SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

400 Army Navy Drive • Arlington, Virginia 22202

July 26, 2005 

MEMORANDUM FOR DIRECTOR, PROJECT AND CONTRACTING OFFICE - IRAQ 

COMMANDING GENERAL, JOINT CONTRACTING COMMAND 

– IRAQ/AFGHANISTAN 

SUBJECT: Interim Briefing to the Project and Contracting Office - Iraq and the Joint 

Contracting Command – Iraq on the Audit of the Award Fee Process 

(Report No. SIGIR-05-010) 

The purpose of the award fee is to reward contractors for excellence in performance, as measured 

by the criteria provided and established in the contract. The importance of good criteria, 

including defined metrics, assists both the contractor and government evaluators in their 

assessment as to the level of performance of the contractor. Further, having a solid methodology 

that encourages contractors to strive for excellence in performance is the key to achieving the 

intent of an award fee for contractors. 

This memorandum transmits to you the slides, “Interim Briefing to the Project and Contracting 

Office - Iraq and the Joint Contracting Command – Iraq, Audit of the Award Fee Process, July 

19, 2005,” used to brief Project and Contracting Office – Iraq and Joint Contracting Command – 

Iraq officials on issues related to the award fee process. As one of the Special Inspector 

General’s goals is to provide timely information so that prompt action can be taken when 

necessary on improvements to program management, this interim briefing is being provided to 

you so that you may initiate timely action on opportunities for improvements to: 

• award fee plans 

• metrics used to measure the contractors’ performance 

• methodologies used to award contractors for excellence in performance 

• overall recordkeeping required in this process 

This interim briefing made five recommendations. As agreed at the briefing, Project and 

Contracting Office – Iraq and Joint Contracting Command – Iraq management officials provided 

oral comments. In summary, officials of both organizations agreed with our recommendations to 

improve the documentation for the award fee process. Those officials stated that they were 

already taking additional actions to improve the documentation of the award fee process and 

associated files. They also provided us with a draft of a new policy and procedure document for 

the award fee process. 

However, both Project and Contracting Office - Iraq and Joint Contracting Command - Iraq 

officials stated that they were going to assess the impact of our recommendation for changing the 

award fee methodology on the basis of how contractors are currently awarded fees. They 

requested an opportunity to brief us on the results of their assessments of the impact prior to the 

completion of the subject audit. We agreed. 
As noted in our briefing to Project and Contracting Office – Iraq and Joint Contracting 

Command – Iraq officials, we are continuing our assessment of other U.S. government 

organizations that have award fees included in contracts funded by the Iraq Relief and 

Reconstruction Fund. We will report on those results and actions taken by those organizations in 

a future audit report. 

We performed the audit in accordance with our statutory duties contained in Public Law 108-

106, as amended, which mandates the independent and objective conduct of audits relating to the 

programs and operations funded with amounts appropriated or otherwise made available to the 

Iraq Relief and Reconstruction Fund. Public Law 108-106, as amended, requires that we provide 

for the independent and objective leadership and coordination of and recommendations on 

policies designed to promote economy, efficiency, and effectiveness in the administration of 

such programs and operations and to prevent and detect waste, fraud, and abuse. Our review of 

these issues was performed in accordance with generally accepted government auditing 

standards. 

We are sending copies of this memorandum to the Secretary of State, the Secretary of Defense, 

selected Congressional Committees, and other interested parties. This memorandum will also be 

available on the Office of the Special Inspector General for Iraq Reconstruction website at 

http://www.sigir.mil. 

We appreciate the courtesies extended to the staff. For additional information on this interim 

briefing report, please contact Mr. James P. Mitchell at jim.mitchell@sigir.mil or at (703) 

428-1100. 

Stuart W. Bowen, Jr. 

Inspector General 
SPECIAL INSPECTOR GENERAL FOR IRAQ RECONST

Interim Briefing Interim Briefing

to the

Project and Contracting Office Project and Contracting Office 

- Ira

and the and the

Joint Contracting Command Joint Contracting Command 

- Ira

Audit of the Award Fee Process Audit of the Award Fee Process

July 19, 2005 July 19, 2005
Background

• May 2003 - the Secretary of the Army was designated as the E

for support of the Office of Reconstruction and Humanitarian 

• June 2003 - the Army’s support role was expanded to include 

Provisional Authority. 

• November 2003 - the Congress appropriated $18.6 billion for t

and Reconstruction Fund of which $18.4 billion was designate

• January 2004 - the Army’s role was clarified to include acquis

program management support to the Coalition Provisional Ausuccessor entity. 

• June 2004 - the President continued the Department of Defens

by creating the Project and Contracting Office. 

• The Project and Contracting Office - Iraq (PCO-I) is responsib

activities associated with program, project, asset, constructiomanagement of that portion of the reconstruction effort underU.S. 

• The Joint Contracting Command - Iraq (JCC-I) provides opera

contracting support to the Chief of Mission, the Multi-Nationaand the PCO-I. 
Definitions

• Cost-Plus-Award-Fee contract. The Cost-Plus-Award-Fee 

is a cost-reimbursement type contract with an estimated camount and special fee provisions. The fee established in Plus-Award-Fee contract consists of:

– a fixed amount (the base fee) which does not vary with 

performance. The base fee is a fixed amount paid to tcontractor and is designed to compensate the contracfactors such as risk assumption, investment, and the nthe work 

– an award fee pool
Definitions (cont’d)

– The award fee pool represents an additional dollar am

available to the contractor to earn for performance thademonstrates quality efforts on a single contract towaraccomplishing the tasks and functions cited in the con

– The award fee pool is awarded for excellence in perfo

measured by the criteria defined and established in th

– The award fee period is based on contract terms, mos

semi-annual, commencing upon contract award. 
Definitions (cont’d)

• Award Fee Evaluation Board (AFEB) – Evaluates the con

overall performance and recommends the amount of the ato the Award Fee Determination Official. 

• Award Fee Determination Official (AFDO) – A senior offic

appointed by the Principal Assistant Responsible for Contreview the AFEB assessment and determine the amount award fee to be paid to the contractor.

• Performance Monitor – An individual with daily or frequen

cognizance of the contractor’s performance.
Additional Acronyms

• ACA – Army Contracting Agency• AFARS – Army Federal Acquisition Regulation Suppleme• D-001 – Contract W914NS-04-D-0001• D-002 – Contract W914NS-04-D-0002• DFARS – Department of Defense Federal Acquisition Reg

Supplement

• FAR – Federal Acquisition Regulation
Scope

• In June 2005, we reviewed 18 Cost-Plus-Award-Fee cont

awarded from January 2004 to March 2004, by 6 different 

organizations.

• The 18 contracts reviewed consisted of 11 design-build co

valued at almost $6.75B, and 7 program management an(PMAS) contracts valued at more than $200M.

• We reviewed the contract files at JCC-I.• We reviewed the AFDO award fee assessment files .
Methodology

• Reviewed the FAR, the DFARS, and the AFARS for guida

concerning award fees. 

• Conducted limited research of guidance from other audit a

auditing award fees and reviewed the Army Audit Agency

“Program Management in Support of Iraq ReconstructionMay 26, 2005.

• Reviewed procedural guides from the ACA.• Discussed contract and task order procedures with key pe

the PCO-I and the JCC-I. 

• Reviewed the “hardcopy” contract files maintained at the 

• Reviewed the JCC-I electronic contract files; including em

WORD documents, EXCEL spreadsheets, and PDF files contained in hardcopy format.

• Reviewed the AFDO documentation from the AFEB evalu

conducted from the 1st and 2nd Award Fee periods.
Criteria

• FAR 16.405-2, Cost-plus-award-fee contracts• DFARS 216.405-2, Cost-plus-award-fee contracts• AFARS 5116.405-2, Cost-plus-award-fee contracts• ACA Acquisition Instructions• ACA Award Fee Contracts• ACA Award Fee Member Guide• ACA Contract Incentive Guide
Objective

• Our over-arching objective is to determine whether award 

adequately reviewed, properly approved, and awarded acestablished standards. 
Our Specific Objectives W

to Ascertain if:

• An AFEB and pertinent policies and adequate procedures 

been established and consistently applied to the evaluatiofees. 

• Award fee plans clearly identify the specific award fee eva

criteria for assessing contractor performance and determinamount of the award fee. 

– The performance indicators were properly established– The performance requirements were properly defined.
Our Specific Objectives W

to Ascertain if: (cont’d

• AFEB recommendations are supported by appropriate ev

of contractor performance.

• The award fee determination is documented in sufficient d

show that the integrity of the award fee determination probeen maintained. 
Results of Review

Was an AFEB established?

Yes

Were pertinent policies and adequate procedures establ

Yes

Were the policies and procedures consistently applie

No 
Summary of Inconsistent App

of Policies and Procedur

• Documentation could not be located for the appointment o

AFEB Chairperson, other AFEB board members, and perfmonitors in all the contracts.

– AFEB Chairperson

• 1st Award Fee Period – 9 out of 18 contracts reviewed did not d

appointment

• 2nd Award Fee Period – 7 out of 18 contracts reviewed did not d

appointment

– AFEB Members

• 1st Award Fee Period – 14 out of 18 contracts reviewed did not 

any appointments

• 2nd Award Fee Period – 12 out of 18 contracts reviewed did not 

any appointments

– Performance Monitors

• 1st Award Fee Period – 13 out of 18 contracts reviewed did not 

any appointments

• 2nd Award Fee Period – 12 out of 18 contracts reviewed did not 

any appointments
Summary of Inconsistent App

of Policies and Procedures (

• Limited evidence was found supporting that the monthly c

assessments are performed.

– Performance Monitor’s Monthly Reports

• 1st Award Fee Period – 13 out of 18 contracts reviewed showe

evidence of monthly monitoring being performed

• 2nd Award Fee Period – 12 out of 18 contracts reviewed showe

evidence of monthly monitoring being performed

– AFEB Monthly Meetings

• 1st Award Fee Period – 16 out of 18 contracts reviewed showe

evidence of monthly meetings

• 2nd Award Fee Period – 13 out of 18 contracts reviewed showe

evidence of monthly meetings
Summary of Inconsistent App

of Policies and Procedures (

• Self-assessment from contractors not always in the file.

• 1st Award Fee Period – 9 out of 18 contracts reviewed s

evidence of the contractor’s self-assessments

• 2nd Award Fee Period – 5 out of 18 contracts reviewed 

evidence of the contractor’s self-assessments
Example Noncomplianc

Award Fee

• Contract W914NS-04-C-0007 to Foster Wheeler• Award fee plan mandated monthly performance meetings 

feedback to the contractor.

• At the end of the 1st award period (March – September 20

AFEB awarded a score of 15% which equated to zero dol

• Contractor appealed the score based upon no monthly pe

meetings or performance feedback.

• U.S. Government subsequently awarded a score of 50%, 

resulted in an award fee in the amount of $439,145 being the award fee pool of $878,291.

• Contract modification which allowed payment of the award 

signed February 5, 2005.
Results of Review

Did the award fee plans clearly Did the award fee plans clearly identify the specific awa

identify the specific awa

evaluation criteria and were th evaluation criteria and were the performance indicators 

e performance indicators 

established? established?

No

• Evaluation criteria was subjecti Evaluation criteria was subjective with few metrics being u

ve with few metrics being u

Defined metrics would include s Defined metrics would include specified time periods, acc

pecified time periods, acc

error rates, etc. error rates, etc.
Examples of Requirements W

Metrics from the Award Fee 

• Schedule Adherence Criteria – Used words such as “time

accuracy, and completeness of performance” as the requ

• Cost Control Criteria – Used words such as “maintain effe

control measures . . .” as the requirement.

• Quality Control Criteria – Used words such as “minimizat

rework” as the requirement.

• Training Criteria – Used words such as “effective hiring a

integration of Iraqi women” as the requirement.
Conclusion

• The effect of stated evaluation criteria without established 

metrics could result in over-inflated contractor performancevaluations.

• This conclusion is similar to the results reported in the Arm

Agency’s report “Program Management in Support of Iraq Reconstruction,” issued May 26, 2005. 
Performance Scores of the S

Contract Evaluation Period 

the Award Fee Determina

Officer 

• For the 11 Design-Build contracts reviewed:

– 1 below average rating of 66.9%– 1 average rating of 67.3%– 4 above average ratings of 84.7% to 86.6%– 5 excellent ratings of 93.8% to 96% 

• For the 7 PMAS contracts reviewed:

– 1 very good rating of 78.3%– 6 outstanding ratings of 93.5% to 98.7%
Results of Review

• Does the award fee plan provide incentive for the contract

for quality efforts towards a superior performance?
Current Award Fee Pla

Variances in Fee Calcula

• 16 of the 18 award fee plans require awards based on the 

percentage of score (e.g. a 70% performance score resul

receiving 70% of the award fee pool, an 80% score resultreceiving 80 % of the award fee pool, etc.)

• 2 of the 18 award fee plans for D-001 and D-002 require 

based from no fee awarded for a performance score less equal to 70%, to receiving 40% of the award fee pool with performance score of 80%, and receiving 80% of the awa

with a performance score of 90%. 
Current Award Fee Plan C

• Per AFARS 5116.405-2 “. . . contractors should not receiv

fee (above the base fee) for simply meeting contract requirements....”
Current Award Fee Plan R

• Base fee component is 3% for 16 of the 18 contracts, whic

highest base fee allowed by DFARS.

• For 7 of the 18 PMAS contracts, the current award fee pla

awards of an additional 60% -70% of the award fee pool f

performance above standard and with several performancweaknesses.

• For 9 of the 18 design-build contracts, the current award f

allow awards of 50% - 74% of the award fee pool for averresults.
Current Award Fee Plan Perc

Award Fee Pool That Can be 

0

20406080

100

0 10 20 30 40 50 60 70 80 

Performance Score

Percent of fee awarded

PMAS Contracts (7 of 18)Design-Build Contracts (9 of 18)D-001/D-002 Contracts (2 of 18)
Alternate Method for 

Distributing Award Fee

• ACA Award Fee Contracts Guide identifies the Cubic sca

that properly rewards superior performance.

• This scale can be applied through an unilateral modificatio

existing contracts. 
Comparative Analysis of the C

Scoring Scale to the Cubic S

0

20406080

100

40 50 60 70 80 90 

Performance Rating

Percent of Award Fee

D-001/D-002CubicPMASDesign-Build
Comparison of Award Fe

Received Using the Cubic St

Versus the Current Metho

1 average rating of 67.3% 309,436 

6 outstanding ratings of 93.5% to 98.7% 9,327,239 

1 very good rating of 78.3% 49,787 

For the 7 PMAS contracts reviewed:

5 excellent ratings of 93.8% to 96% 20,536,016 

4 above average ratings of 84.7% to 86.6% 21,884,504 

1 below average rating of 66.9%* $ 0 $ 

For the 11 Design-Build contracts Reviewed:

A

C

Award Fees 

Using Cubic 

Strategy for 

Awarding Fee
Conclusion

• The PCO-I and the JCC-I have been proactive in impleme

corrective actions. Notable examples include:

– Contract files have been indexed and filing system imp– The JCC-I has conducted additional training regarding 

fees and the process to use.

– The AFDO and the JCC-I have drafted AFEB policies 

guidance on the responsibilities for award fee evaluatiadministration. Those policies include the provision thContracting Officer is a member of the AFEB to ensure integrity, contract compliance, and centralization of co

• Opportunity to leverage award fee pool by applying an alt

methodology (e.g., Cubic scale) to determine award fees. encourages contractors to demonstrate quality efforts towaccomplishing the tasks and functions cited in the contracperformance excellence.
Based Upon our Interim Re

We Recommend that the P

and the JCC-I:

• Document appointments in the contract files made for the 

Chairperson, the AFEB board members, and performanc

• Comply with the award fee plan to ensure that:

– monthly assessments are performed – self-assessments are obtained from the contractors, w

required 

– meetings with the contractors to discuss the monthly 

are documented

• Centralize all award fee documentation.
Based Upon our Interim Re

We Recommend that the P

and the JCC-I: (cont’d

• Revise award fee plans to more clearly identify the specifi

fee evaluation criteria for assessing contractor performancmore metrics and/or quantifiable criteria to distinguish betperformer and an excellent performer).

• Modify the current contracts to utilize a method of applyin

award fee to provide additional incentive for contractors to 

quality results. 
Audit Team Members

• The Office of the Assistant Inspector General for Auditing

the Special Inspector General for Iraq Reconstruction prepresentation. Staff members who contributed include:

– Joseph T. McDermott– Tony L. Adams– James A. Carrera– Ronald L. Rembold
Questions/Comments?