INTERIM REPORT ON AWARD-FEE CRITERIA 

FOR THE NATIONAL AIRSPACE SYSTEM 

IMPLEMENTATION SUPPORT II CONTRACT 

AND BRIDGE CONTRACT 

Federal Aviation Administration 

Report Number: FI-2008-027 

Date Issued: February 27, 2008 
U.S. Department of 

Memorandum

Transportation 

Office of the Secretary 

of Transportation 

Office of Inspector General 

Subject: ACTION: Interim Report on Award-Fee Criteria 

for the National Airspace System Implementation 

Support II Contract and Bridge Contract 

Federal Aviation Administration 

Report Number FI-2008-027 

Date: February 27, 2008 

From: Mark H. Zabarsky 

Assistant Inspector General 

 for Acquisition and Procurement Audits 

Reply to 

Attn. of: JA-60 

To: Vice President of Acquisition and Business Services, 

 Federal Aviation Administration 

As part of our ongoing audit of the Use of Cost-Plus-Award-Fee (CPAF) contracts 

within the Department, we are issuing this interim report regarding the recent 

award of the Federal Aviation Administration’s (FAA) follow-on bridge contract 

for the National Airspace System Implementation Support II Contract (NISC II). 

The objectives of our audit are to determine whether: (1) award-fee plans 

established adequate criteria for evaluating contractor performance, and (2) the 

amount of award fees paid to contractors was adequately supported.1

 

Our preliminary conclusions found that the award-fee plan for the current NISC II 

contract included vague evaluation criteria and did not link the criteria to the 

acquisition outcomes. We also found that FAA was planning to use the same 

award-fee plan criteria for the bridge contract that would result in similar, 

significant deficiencies. Additionally, contracting officials did not justify the costeffectiveness of selecting a CPAF-type contract for the current contract or followon bridge contract. As such, FAA has no assurance that a CPAF-type contract is 

appropriate and more advantageous to the FAA. We discussed our preliminary 

conclusions with senior FAA acquisition officials before the bridge contract was 

awarded. As a result, FAA officials are taking actions to address some issues; 

however, immediate actions are needed to establish meaningful and measurable 

 

1

 This interim report does not address the second objective, which will be addressed in our Department-wide audit of 

award fees. 
2

performance criteria that are linked to acquisition outcomes for the bridge contract 

award. 

The ongoing NISC II contract2

 calls for a broad range of support for transition, 

integration, and implementation of selected FAA Facilities and Equipment 

programs identified within the Aviation System Capital Investment Plan. This 

effort addresses thirteen broad functional areas and the statement of work lists 

more than 350 examples of work efforts that may be performed. Task orders also 

are broad or non-specific when identifying actual work requirements. On 

February 21, 2008, FAA awarded the $234 million bridge contract, scheduled to 

begin March 1, 2008, with the NISC II contractor. FAA used a CPAF-type 

contract with about $18.2 million for award fees. FAA must provide a copy of the 

performance evaluation plan3

 to the contractor within 30 days after issuance of the 

first task order. 

We performed this audit in accordance with generally accepted government 

auditing standards as prescribed by the Comptroller General of the United States. 

The details of our scope and methodology are presented as Exhibit A. The 

information in this interim report will be included later in a report addressing 

Department-wide CPAF contracting issues. 

AWARD-FEE PLAN CRITERIA WERE TOO VAGUE AND NOT 

LINKED TO DESIRED ACQUISITION OUTCOMES 

FAA did not structure and implement the ongoing NISC II award-fee contract in a 

way that effectively motivated the contractor to improve performance and achieve 

acquisition outcomes—defined in terms of program costs, schedule, and 

performance. Their award-fee plan did not include measurable factors needed to 

adequately evaluate contractor performance and contained the following vague 

criteria: 

3⁄4 Employing high quality, motivated personnel 

3⁄4 Providing quality documentation 

3⁄4 Providing high quality technical and administrative products (e.g., 

program management reviews, briefings, planning charts, financial 

spreadsheets) and services. 

 

2

 Contract Number DTFA01-04-C-00012, NISC II calls for purchasing hours of effort in accordance with individual 

task orders. The original contract called for about 12,000 staff years of effort during 10 years for an amount of more 

than $1 billion. 3

 The performance evaluation plan is the basis for determining the amount of award fee and includes the award-fee 

criteria to be considered under each area evaluated; the percentage of award fee, if any, available for each area; and 

the frequency of evaluation periods. 
3

The contracting officer’s rationale for this decision was that services could only be 

described in general terms due to the variables inherent in the nature of the effort. 

This resulted in an award-fee plan and criteria that did not address acquisition 

outcomes, such as meeting cost and schedule goals. Establishing specific criteria 

based on performance objectives would reduce the risk of unwarranted subjective 

performance evaluations and ratings. 

Evaluation criteria must emphasize the most important aspects of the program to 

motivate the contractor to improve performance for each evaluation period. 

Performance monitors cannot provide meaningful comments and evaluations using 

non-critical or too-broadly-defined criteria. The effect of having evaluation criteria 

without clearly defined metrics and outcomes could result in inflated contractor 

performance evaluations and, consequently, inappropriately approved award fees. 

For the current NISC II contract, FAA paid the contractor nearly the entire 

available award fee (94 percent), amounting to about $42.6 million during the last 

10 years, without assurance of whether the acquisition outcomes fell short of, met, 

or exceeded expectations. Without indicating areas of emphasis or desired 

outcomes, FAA does not have assurances that its contract objectives are being 

met, nor does the contractor have motivation to perform the best possible job in 

those areas deemed critical. 

FAA HAS NO ASSURANCE THAT THE CONTRACT TYPE IS 

APPROPRIATE 

For the NISC II contract and the bridge contract, FAA contracting officials did not 

justify the cost effectiveness of selecting a CPAF-type contract. Performance 

evaluation on an award-fee contract requires greater effort and more resources 

than other types of contracts because oversight is required to monitor and 

document contractor performance. FAA’s Acquisition Management System 

provides that a CPAF-type contract should only be used when the total value of 

the contract is high enough to justify the additional administrative costs compared 

to other contract types. Additionally, FAA issued an Award-Fee Contracting 

Guide in September 2007 stating that before a CPAF contract is selected, a 

contracting officer should perform a cost-benefit analysis of the expected benefits 

versus the added administrative costs. 

In 1993, and again in 1997, FAA contracting officials awarded a CPAF-type 

contract to General Electric Aerospace and Lockheed Martin, respectively, for 

NISC support services.4

 Contracting officials awarded the bridge contract to this 

same contractor, who performed the work during the last 15 years, again as a 

CPAF-type contract. There was little to no indication that contracting officials 

 

4

 In 1993, Lockheed Martin acquired and held the NISC I contract through a series of company mergers. 
4

explored whether all or part of this work could be suitable for a different contract 

type more advantageous to the FAA. It is important that contracting officials 

evaluate prior history data to mitigate the risk to the Government. Because FAA 

did not perform a cost-benefit analysis and consider past history, we are not 

convinced that a CPAF-type contract was the most appropriate contract type. 

Even though the bridge contract was recently awarded and FAA acquisition 

officials stated it was too late in the evaluation process to change the contract type, 

we are recommending that FAA justify the use of award-fee contracts for all 

future NISC contracts. 

RECENT ACTIONS TO IMPROVE AWARD-FEE PLAN 

There are lessons to be learned from the NISC II contract that FAA should apply 

to the bridge contract and future NISC contracts. As such, we discussed the 

problems cited in this report with senior FAA acquisition officials including the 

Manager, Facility and Technology Services on January 25, 2008, and the Assistant 

Chief Counsel, Acquisition and Commercial Law Division on February 1, 2008. 

We also notified FAA’s Vice President of Acquisition and Business Services 

about this issue on January 29, 2008.5

 As a result, FAA acquisition officials are 

addressing the following problems: 

• The NISC Program Management Office is revising its practices to more 

closely align with the goal of performance-based contracting. 

3⁄4 The Program Management Office will define contract goals and 

objectives that are performance-based. 

3⁄4 The contractor will be required to present a plan to accomplish those 

goals and objectives. 

3⁄4 FAA will include performance metrics in each applicable task order for 

incorporation into the award-fee process. 

3⁄4 The performance evaluation plan will have performance-based language 

incorporated 30 days following contract award. 

3⁄4 Engineering Technical Officers for the contract will receive training on 

developing new performance-based objectives and measurements and 

evaluating performance in April 2008. 

As FAA’s management actions are ongoing at the time of this report, we cannot 

evaluate the efficiency of these actions; however, we believe the results of these 

 

5

 FAA’s planned corrective actions were provided via electronic mail, February 11, 2008. 
5

actions will correct problems identified in this report. Implementing the planned 

corrective actions will put approximately $18.2 million in expected award fees for 

the bridge contract to better use by ensuring FAA’s contract objectives are being 

met, and motivating the contractor to perform the best job in those areas deemed 

critical by the FAA. 

RECOMMENDATIONS 

We recommend that the Vice President of Acquisition and Business Services, 

FAA: 

1. Direct the NISC Program Office to revise the award-fee plan of the NISC II 

bridge contract to more clearly identify measurable award-fee criteria for 

assessing contractor performance and link the criteria to the acquisition 

outcomes for the work to be accomplished. 

2. Require the NISC Contracting Officer to reevaluate the contract type for future 

NISC procurement contracts and justify the use of an award-fee contract. 

ACTIONS REQUIRED 

In accordance with Department of Transportation Order 8000.1C, we would 

appreciate receiving your written comments within 30 calendar days. FAA has 

proposed planned actions that meet the intent of recommendation 1. We request 

that you provide us a target date for completing these actions. If you concur with 

recommendation 2, please indicate the specific action taken or planned and 

provide the target date for completion. If you do not concur with the finding or 

recommendations, please provide your rationale. You may provide alternative 

courses of action that you believe would resolve the issues presented in this report. 

Also, please comment whether you agree that the estimated $18.2 million in award 

fees for the NISC II bridge contract could be put to better use by revising the 

award-fee plan. 

We appreciate the courtesies and cooperation of FAA representatives during this 

audit. If you have any questions concerning this report, please call me at (202) 

366-1496, or Terrence Letko, Program Director, at (202) 366-9917. 

# 

cc: Acting Federal Aviation Administrator 

Acting Senior Procurement Executive 

Martin Gertel, M-1 

Anthony Williams, ABU-100 
6

EXHIBIT A. SCOPE AND METHODOLOGY 

This audit is associated with our Department-wide audit of Use of Cost-PlusAward-Fee Contracts, Project Number 07F3011F000. We conducted this 

performance audit in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our audit 

objectives. 

To determine whether the NISC II and bridge contract award-fee plans were 

adequately designed we reviewed: 

3⁄4 FAA’s guidance for award-fee contracts; 

3⁄4 Award-fee plans and criteria; 

3⁄4 Statements of work and deliverables for the contracts and selected task 

orders; and 

3⁄4 Fifteen performance evaluation reports used to measure the contractor’s 

performance against award-fee criteria. 

We reviewed the acquisition plan for the bridge contract to determine whether 

improvements could be made in the methods used for obtaining the NISC II 

support services. We also interviewed FAA acquisition and program officials 

regarding the award-fee plan and process and discussed the results of our findings 

on NISC II and the bridge procurement with these officials. 

Exhibit A. Scope and Methodology 
7

EXHIBIT B. MAJOR CONTRIBUTORS TO THIS REPORT 

THE FOLLOWING INDIVIDUALS CONTRIBUTED TO THIS REPORT.

Name Title _____ 

Mark H. Zabarsky Assistant Inspector General for Acquisition 

 and Procurement Audits 

Terry Letko Program Director 

Dormayne Dillard-Christian Project Manager 

Narja Hylton Auditor 

Jean Diaz Writer/Editor 

 

Exhibit B. Major Contributors to This Report