Fixed-price-award-fee: an economic motivational, and contracting theory analysis

Abstract

The award fee is a unique incentive structure that provides the government a method of subjective, after the fact evaluation of contractor performance and affords the Government additional flexibility to reward a contractor for above average performance. Additionally, the award fee is not subject to the disputes clause of a Government contract. Use of award fee serves to enhance contractor performance in areas of quality, production management, ingenuity, timeliness, and cost effectiveness. Currently, the award fee is mostly utilized under cost reimbursement contracts. In order to obtain the full benefit of the award fee, its use in fixed price contracts should be considered. An analysis from the perspective of economic theory, motivational theory, and contracting theory was conducted. In addition, perspectives from Government and private sector contracting personnel were obtained to determine the most effective utilization of an FPAF contract.