Payouts to NASA contractors questioned

NASA does not follow its own guidelines in paying incentive awards on contracts, contributing to sometimes excessive payments to companies that miss schedule and cost targets, according to a new report.

The Government Accountability Office found problems in how NASA uses cost-plus-award-fee contracts, an arrangement in which outcome-based payments reward good performance. Almost half the contract dollars the agency spent from 2002 to 2004 were covered by that type of arrangement, auditors found (GAO-07-58).

NASA has effective policies on the use of the reward-based contracts, auditors said, but did not always follow them and sometimes paid awards despite performance problems. "In some cases there appears to be a significant disconnect between program results and fees paid," GAO noted.

Auditors reviewed NASA's 10 highest-value cost-plus-award-fee contracts from 2002 to 2004. The agency paid between 80 percent and 99 percent of the maximum award fee on those contracts, with an average payment of 90 percent.

Auditors acknowledged that the cost-and-award contracts are used primarily for procurements in which uncertainty makes it difficult to judge in advance how much the product or service should cost -- a situation that comes up frequently with NASA's research-intensive, one-of-a-kind missions.

But auditors described cases in which the award fees appeared unreasonably high in light of project overruns. The contractor for the Landsat-7 Project, for example, won 99 percent of the maximum award fee despite a nine-month delay on the satellite launch. In addition, costs were 20 percent more than a midproject estimate, despite cuts to the scope of work.

GAO auditors found that several contracts did not adhere to agency guidance on criteria for contractor performance. NASA policy says it is best to use a small number of evaluation criteria, which should be outcome-based, to sharpen the focus on results. But auditors found that some contracts featured too many criteria or used process-based measures. For example, one contract had just three primary evaluation criteria, but listed 108 subfactors on contract performance.

Auditors also found problems with how agency officials made decisions to use cost-plus-award-fee contracts. NASA guidance and federal acquisition regulations say officials should weigh the potential benefits of using the contract structure against the high cost and administrative burden associated it. But GAO found no such analyses for any of the contracts reviewed.

GAO recommended that agency officials ensure they complete cost-benefit analyses before undertaking cost-plus-award-fee contracts, and follow internal guidelines. Auditors also suggested developing a system to collect data on the use of award fees and metrics to measure effectiveness, as well periodic reviews of the contracts' use.

NASA officials concurred with the recommendations, and said they would consult with the Defense Department, which is also in the process of developing metrics for its award-fee contracts.