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IUP StGKLI BY AN CONTROL SVStEM 

(fi'I NATIONAL RECONNAISSANCE OFFICE 

WASHINGTON, D.C. 

1111111111111111111m1111111111 11111111111111111111111 14000 

THE NRO STAFF November 21, 1969 

MEMORANDUM FOR DR. McLUCAS 

SUBJECT: Possible ASPR Conflict 

General King has forwarded the letter at the right which 

, describes a possible conflict between Armed Services Procure-

, I ment Regulations and our current satellite project incentive 

structure. 

HANDLE VIA 

BYEMAN 

CONTROL SYSTEM 

A potential conflict centers on the method of determining fee 

in the event of contract termination. 

We are currently working on the problem with the General 

Counsel's office and OSAF (I&L). We do not believe that any 

action on the issue is necessary on your part at present, and 

General King's letter is forwarded for information only. We will 

keep General King1 s staff informed of our progress and we will, 

of course, inform you of the final determination or readdress the 

issue with you should action on your part become necessary. 

JOHN R. MECEDA 

Captain, USAF 

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DEPARTMENT OF THE AIR FORCE 

OFFICE OF SPECIAL PROJECTS (OSAF) 

AF UNIT POST OFFICE, LOS ANGELES, CALI FORNI A 90045 

REPLY TO 

ATTN OF: SP-1 10 NOV 1969 

susJEcT: Specialized Incentive Contract Structure for Satellite Projects 

To, SAFUS (Dr. McLucas) 

1. Recent changes to the Armed Services Procurement Regulation 

(ASPR) have created a need for determination of their applicability 

to contracts where the subject incentive structure will be used. 

2. This incentive formula was initiated in September 1966 when the 

Director of Special Projects adopted a somewhat unique performance 

incentive referred to as "A Specialized Incentive Contract Structure 

for Satellite Projects" which has since been applied to all of our 

major contracts. The plan for this incentive arrangement was 

originally submitted to Dr. Flax asking for authority to deviate 

from a number of the provisions of the Armed Services Procurement 

Regulation which appeared to conflict with the concept. The request 

was reviewed by the staff in the Office of the Secretary of the 

Air Force and in the Department of Defense with the conclusion that 

the plan, as presented, posed no deviation from applicable regulations; 

and indeed it has been used on systems contracts with remarkably little 

friction since its inception. 

3. Some changes of fairly recent date have been made to the ASPR 

affecting the basis for fee negotiation in the event of contract 

termination, which is an important feature of the subject incentive 

plan. The pertinent portions of these changes are quoted below: 

a. ASPR Sect VIII, Part 2, Paragraph 217(b) (2). 11The fee shall 

be adjusted on the basis of the target fee, and the incentive 

provisions shall not be applied or considered. 11 

b. ASPR Sect VII, Part 2, Paragraph 203.4(b}. Clause entitled 

Allowable Cost, Fixed Fee, and Peyment, subparagraph (i): 11 If this 

contract is terminated in its entirety the portion of the target fee 

payable shall not be subject to an increase or decrease as provided 

in this paragraph. 11 

4. Most of the contracts where the subject incentive is used provide 

a method of calculating performance fee in the event of a termination 

for convenience which essentially agrees to a fee for accepted but 

unlaunched vehicles based on the average performance fee per vehicle 

earned prior to the termination. 

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5. The ASPR Revisions described above offer only a potential 

problem in the event these contracts are terminated, which 

could be solved by granting a single-contract waiver, which is 

within my procurement authority. 

6. Now, however, we have proposals for follow-on contracts, all 

based upon the above described incentive formula, including the 

procedure for defining the contractor's fee in case of a termination. 

This introduces a need for a waiver of a nclass" of contracts, and 

such waivers have heretofore been processed at the Headquarters 

level. 

7. It is clear that the ASPR procedures referred to in paragraph 3 

above did not consider the subject incentive arrangement, and that 

a conflict exists. It is also apparent that the provisions for 

calculating termination fee in the existing contracts, as well as 

the proposals for follow-on contracts, are consistent with the concept 

upon which the Specialized Incentive formula was devised, and upon 

which our programs are contracted. It is therefore necessary to 

establish either that the termination fee provision is not actually 

a deviation from ASPR, as was the case with many other features of 

the formula; or that it is a deviation, and is authorized for use on 

contracts using the specialized incentive structure. 

8. 

fee 

2 

is use the above described termination 

re it is found appropriate to do so. 

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