NASA Procurement: Use of Award Fees for Achieving Program Outcomes Should Be Improved

In its agency comments, NASA stated that it will reemphasize its guidance, address it in training, and cover this area in ongoing internal reviews of Center procurement operations. Two letters, both dated April 6, 2007, were issued to all of NASA's Centers to re-emphasize the Agency's guidance to ensure that award-fee contracts are used appropriately. The first letter was signed by the NASA Administrator. The second letter was signed by the Assistant Administrator for Procurement and was addressed to all Procurement Officers. Also following the publication of GAO-07-58, NASA added the topic of award fees to its Procurement Management Survey and conducted its first survey including the new topic at Glenn Research Center. Questions were included to assess compliance with NASA policy and guidance related to the selection of award fee as a contract type and administration of award fee contracts. In addition to a file review, the survey team conducted interviews with procurement officials and managers to assess business processes that may not be adequately documented in the contract file. The findings of the survey team are presented to the Center Director, Procurement Officer and others as appropriate and the final report will be published and made available to the NASA Procurement Community on the NASA Acquisition Internet Service (NAIS.) The report includes findings, considerations and weaknesses. The next Procurement Management Survey will take place at Goddard Space Flight Center in July 2007.

In its agency comments, NASA stated that although the FAR does not require written documentation of the cost benefit analysis, NASA would amend its FAR Supplement to do so. NASA stated that it will reemphasize this existing requirement, address it in training, and cover this area in its ongoing internal reviews of Center procurement operations. Following the publication of GAO-07-58, NASA issued Procurement Notice 04-27, dated June 29, 2007, revising the NASA FAR Supplement to require a documented cost/benefit analysis to support the use of award fee contracts. The revisions also reemphasized the importance of tying award fee criteria to desired outcomes and limiting the number of criteria. A letter issued by NASA on April 6, 2007, also stated that all approvals to use an award fee contract would require a credible cost benefit analysis. Further, NASA added the topic of award fees to its Procurement Management Survey and conducted its first survey including the new topic at Glenn Research Center. Questions were included to assess compliance with NASA policy and guidance related to the selection of award fee as a contract type and administration of award fee contracts. Specifically, the survey included questions to determine if contract files contained sufficient documentation to support the decision to use an award fee contract, including an analysis of whether the additional administrative effort and cost required to monitor and evaluate performance were justified by the expected benefits, and whether other contract types were considered.

In its agency comments, NASA stated that it would explore the best way to develop and use metrics for evaluating the effectiveness of award fees, as well as set up a system for collecting data on the use of award-fee contracts. The agency stated that this system will allow NASA to measure whether the fees awarded are commensurate with the contract goals achieved. Two letters issued by NASA on April 6, 2007, both state that metrics will be developed to measure the effectiveness of award fee contracts. NASA is in the process of determining what data it should collect to develop meaningful metrics. This is expected to be a long term project. Since the report was issued, NASA has instituted the Baseline Performance Review (BPR) to monitor program and project performance, and to identify the root cause factors for performance issues. Major NASA program and projects and their associated contracts are reviewed quarterly. The data tracked include key milestones toward contract release, cost growth on existing contracts, award fees over time, and pending modifications. The BPR facilitates the generation of information for trending, integration of mission support with mission performance measures to understand their impact on mission success, evaluation of performance against project baselines, and discussions with the appropriate stakeholders to determine root causes of performance issues. The BPR links project performance to contract performance, and allows integration of award fee evaluation results with performance results. This enables NASA to regularly assess contractor performance as well as contract management performance.