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iJEPARTMENT OF THE AIR FORCE 

DIRECTORATE OF SPECIAL PROJECTS (OSAF) 

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

REPLY TO 

ATTN OF: SP-1 27 April 1966 

SUBJECT 1 Request for Authority to Use Special Incentive Features 

TO: SAFRD (Dr Flax) 

1. Because of the extremely critical nature of Special Projects Programs, 

I believe it necessary to offer the contractors the highest possible incentive to perform. Accordingly, I plan to negotiate all critical contracts 

using a special incentive approach tailored to fit these programs rather 

than the conventional multiple incentive formula. A description of the 

incentive approach I plan to use is attached, entitled "A Specialized 

Incentive Structure for Satellite Projects", Ref No SP 142866, (A tch 1). 

2. In December I obtained full agreement with Hilly Paige on the approach 

described in para 4, and negotiated a supplemental agreement incorporating 

this incentive structure into my basic contract with his company. I have 

subsequently reached agreement wit~ pn the variation described in para 6. b. for a major follow=o:i:ico:i:ifTact, and have reached 

substantial agreement withl !along the lines 

of the illustration in para 6. e. 50X1 

3. I am convinced that this approach will result in attaining and maintaining better performance and is in the best interest of the government. 

Although it has required my direct negotiation with top company management to obtain agreement, the success I have had in my efforts so far has 

convinced me that the concept can be implemented on all of my programs, 

and I plan to do so on a systematic basis. However, while the overall 

concept is clearly within the i,ntent of incentive contracting as outlined, for 

instance in the DOD Incentive Contracting Guide, it p.as become clear that 

some provisions or inferences of the ASPR can be i~terpreted to either 

prevent some of the proposed features or require time consuming justification and approvals on an individual basis. To apply the proposed concept 

without such continuing actions, I am advised that authorization to deviate 

from several provisions of the ASPR will be required. I attach a summary 

of these ASPR conflicts for illustration (Atch Z). 

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we did not incur large additional overruns under th.is new exhibit. I 

pointed out that on a total program basis covering the last 3 years we 

had experienced overruns oft only 3.~ on our total business. This, we 

felt, was a very good record considering that most of our contracts 

involved extensive R&D ef'fort and were almost all cost type contracts. 

6. Mr. Ra.cusin asked if we had applied th.is incentive :formula to the 

incentive trade-off structure and procedure that had. recently been 

developed by the Air Force Academy. . I told him that we had reviewed the 

Air Force Academy plan and had considered it to some degree but that we 

J1tl. not in fact used i~ to measure the effectiveness of the incentive plan 

that we proposed. He asked that we do this upon our return and I assured 

him that we would.* 

7. At the completion of the meeting Mr. Ra.cusin stated that he was satisfied 

with the discussion that had taken place and that we had cleared up all of 

the reservations that he had in mind. I pointed out that the letter which 

he had signed dated 28 September mentioned reservations about the exhibit 

that I felt would cause us problems if it were not amended. He agreed 

and on the face of the letter made a notation which indicated that e.n;y" 

reservations which he initially had were now satisfied. On the basis of 

this meeting and the letter signed by Mr. Ra.cusin we are implementing the 

ntive contracting structure on all of our new programs. 

GEORGE L. SLENTZ, Colonel, USAF 

Deputy Director for Procurement 

* We have since applied our exhibit to the Air Force Academy formula. 

Because by definition there is no trade-off between cost a.nd performance 

in our exhibit there is no possibility of making the Air Force Academy 

formula applicable. 

2 

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