Cheap Rewards

Some agencies reward quality work by extending contracts, but critics wonder who's minding the store.

Figuring out how to squeeze the most out of contractors for the least amount of money is a top priority for contracting officers. Learning how to get something for free is like cracking the Kryptos puzzle.

So, when Tom Luedtke, NASA's top procurement official, developed a way to add performance incentives to contracts without paying hefty award fees, he knew he was onto something big. Six years ago, he started experimenting with award-term contracts, which reward companies for excellent performance by extending their contracts instead of paying them more money. He says he got the idea after managers told him they were frustrated by having to recompete expired contracts even when contractors were doing quality work.

"Their analogy is: In your personal life or private business, if you find someone who's doing a good job for you, you want to keep them," says Luedtke. The 1984 Competition in Contracting Act requires agencies to run full and open competitions in most situations. Luedtke says he addressed the contracting officers' concerns without violating the requirement because companies still compete for the work; they're just able to hold on to the contracts longer if they do an excellent job. NASA doesn't extend the contracts for longer than 10 years.

Critics say the approach isn't as good as it looks. Despite an explosion of award-term contracts in the past several years, no governmentwide guidelines exist, and no one collects agencywide data on how often they're used and whether they work. Aside from an internal policy guide at the Air Force, officials have no rules for applying the new contracting tool.

"It could really allow contracting officers to abuse the system," says Scott H. Amey, general counsel for the Washington-based watchdog group Program on Government Oversight. Longer-term contracts reduce competition and can limit opportunities for innovation and savings, he says.

Amey and other skeptics are alarmed that the approach appears to be spreading without sufficient oversight. Fedbizopps.gov, the Web site where agencies post solicitation and awards data, lists dozens of proposed award-term contracts for services as diverse as tech support for cleaning up hazardous materials (posted by the Transportation Department) and language training for service members (published by Defense).

Neither the Office of Management and Budget nor the councils responsible for the Federal Acquisition Regulation indicates any guidelines are forthcoming. OMB's Office of Federal Procurement Policy has not been asked for guidance, an official says, but as the contracts become more widely used, OFPP might consider issuing governmentwide rules.

Some acquisition officials say they don't need a study to tell them what they already know-award-term incentives save money. While the savings are too soft to quantify, Luedtke says, award-term contracts not only avoid costly competitions, but generate higher quality work. NASA has about a dozen, including one to operate the Jet Propulsion Laboratory in Pasadena, Calif., which sent rovers to Mars. The lab is run by the California Institute of Technology.

John Sutton, deputy director of contracting at the Air Force's Arnold Engineering Development Center in Tennessee, is wary of any restrictions on award-term incentives. Three years ago, officials awarded a $2.7 billion contract for the center's operations that could extend up to 12 years. Using the award-term incentive saved millions of dollars, Sutton says, mostly through the avoidance of annual competitions.

"When you start getting too much regulation," he says, "you get reduced flexibility."

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