pilot Program to a more formalized process for using award term incentives. 

 

BACKGROUND:  NASA initiated an Award Term Contracting Pilot Program in the late 90’s with the intent of assessing the use of this new tool in a limited and controlled way so as to minimize risk and allow for the development of procedures and the sharing of best practices.  Acceptance into the pilot program provided approval to deviate from FAR 17.204(e) and NFS 1817.204(e)(i), which limit the period of performance of contracts to a period of five years.   Since 1999, NASA has approved the use of an award term incentive for more than 12 contracts under the pilot program in both cost reimbursement and FFP/IDIQ arrangements for a variety of engineering, technical, and base operations related services, with apparent early success in motivating enhanced contractor performance and cost control. 

 

With the lack of regulatory guidance relating to award term, the structure of the incentive and the evaluation methodologies employed have grown very diverse.  This has caused some confusion over appropriate use and necessary features for successful employment of this non-monetary incentive.  This guidance identifies basic structure and content for award term clauses and performance evaluation plans. The intent is to provide a clearer understanding of how the incentive and evaluation methodologies work, and also simplify the processing and use of award term incentives to avoid potential pitfalls.

 

GUIDANCE:  Award term is considered a non-monetary incentive that can stand alone or be used in combination with other contract incentives.  It is a disciplined process used to determine whether to continue a longer-term business relationship with a contractor.  It rewards the contractor for excellent performance with legal entitlement to a contract extension.  It is not an option as defined in FAR 2.101 in that it is not an “election” that the Government may unilaterally exercise.

 

   General Features and Requirements

   Award term should be used in situations where a longer term relationship (generally considered to be more than five years) between the Government and a contractor would provide significant benefits to both.  Since the longer period of performance under award term limits the Agency’s flexibility to change direction as its mission changes, the expected benefits to NASA must outweigh the constraints imposed.  The intent to use award term should be identified and justified early in the acquisition process; if it is known that an award term incentive is being considered for a particular acquisition, it should be declared in a Center’s Master Buy submission.   The use of award term must be discussed and supported in any acquisition plan or Acquisition Strategy Meeting.   Desire to have a longer term contract to avoid the competitive process is not appropriate rationale for using an award term incentive.  Motivating excellent performance (including cost savings), fostering contractor capital investment, and increasing the desirability of the award (potentially increasing competition) are some benefits that can be obtained by providing the opportunity for a longer term relationship, and may justify use of award term features. 

 

Since award term is not considered a distinct contract type but rather a type of performance incentive, contracts with award term features must abide by all rules for the prescribed contract type and maximum length restrictions.  Statutory and regulatory limitations and approvals apply to the maximum potential period of performance under the total contract, including the maximum potential award term periods.  For example, contracts with a potential length (including any award term periods) greater than five years require a deviation in accordance with NFS 1817.204, and when considering the statutory limits on length of task and delivery order contracts as reflected in NFS 1816.505, the potential award terms are included.  Additionally, since most contracts employing award term incentives would compel contractors to make trade-off decisions between multiple incentives or incentive factors (e.g., schedule, technical, or cost), a cost incentive or constraint must be included consistent with FAR 16.402-4. Further, to be consistent with the Competition in Contracting Act and general procurement principles, the potential award term periods in a procurement must be priced, evaluated, and considered in the initial contract selection process in order to be valid. 

 

   Deviations and Approvals

   The HQ Office of Procurement has established the following procedures for requesting a deviation from FAR 17.204(e) and NFS 1817.204(e)(i) for award term contracts that exceed the five-year period of performance (including options and potential award term periods).  Review of the deviation request by Headquarters includes a review of the Award Term Performance Evaluation Plan and Clause.

 

Deviation Request and Approval process – The Center will submit deviation requests (including a copy of the Award Term Performance Evaluation Plan and Clause), either electronically (which is preferred) or on paper, to the HQ Contract Management Division with a copy to the cognizant analyst for that Center in the HQ Program Operations Division.  The analyst in the Contract Management Division will review the plan and clause, and concur or provide comments to the Program Operations analyst for incorporation into the deviation approval.  The Program Operations analyst will coordinate the final response to the deviation request and obtain all required HQ approvals, including the signature of the Assistant Administrator for Procurement. 

 

   Required Contractual Elements and Features

   The following elements are required in any contract using an award term incentive: a price for each prospective term; a clause that describes the contractual aspects of the incentive; and an evaluation plan that describes the criteria and procedure for evaluating whether the contractor has earned the incentive.

 

   Award Term Clause:

      The Award Term Clause should contain the following information, with related details contained in the Award Term Performance Evaluation Plan:

      1. Define a “base” or “core” period of performance.

      2. Define the length and number of terms that may be earned.

      3. Define the maximum length of the contract including all terms and options.

      4. State that excellent performance is required for earning additional term and any conditions under which negative term incentive will be applied, e.g., inconsistent performance, unacceptable performance.

      5. State the frequency of evaluation and method (at a top level) that will be used to evaluate the contractor; e.g., “evaluations will be conducted semiannually in accordance with the performance evaluation plan (PEP) with two evaluations per year being averaged to determine award of term for that period”.

      6. State that the “Term Determining Official” is appointed by the Government and represents the Government in making the unilateral award decision.

      7. Describe at a top level the incentive objectives and “factors” that will be evaluated (e.g., cost excellence, technical excellence, schedule excellence) and the rating scale or method to be used.  Specifically, the NASA standard award fee scale and definitions must be used if the contract also has an award fee feature, while a simplified scale (excellent, acceptable, unacceptable) may be used if there is no award fee feature.

      8. Describe how, what, and when the Award Term Performance Evaluation Plan may be revised – usually at the Government’s discretion prior to the evaluation period.

      9. Describe how/when contractor performance evaluation input may be provided and any review/reclama process.

      10. Require a contractual modification by the contracting officer to add an earned award term to the period of performance at pre-determined prices.

      11. Include an “automatic contract end point” which ends the contract with no ability to earn additional terms if the period of performance has less than x months remaining (periods of 12 to 24 months may be used) or if the contractor’s performance for any period is “unacceptable” or “poor/unsatisfactory”.  This is sometimes called an “Automatic Re-competition Decision”.

      12. State a “shadow period” of at least one year where performance is rated but no term earned (recommended but optional).

      13. Include language allowing the Government or Contractor to “cancel” any unearned award terms without any contract adjustment (recommended but optional).

 

   Award Term Performance Evaluation Plan:

      The Award Term Performance Evaluation Plan should:

      1. Describe the observable attributes or qualities and characteristics of performance that are desired, link the level of performance to the rating scale, and set the standard of excellence (performance criteria or standards can include quantitative and/or qualitative measures).  To ensure that the incentive adds value to the contract and benefits NASA, award term criteria must not duplicate other incentives in the contract.

      2. Describe the timing, process and procedures for the evaluation process – level of detail may vary with scope, complexity, and value of procurement, but maximum timeframes for contractor input and other significant milestones should be identified.

 

   In addition, a contract that includes an award term incentive should be structured in such a way that all contract provisions continue to apply throughout the contract period of performance, including future award term periods, once the modification(s) to effect the period(s) are executed.  For example, key provisions such as “Limitation of Funds” clauses and termination clauses should remain in effect for the award term periods once they are executed.

 

   Related Guidance

   In addition to this PIC, other information on award term incentives is contained in the NASA Procurement Library and the National Contract Management Association (NCMA) Learning Center, with internet addresses listed below.  There is currently no FAR or NFS guidance specific to award term incentives. The NASA Procurement Library contains examples of award term clauses and performance evaluation plans, and a list of NASA acquisitions using award term features. Please forward any sample award term clauses, plans and information to the Headquarters contact identified below. The NCMA information and information found at other web sites by search or as referenced in the Procurement Library may not be internally consistent nor agree completely with current NASA use and policy direction, but may provide additional useful background and historical information.  (See NASA Procurement Library:  http://ec.msfc.nasa.gov/hq/library/awardterm/; NCMA: http://www.ncmahq.org/.)

 

EFFECTIVE DATE:  This PIC is effective as dated and shall remain in effect until cancelled or superseded. 

 

HEADQUARTERS CONTACT:  Carl C. Weber, Office of Procurement, Contract Management Division, (202)358-1784, email: carl.c.weber@nasa.gov.

 

 

Lou Becker

Acting Director, Contract Management Division

 

DISTRIBUTION:

  PIC List