Effect of Information and Decision-making on DoD Performance Incentives and Award Fees
MetadataShow full item record
This analysis discuses DoD policy for the use of Performance Incentives and Award-fee Contracts during System Development and Demonstration (SDD). Both a review of the use of Performance Incentive Contracts since the 1960s, as well as the current policy required by the DoD to develop performance incentives are provided. A performance incentive should be structured such that the contractor receives a profit for improved performance equal to the value to the government of the improved performance times the cost-sharing ratio. This formula will motivate a contractor to spend no more than the government''s value to enhance performance. If exactly that amount is spent, the loss in profit resulting from increased cost will just equal the profit received from enhanced performance. This project also shows how a similar logic can be extended to Award-fee Contracts. The analysis examines alternative decision-making and informational structures to determine the effect on contract outcome when the performance incentives are structured in accordance with policy. In certain situations, more complex incentive structures may be required. However, the informational requirements to properly develop these more complex Incentive Contracts may be substantial.
Proceedings Paper (for Acquisition Research Program)
RightsThis publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.
NPS Report NumberNPS-AM-09-028
Showing items related by title, author, creator and subject.
Performance Based Logistics (PBL) for the FA-18/S-3/P-3/C-2 auxiliary power unit (APU) at Honeywell: an applied analysis Landreth, Clifford J.; Corporon, Laura L.; Wilhelm, Richard H. (Monterey, California. Naval Postgraduate School, 2005-12);The purpose of this MBA project is to evaluate and assess the metrics, incentives and other terms and conditions of the Performance Based Logistics (PBL) contract between Naval Aviation Inventory Control Point (NAVICP) and ...
Gupta, Jatinder (Jeet) N.D.; Eagan, Michael C.; Jones, Joshua N.; Piatt, James C. (Monterey, California. Naval Postgraduate School, 2010-04-30); NPS-AM-10-034In implementing performance-based logistics (PBL), the need for several resources like inventory investment decreases. Therefore, the contractor''s profit, which was based on the level of these resources, may decrease. ...
Davis, James Patrick (Monterey, California. Naval Postgraduate School, 1995-12);The Federal Acquisition Regulation requires Government agencies to use a structured approach to determine prenegotiation profit objectives for those contracts requiring cost analysis. The structured approach utilized by ...