1. The Department of Defense in particular seemed to take into account the suggestions from the Office of Management and Budget. In particular, one of the changes the DOD seemed to make to its process was to link award contracts to certain performance incentives. If the goal of government contracting is to ensure that the government gets what it needs at prices that are competitive enough to save money for the public, then the government needs to ensure that it is doing everything in its power to coerce contractors to do a good job. The DOD linked fee award contracts to performance incentives in order to provide contractors with more guidelines. One of the issues leading up to this change was that contractors were running amok, especially with the DOD. There was little oversight, money was being wasted on things that were not necessary, and the public was ultimately paying the price in the form of poor results and high prices.
The DOD also put into place a cumbersome element to its agreement. It noted that if performance was unsatisfactory, a contractor would not be able to get the award as promised in the contract. This, of course, provides the ultimate incentive for contractors to provide high levels of service. Much of what the DOD was doing at this time was procurement for the Iraq and Afghanistan wars, especially in terms of equipping the home armies to fight after the US pulled out of the war. The DOD put this rule into place so that contractors would be held responsible for the quality and performance of the goods they procured and shipped. Given the absolute need for these things to work as well as possible, it was critical to ensure that contractors did not just have free reign to purchase what they wanted with no repercussions. The DOD needed to ensure that it was saving money and that for every dollar it spent, it was getting the performance it demanded. These changes were designed at least in part to make that a reality.
2. The award fee system should lead to better contractor performance in a number of different areas. In order to analyze the performance of contractors under an award fee system, one needs to compare the system to the other available options. For instance, an award fee arrangement is only relevant in comparison to the other forms of contracting that might be used by government agencies. In most forms of contracting, there are fewer elements to account for performance. Once the contractor gets the contract, the contractor has little incentive left to seek out a good price, to ensure the quality of whatever is being delivered, and to ensure that things are delivered on time. While there are some controls in place—for instance, a contractor can be taken off of the contractor list if they are delinquent in some way—those controls have long been lax, as contractors have been allowed to remain in contention for government deals despite a poor history of performance. With the award fee system in place, however, there is a back end incentive to perform during the life of the contract. This is especially important as the government contracting business grows bigger. With more and more contractors looking for each individual contract, it is difficult for the government to develop strong working relationships with individual contractors. When there are new contractors and other contractors that have unknown performance histories, it is critical to provide award fee contracts so that the government has a carrot with which to both control and incentivize the people doing some of the government’s most important work.
- Neu, D., Everett, J., & Rahaman, A. S. (2015). Preventing corruption within government procurement: Constructing the disciplined and ethical subject. Critical Perspectives on Accounting, 28, 49-61.
- Rickard, S. J., & Kono, D. Y. (2014). Think globally, buy locally: International agreements and government procurement. The Review of International Organizations, 9(3), 333-352.