INTERIM REPORT: AWARD-FEE CRITERIA 

FOR THE NATIONAL AIRWAY SYSTEMS 

CONTRACT 

Federal Aviation Administration 

Report Number: FI-2008-054 

Date Issued: May 28, 2008 
U.S. Department of 

Memorandum

Transportation 

Office of the Secretary 

of Transportation 

Office of Inspector General 

Subject: ACTION: Interim Report: Award-Fee Criteria for 

the National Airway Systems Contract 

Federal Aviation Administration 

Report Number FI-2008-054 

Date: May 28, 2008 

From: Mark H. Zabarsky 

Assistant Inspector General for Acquisition 

 and Procurement Audits 

Reply to 

Attn. of: JA-60 

To: Acting Associate Administrator, Regions and 

 Center Operations, 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 report regarding the recent award of the 

Federal Aviation Administration’s (FAA) National Airway Systems contract for 

engineering and technical support. 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

On June 18, 2007, FAA’s Mike Monroney Aeronautical Center2

 (Aeronautical 

Center) awarded a hybrid-structured contract to ASRC Management Services that 

encompasses a broad range of engineering, technical, and administrative support 

for civilian and military aircraft guidance and surveillance systems. This contract 

includes both CPAF and cost reimbursable line items, for approximately $316 

million—about $243 million was for the CPAF line item. The contract includes 1 

base year and 4 option years. The contractor began providing services in August 

2007, and is presently in the first year of the contract. About $199.4 million 

remains programmed for the CPAF line item for the 4 option years. The 

Aeronautical Center established an award-fee pool totaling about $6.6 million. 

The contractor is presently in the second award-fee performance period. About 

 

1

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

award fees. 2

 The Aeronautical Center is located in Oklahoma City, Oklahoma. 
2

$5.4 million in award-fees remain available for the third and subsequent 

performance periods. 

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 in Exhibit A. The 

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

Department-wide CPAF contracting issues. 

FINDINGS 

We found that contracting officials did not justify the cost-effectiveness of 

selecting a CPAF-type contract for the National Airway Systems contract. 

Through an evaluation of the administrative costs versus the expected benefits, the 

contracting officer should be able to assess whether the benefits the government 

gains through a CPAF contract will outweigh the additional costs of overseeing 

and administering the contract. Without such an evaluation, the Aeronautical 

Center had no assurance that a CPAF-type contract was appropriate. Additionally, 

the evaluation criteria in the performance evaluation plan3

 did not include 

measurable criteria needed to adequately evaluate contractor performance. 

Further, a portion of the award-fee criteria required the contractor to merely 

comply with basic contractual requirements. The performance evaluation plan 

allowed award-fee payments up to 72.5 percent of the award-fee pool for average 

or below results. The problems cited in this report existed, in part, because 

Aeronautical Center personnel did not have detailed guidance4

 on how to structure 

award-fee plans to incentivize contractors. As a result of our audit, senior FAA 

officials agreed to take action and use another contract type more suitable for 

obtaining engineering and technical support, and revise Aeronautical Center 

guidance. 

The Aeronautical Center Has No Assurance That the CPAF-Type 

Contract is Appropriate 

Aeronautical Center contracting officials did not justify the cost-effectiveness of 

selecting a CPAF-type contract. Performance evaluation on award-fee contracts 

requires greater effort and more resources than other contract types because 

significant oversight is required to monitor and document contractor performance. 

Contracting officers should be able to assess, through an evaluation, whether the 

 

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. 4

 Aeronautical Center guidance on CPAF contracts is contained in Acquisition Work Instruction-103, as amended. 
3

benefits gained by selecting a CPAF contract would outweigh the additional costs 

of overseeing and administering such a contract. Guidance from other Federal 

Government agencies, such as the Departments of the Army and the Air Force, 

National Aeronautics and Space Administration, and Environmental Protection 

Agency states 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. Such a best practice would be beneficial in helping the 

Aeronautical Center ensure an award-fee contract is appropriate. FAA included 

this best practice in its Award-Fee Contracting Guide, issued September 2007;5

however, it was three months after the contract was awarded. 

We expressed concern to FAA officials about whether a CPAF contract type was 

suitable for this contract. As a result of our audit, senior FAA officials agreed to 

change the CPAF contract to a cost-plus-fixed-fee contract because the cost and 

time required to oversee, monitor, and document the award-fee process outweighs 

the benefits of administering the contract. 

Award-Fee Plan Criteria Were Too General 

The Aeronautical Center did not structure and implement the contract in a way 

that effectively motivated the contractor to improve performance and achieve 

acquisition outcomes. The performance evaluation plan was vague and did not 

include measurable award-fee criteria needed to adequately evaluate contractor 

performance. For example, the Performance of Work factor used undefined terms 

such as “responsive to changes in work schedules” and “personnel are utilized in 

an effective and efficient manner” as standards of review. Performance of Work 

and Business Management factors used general terms such as “timely” and 

“acceptable” as standards of review. FAA’s Award-Fee Contracting Guide states 

that using evaluation factors that are either too broad, or include factors that are 

not applicable to a given function, can result in evaluators not being able to 

provide meaningful comments to support ratings. FAA’s guidance also states that 

outcome-based factors are the least administratively burdensome type of 

performance evaluation factors, and should provide the best indicator of overall 

success. 

Establishing specific criteria based on performance objectives would reduce the 

risk of unwarranted or subjective performance evaluations and ratings. 

Performance monitors cannot provide meaningful comments and evaluations using 

vague or too broadly defined criteria, which could result in inflated evaluations 

and, consequently, inappropriately approved award fees. As contract work 

progresses from one evaluation period into the next, the relative importance of 

 

5

 Award-Fee Contracting Guidance, Acquisition Policy Division, September 28, 2007. 
4

specific evaluation factors may change. The award-fee approach permits unilateral 

modification of the detailed evaluation plan to reflect changes in management 

emphasis. The Aeronautical Center included a clause in the contract allowing 

unilateral change to the evaluation criteria if the contracting officer provides 

written notice to the contractor no later than 10 days before the start of an 

evaluation period. 

Evaluation Criteria and Payment Structure Reward Basic Contract 

Compliance 

CPAF contracts include a merit-based award fee earned for performance 

exceeding contract requirements. For the National Airway Systems contract, we 

found the evaluation criteria did not provide proper incentives for the contractor to 

strive for better-than-expected results. In our comparison of the performance 

evaluation plan with the performance work statement, we found that the award-fee 

criteria were not designed to elicit performance above contract requirements. 

Rather, a portion of the award-fee evaluation factors merely required the 

contractor to comply with basic contractual requirements. For example, one 

award-fee factor required that the contractor assign qualified personnel to 

accomplish the work—a normal contract expectation. Guidance from other 

Federal Government agencies, such as the Departments of the Army and the Air 

Force, states that award-fee criteria should focus on the most important aspects of 

the procurement that will motivate the contractor to perform in an exceptional 

manner. Such a best practice would be beneficial in helping the Aeronautical 

Center ensure effective use of award fees. 

Additionally, the payment structure used when calculating the award fees under 

this contract did not elicit incentives for the contractor to attain better-thanaverage results. For example, the payment structure awarded no fee for a 

performance score of less than 60, but did award a fee for a score above 60 

(Exhibit B). Thus, a performance score of 65, in the “Poor” range, and slightly 

above the award threshold, would bestow on the contractor 22.5 percent of the 

award-fee pool. If the contractor receives a performance score of 76–85, equating 

to average performance with some weaknesses, the payout jumps up to 50 to 72.5 

percent of the award-fee pool. Guidance from other Federal Government 

agencies, such as the Departments of the Army and the Air Force, and 

Environmental Protection Agency, states that contractors should not receive an 

award fee for satisfactory performance. Contractors are to be compensated for 

satisfactory work through the base fee.6

 The Aeronautical Center must revise its 

award-fee payment structures to require contractors to earn high ratings in order to 

receive high award fees. 

 

6

 A fixed fee paid to the contractor regardless of the contractor’s evaluated performance. 
5

Further, the grading table (Exhibit C) used to compute the amount of award fee 

contains a payment structure that associates numerical performance scores 

(between 0 and 100) with six adjectival ratings—Superior, Excellent, Good, Fair, 

Poor, and Unsatisfactory. The description defining each adjectival rating, 

however, was vague and did not clearly define the basis for assigning such a 

rating. For example, a rating of excellent is defined as: 

 “The contractor’s performance exceeds standard. Although there may be several 

areas for improvement, these are more than offset by better performance in other 

areas.” 

In this case, the contractor need not excel to receive a large portion of the available 

award-fee pool since the payment structure does not foster exceptional 

performance. 

Additionally, performance monitors, i.e., Aeronautical Center staff who track and 

assess contractor performance daily, were provided with a contractor performance 

evaluation form (Exhibit D) containing three adjectival ratings—Excellent, 

Satisfactory, and Unsatisfactory—not consistent with the grading table’s six 

adjectival ratings. 

The Aeronautical Center must clearly describe its adjectival ratings so there will 

be a basis for assessing performance, and provide performance monitors with 

adjectival ratings consistent with the grading table. Otherwise, performance 

monitors may use what appear to be personal criteria, applied arbitrarily, possibly 

resulting in the Government overpaying award fees with funds that could have 

been put to better use. 

RECOMMENDATIONS 

We recommend that the Acting Associate Administrator, Regions and Center 

Operations, direct the Director of the Aeronautical Center to: 

1. Require that the contracting officer use another contract type more suitable for 

the National Airway Systems engineering and technical support services 

contract. 

2. Revise Aeronautical Center Acquisition Work Instruction–103 to improve 

performance evaluation plans. Ensure the guidance explains how to: 

a. Develop measurable award-fee criteria for evaluating contractor 

performance; 
6

b. Develop award-fee payment structures that encourage contractor excellence 

and explain that contractors will not receive award fees for simply meeting 

contract requirements; and 

c. Define adjectival ratings clearly and provide performance monitors with 

adjectival ratings consistent with the grading table. 

AGENCY’S PLANNED ACTIONS TO IMPROVE ONGOING AND 

FUTURE AWARD-FEE CONTRACTS 

We discussed the problems cited in this report with Aeronautical Center 

contracting officials on February 20, 2008, and senior FAA officials, including the 

Acting Associate Administrator for Regions and Center Operations, the Assistant 

Chief Counsel, Acquisition and Commercial Law Division, and the Deputy 

Director of the Aeronautical Center on April 30 and May 1, 2008. As a result, 

FAA officials agreed to take the following actions to address the problems cited in 

this report: 7

• Modify the existing National Airway Systems Engineering Division 

support services contract to a cost-plus-fixed-fee-type contract (retroactive 

to the date of the award) within the next 90 days. 

• For future CPAF contracts awarded by the Aeronautical Center: 

o Require that performance evaluation plans contain award-fee 

structures that motivate excellent contractor performance by only 

paying award fees for above-satisfactory performance. 

o Clearly describe adjectival ratings so there will be a defined basis for 

assessing performance and ratings consistent with any grading 

tables. 

o Enhance the Acquisition Work Instruction–103 related to CPAF 

contracts, and the documentation needed for these contracts, within 

the next 90 days. 

o Enhance the evaluation criteria to become more performance based, 

and ensure that evaluations are properly conducted and documented 

in accordance with the criteria set forth in the performance 

evaluation plan and contract. 

 

7

 FAA’s planned corrective actions were provided via electronic mail, April 30, 2008. 
7

o Require that contracting officers review, compare, and document 

their strategies when justifying the appropriateness of the type of 

contract chosen in accordance with Acquisition Management System 

policy. 

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

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

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

corrective action of modifying the contract to a cost-plus-fixed-fee will put 

approximately $199.4 million in remaining contract funds to better use by 

ensuring FAA’s acquisition objectives are being met by using a more suitable 

contract type. 

ACTIONS REQUIRED 

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

appreciate receiving your formal comments within 30 calendar days. Please 

indicate the specific actions taken or planned for each recommendation, the target 

date for completion, and whether you agree that the remaining $199.4 million of 

contract funds can be put to better use by ensuring FAA’s acquisition objectives 

are being met via a more suitable contract type. Please provide the original signed 

document and an electronic version in Word, not a scanned version. 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) 366-5225 

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

# 

cc: Acting Federal Aviation Administrator 

 Vice President of Acquisition and 

 Business Services, FAA 

 Aeronautical Center Director 

 Martin Gertel, M-1 

 Anthony Williams, ABU-100 
8

EXHIBIT A. SCOPE AND METHODOLOGY 

This report is associated with our Department-wide audit of Use of CPAF 

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. 

We reviewed this ongoing contract because of the significant deficiencies found 

with our sampled contract,8

 which will be addressed in our forthcoming 

Department-wide audit of award fees. The ongoing National Airway Systems 

contract is a follow-on contract for one of our sampled contracts. To determine 

whether the National Airway Systems engineering and technical support contracts’ 

award-fee plans were adequately designed we reviewed: 

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

3⁄4 Performance evaluation plan, 

3⁄4 Performance Work Statement and deliverables for the contracts and 

selected task orders, 

3⁄4 Federal Administration Acquisition System Toolset, and Acquisition Work 

Instruction guidance for award-fee contracts, and 

3⁄4 Best Practices for award-fee contracts (Departments of the Army and the 

Air Force, National Aeronautics and Space Administration, and 

Environmental Protection Agency Award-Fee Guides). 

We reviewed the acquisition plan for the ongoing National Airway Systems 

engineering and technical support services contract to determine whether 

improvements could be made in the methods used for obtaining contract support 

services. We also interviewed FAA acquisition and program officials regarding 

the performance evaluation plan and process and discussed the results of our 

findings on the prior and ongoing National Airway Systems engineering and 

technical support contract. 

 

8

 Contract Number DTFA-02-02-D-12127 

Exhibit A. Scope and Methodology 
9

EXHIBIT B. NATIONAL AIRWAY SYSTEMS CONTRACT AWARDFEE CONVERSION CHART 

This chart is for use in converting weighted performance points into percentages 

of the available award-fee pool: 

 Weighted Performance Points Percentage of Available Award

 100 100.0 Percent 

 99 100.0 

 Superior 98 100.0 

 97 100.0 

 96 100.0 

 95 97.5 

 94 95.0 

 93 92.5 

 92 90.0 

 Excellent 91 87.5 

90 85.0 

89 82.5 

88 80.0 

87 77.5 

86 75.0 

85 72.5 

84 70.0 

83 67.5 

82 65.0 

 Good 81 62.5 

80 60.0 

79 57.5 

78 55.0 

77 52.5 

76 50.0 

75 47.5 

74 45.0 

73 42.5 

72 40.0 

 Fair 71 37.5 

70 35.0 

69 32.5 

68 30.0 

67 27.5 

66 25.0 

65 22.5 

64 20.0 

Exhibit B. National Airway Systems Contract Award-Fee Conversion 

Chart 
10

EXHIBIT B. NATIONAL AIRWAY SYSTEMS CONTRACT AWARDFEE CONVERSION CHART (CONTINUED) 

Weighted Performance Points Percentage of Available Award 

 Poor 63 17.5 

62 15.0 

61 12.5 

60 10.0 

 Unsatisfactory Below 60 0.0 

Exhibit B. National Airway Systems Contract Award-Fee Conversion 

Chart (Continued) 
11

EXHIBIT C. NATIONAL AIRWAY SYSTEMS CONTRACT 

GRADING TABLE 

 ADJECTIVE RANGE OF 

PERFORMANCE PERFORMANCE 

 GRADE DESCRIPTION POINTS 

 Superior The contractor’s performance 96 – 100 

 exceeds standard by a substantial 

 margin. The monitor can cite few 

 areas for improvement, all of 

 which are minor. 

 Excellent The contractor’s performance 86 – 95 

 exceeds standard. Although there 

 may be several areas for 

 improvement, these are more than 

 offset by better performance in 

 other areas. 

 Good The contractor’s performance is 76 – 85 

 standard. Areas for improvement 

 are approximately offset by 

 better performance in other areas. 

 Fair The contractor’s performance is 66 – 75 

 less than standard. Although there 

 are areas of good-or-better 

 performance, these are more than 

 offset by lower rated performance 

 in other areas. 

 Poor The contractor’s performance is 60 – 65 

 less than standard by a 

 substantial margin. The monitors 

 can cite many areas for 

 improvement, which are not offset 

 by better performance in other 

 areas. Less satisfactory performance 

 would be unacceptable. 

 Unsatisfactory* The contractor’s performance is Below 60 

 below minimum acceptable 

 standards. Results are inadequate 

 and require prompt remedial action. 

 Significant deficiencies. 

*Any factor/subfactor receiving a grade of unsatisfactory will be assigned zero performance 

points for purposes of calculating the award-fee amount. 

Exhibit C. National Airway Systems Contract Grading Table 
12

EXHIBIT D. CONTRACTOR PERFORMANCE EVALUATION FORM 

Performance Period: [Insert Start Date] to [Insert End Date] 

(Please circle one response for each rating area)

I. PERFORMANCE OF WORK: (Performance to include both technical and administrative support, 

i.e., administrative/program analyst, quality assurance, secretarial support, etc., within your branch).

Timeliness/Responsiveness: excellent satisfactory unsatisfactory 

Contract employees make a concerted effort to meet established project due dates, comply with travel 

requirements, be responsive to changes in workload and work priorities, and provide project status reports; 

all in a timely manner. 

Quality of Deliverables: excellent satisfactory unsatisfactory 

It is understood that at times the FAA may review and request changes to a product before final delivery by 

the contractor to the FAA. The quality of the final delivered hardware, software, documentation, and 

administrative support products meet the requirements of the assigned task. 

Manpower Utilization: excellent satisfactory unsatisfactory 

Contract employees are being utilized in an effective and efficient manner, and the appropriate skilled 

personnel are assigned to accomplish the work requirements. 

Equipment/Material Utilization: excellent satisfactory unsatisfactory 

Equipment and materials are ordered and delivered in a timely manner, resulting in minimal downtime or 

delays in meeting established project milestones. Equipment and materials are utilized on projects for 

which they were requested. 

II. PROJECT MANAGEMENT: 

Management Performance: excellent satisfactory unsatisfactory 

Contractor management participates in work planning, prioritizing of tasks, and responds to FAA direction 

on courses of action on work related issues. 

Staffing: excellent satisfactory unsatisfactory 

The contractor has assigned qualified personnel (with allowance for trainees) to accomplish the assigned 

tasks. Contractor employees attend requisite training courses to become proficient on FAA systems and 

processes. 

III. REQUIRED COMMENTS: Please provide comments to support any rating below satisfactory. 

Continue on back of this page if additional space is needed. Positive comments also are welcome. 

Routing Symbol________ Initials: ________ Date: ________ 

.........Please return to [insert COTR name], AJW-14, by [insert date]............ 

Exhibit D. Contractor Performance Evaluation Form 
13

Exhibit E. Major Contributors to This Report 

EXHIBIT E. MAJOR CONTRIBUTORS TO THIS REPORT 

Name Title 

Terrence Letko Program Director 

Dormayne Dillard-Christian Project Manager 

Stacie Seaborne Program Analyst 

Jean Diaz Writer/Editor 
The following page contains a textual version of the forms found in Exhibits B and 

C of this document. These pages were not in the original document but have been 

added here to accommodate assistive technology. 
Interim Report: Award-Fee Criteria for the 

National Airway Systems Contract 

Section 508 Compliant Presentation 

Exhibit B. National Airway Systems Contract Award-Fee Conversion Chart 

This chart is for use in converting weighted performance points into 

percentages of the available award-fee pool: 

For Superior, Weighted Performance Points are in the range of 100 to 96, and the 

Percentage of Available Award is 100 percent. 

For Excellent, Weighted Performance Points are in the range of 95 to 86, and the 

Percentage of Available Award is 97.5 to 75 percent. 

For Good, Weighted Performance Points are in the range of 85 to 76, and the 

Percentage of Available Award is 72.5 to 50 percent. 

For Fair, Weighted Performance Points are in the range of 75 to 66, and the 

Percentage of Available Award is 47.5 to 25 percent. 

For Poor, Weighted Performance Points are in the range of 65 to 60, and the 

Percentage of Available Award is 22.5 to 10 percent. 

For Unsatisfactory, Weighted Performance Points are 0, and the Percentage of 

Available Award is 0. 
Exhibit C. National Airway Systems Contract Grading Table 

The Adjective Performance Grade of Superior is described as the contractor’s 

performance exceeds standard by a substantial margin. The monitor can cite few areas 

for improvement, all of which are minor, with a range of performance points of 96 – 100. 

The Adjective Performance Grade of Excellent is described as the contractor’s 

performance exceeds standard. Although there may be several areas for improvement, 

these are more than offset by better performance in other areas, with a range of 

performance points 86 – 95. 

The Adjective Performance Grade of Good is described as the contractor’s performance 

is standard. Areas for improvement are approximately offset by better performance in 

other areas, with a range of performance points 76 – 85. 

The Adjective Performance Grade of Fair is described as the contractor’s performance is 

less than standard. Although there are areas of good-or-better performance, these are 

more than offset by lower rated performance in other areas, with a range of performance 

points 66 – 75. 

The Adjective Performance Grade of Poor is described as the contractor’s performance is 

less than standard by a substantial margin. The monitors can cite many areas for 

improvement, which are not offset by better performance in other areas. Less satisfactory 

performance would be unacceptable, with a range of performance points 60 – 65. 

The Adjective Performance Grade of Unsatisfactory is described as the contractor’s 

performance is below minimum acceptable standards. Results are inadequate and require 

prompt remedial action; significant deficiencies, with performance points below 60. 

Any factor/subfactor receiving a grade of unsatisfactory will be assigned zero 

performance points for purposes of calculating the award-fee amount.