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SPECIAL INSPE CTOR GENE RAL FOR IRAQ RECONSTRUCTION
October 25, 2005
MEMORANDUM FOR COMMANDING GENERAL, JOINT CONTRACTING
COMMAND – IRAQ/AFGHANISTAN
SUBJECT: Award Fee Process for Contractors Involved in Iraq Reconstruction
(Report No. SIGIR-05-017)
We are providing this report for your information and use. We initiated an audit of the
award fee process for contractors involved in Iraq reconstruction in June 2005 as a result
of concerns previously brought to our attention by staff of the United States Army Corps
of Engineers, Gulf Region Division, Iraq. We performed the audit in accordance with
Public Law 108-106, which mandates the independent and objective conduct of audits
relating to the programs and operations funded with amounts appropriated or otherwise
made available to the Iraq Relief and Reconstruction Fund. Public Law 108-106, as
amended, requires that we provide for the independent and objective leadership and
coordination of and recommendations on policies designed to promote economy,
efficiency, and effectiveness in the administration of such programs and operations and to
prevent and detect waste, fraud, and abuse.
We considered comments received from the Joint Contracting Command -
Iraq/Afghanistan on a draft of this report when preparing the final report.
We appreciate the courtesies extended to the staff. For additional information on this
report, please contact Mr. Joseph T. McDermott by email at joseph.mcdermott@sigir.mil
or at (703) 428-1100, or Mr. James Carrera by email at james.carrera@sigir.mil or at
(703) 428-1100. For the report distribution, see Appendix E.
Stuart W. Bowen, Jr.
Inspector General
400 Army Navy Drive • Arlington, Virginia 22202

Special Inspector General for Iraq Reconstruction
Report No. SIGIR-05-017 (Project No. SIGIR-2005-10)
October 25, 2005
Award Fee Process
for Contractors Involved in Iraq Reconstruction
Executive Summary
Introduction. This audit report discusses the Award Fee Process for contracts awarded
for projects that are funded with the Iraq Relief and Reconstruction Fund.
The goal of award fees in contracting is to motivate a contractor’s performance by
offering financial incentives in areas critical to program success that are susceptible to
measurement and evaluation. Upon execution of a contract that contains an award fee
arrangement, the contracting officer initiates a process that provides incentives to a
contractor to improve performance and requires the Government to record assessments of
the contractor’s performance upon which award fees will be based.
Title II of Public Law 108-106, “Emergency Supplemental Appropriations Act for
Defense and for the Reconstruction of Iraq and Afghanistan, 2004,” authorized $18.4
billion for security, relief, rehabilitation, and reconstruction projects in Iraq funded
through the Iraq Relief and Reconstruction Fund (IRRF).
Objective. The overall objective of this audit was to determine whether award fees
provided to contractors performing IRRF-funded projects are adequately reviewed,
properly approved, sufficiently substantiated, and awarded according to established
standards. Specifically, we sought to determine whether:
• An award review board has been established, and pertinent policies and adequate
procedures have been consistently applied to the evaluation of award fees.
• Award fee plans clearly identified the specific award fee evaluation criteria for
assessing contractor performance and determining the amount of the award fee.
• The performance indicators were properly established, and the performance
requirements were properly defined.
• Award review board recommendations and determinations were supported by
appropriate evaluations of contractor performance.
• The award fee determination was documented in sufficient detail to show that the
integrity of the award fee determination process has been maintained.
Results. We reviewed the 18 cost-plus award-fee contracts funded with IRRF monies.
The contracts and the associated contract files were located at the Project Contracting
Office (PCO) and the Joint Contracting Command - Iraq/Afghanistan (JCC-I/A). The 18
contracts reviewed consisted of 11 design-build (DB) contracts valued at up to $6.75
billion and 7 program management and support (PMAS) contracts valued in excess of
$200 million. These 18 contracts were awarded through six different procuring activities.
i

In general, cost-plus-award-fee contracts include a base award fee (for simply meeting
contract requirements) and a merit-based award fee for performance that exceeds contract
expectations. For 16 of the 18 contracts, the base fee component was 3 percent, which is
the highest base fee allowed by the Department of Defense Federal Acquisition
Regulation (FAR) Supplement. To receive merit-based award fees, management should
evaluate and measure contractors’ performance against specific award fee evaluation
criteria, which should be provided in the contracts. However, the 18 contracts did not
contain the required criteria with definable metrics. This missing component creates the
potential for inflated contractor performance evaluations.
Further, the Army FAR Supplement 5116.405-2 states that “contractors should not
receive award fees (above the base fee) for simply meeting contract requirements.” For 9
of the 11 DB contracts, the award fee plans allowed awards of an additional 50 percent to
74 percent of the award fee pool for average results. For the 7 PMAS contracts, the
award fee plans permitted awards of an additional 60-70 percent of the award fee pool for
some performance above standard while still allowing several weaknesses in performance
to remain.
In addition, we reviewed award fee files and found that the Award Fee Evaluation Board
recommendations and determinations of fees were not documented in sufficient detail to
show that the integrity of the award fee determination process has been maintained. The
documentation we reviewed in contract files was insufficient to substantiate the award
fees that were approved.
On July 19, 2005, we provided the JCC-I/A, the PCO, and the U.S. Army Corps of
Engineers Gulf Region Division Award Fee Determining Official a briefing on the
interim results of our audit.1 At that time, these officials advised us that they were
implementing new procedures that would address many of the corrective actions we
identified. Since our July 19th briefing, the JCC-I/A and PCO have been proactive in
implementing corrective actions we identified during our review, including interim
recommendations. In fact, on July 23, 2005 JCC-I/A issued a new Award Fee Board
Policy. Consequently, we consider two of the conditions noted in the interim briefing
corrected, however, during the finalization of our audit, we identified conditions that
continue to need to be addressed and make the following additional recommendations.
Recommendations. We recommend that the Commanding General, Joint Contracting
Command - Iraq/Afghanistan:
1. Ensure that the appointments of the members of the Award Fee Evaluation Board,
specifically the Chairperson of the board, the board members (both voting and non-
voting), and the contract performance monitors are documented.
2. Continue to revise award fee plans to more clearly identify the specific award fee
evaluation criteria for assessing contractor performance by providing clearer metrics
and more quantifiable criteria that permit better performance evaluations.
ii
1 Interim Briefing to the Project and Contracting Office - Iraq and the Joint Contracting Command - Iraq on
the Audit of the Award Fee Process, SIGIR-05-010, July 26, 2005.

3. Continue to review and modify the current contracts to utilize a method of applying
the award fee to provide additional incentive for contractors to achieve quality results.
4. Ensure that the Award Fee Determination Officer’s and the Award Fee Evaluation
Board’s recommendations and determinations are fully documented as to their
rationale.
Management Comments and Audit Response. The Joint Contracting Command –
Iraq/Afghanistan concurred with four of five recommendations made in a draft of this
report, and provided a reason for the non-concurrence. For management comments, see
page 22. We agreed and changed our report accordingly.
iii

Table of Contents
Executive Summary i
Introduction
Background 1
Objective 2
Finding
Award Fee Process 3
Appendixes
A. Scope and Methodology 11
B. Acronyms 13
C. Contract Files Reviewed 14
D. JCC-I/A Award Fee Board Policy, dated July 23, 2005 15
E. Report Distribution 19
F. Audit Team Members 21
Management Comments
Joint Contracting Command - Iraq/Afghanistan 22

Introduction
Background
This audit report discusses the Award Fee Process for contracts funded from the Iraq
Relief and Reconstruction Fund (IRRF).
Public Law 108-106, as amended, mandates the Special Inspector General of Iraq
Reconstruction (SIGIR) to engage in the independent and objective conduct of audits
relating to the programs and operations funded with amounts appropriated or
otherwise made available to the IRRF. It also requires SIGIR to provide for the
independent and objective leadership and coordination of, and recommendations on,
policies designed to promote economy, efficiency, and effectiveness in the
administration of such programs and operations, and to prevent and detect waste,
fraud, and abuse.
Reconstruction Program. Title II of Public Law 108-106, “Emergency
Supplemental Appropriations Act for Defense and for the Reconstruction of Iraq and
Afghanistan, 2004,” authorized $18.4 billion for security, relief, rehabilitation, and
reconstruction projects in Iraq funded through the IRRF. The Coalition Provisional
Authority (CPA) established the Project Management Office (PMO) to execute the
Iraq infrastructure reconstruction program. During its initial planning stages for the
reconstruction of Iraq, the PMO identified over 5,000 potential Iraq infrastructure
reconstruction projects that it potentially could execute. From that initial review,
approximately 2,311 projects were selected for funding through the IRRF.
Project and Contracting Office. The CPA was the authority responsible for the
temporary governance of Iraq from April 2003 until June 28, 2004. Along with the
CPA, the PMO ceased to exist on June 28, 2004, and the Project and Contracting
Office (PCO) was established as its successor organization. The PCO is responsible
for over $12 billion dollars of IRRF funds and has management control of hundreds of
projects in the electricity, water, oil, health, transportation, education, security, and
justice sectors.
Joint Contracting Command - Iraq/Afghanistan. The Joint Contracting Command
- Iraq/Afghanistan (JCC-I/A) provides operational contracting support to the Chief of
Mission, PCO, and the Multi-National Force - Iraq (MNF-I). The Principal Assistant
Responsible for Contracting to the Commanding General, JCC-I/A, has responsibility
for the award fee plan and appointing the Award Fee Determination Official (AFDO).
The AFDO is a senior procurement official with responsibility for appointing the
Award Fee Board Evaluation Chairperson, Award Fee Evaluation Board, and
performance monitors.
United States Army Corps of Engineers, Gulf Region Division. United States
Army Corps of Engineers, Gulf Region Division (GRD) provides construction
management functions such as: construction execution and closeout; construction
administration; property management; safety; quality assurance; schedule analysis;
Administrative Contracting Officer delegation; and construction progress reporting to
PCO. GRD also provides some construction management services to the MNF-I and
the Multi-National Security Transition Command - Iraq.
Federal Acquisition Regulation. Federal Acquisition Regulation, Subpart 16.3 and
16.4, entitled “Cost Reimbursement Contracts,” sets specific award fee requirements
for cost-reimbursement contracts that provide for: (1) a base amount fixed at inception
of the contract; and (2) an award amount that the contractor may earn in whole or in
1

part during performance and that is sufficient to provide motivation for excellence in
such areas as quality, timeliness, technical ingenuity, and cost-effective management.
The amount of the award fee is determined by the Government’s judgmental
evaluation of the contractor’s performance based on the criteria stated in the contract.
This determination and the methodology for determining the award fee are decisions
that rest solely within the discretion of the Government.
Defense Federal Acquisition Regulation Supplement (DFARS). Defense Federal
Acquisition Regulation Supplement, Subpart 216.405-2, states that a cost-plus-award-
fee (CPAF) contract is suitable for level-of-effort contracts where mission feasibility
is established but measurement of better-than-expected achievement must be by
subjective evaluation rather than objective measurement.
Army Federal Acquisition Regulation Supplement (AFARS). The Army Federal
Acquisition Regulation Supplement Sub-part 5116.4052, entitled, “Cost-plus-award-
fee Contracts,” states the intended goal of award fee contracting is to motivate the
contractor’s performance in those areas critical to program success that are
susceptible to measurement and evaluation. By entering into an award fee
arrangement, the contracting officer initiates a process that provides incentives to a
contractor to perform at a superior level and requires the government to record
assessments of the contractor’s performance upon which the award fee will be based.
Objective
The overall objective of this audit was to determine whether award fees are
adequately reviewed, properly approved, sufficiently substantiated, and awarded
according to established standards. Specifically, we sought to determine whether:
• An award review board has been established, and pertinent policies and
adequate procedures have been consistently applied to the evaluation of
award fees.
• Award fee plans clearly identified the specific award fee evaluation criteria
for assessing contractor performance and determining the amount of the
award fee.
• The performance indicators were properly established, and the
performance requirements were properly defined.
• Award review board recommendations and determinations were supported
by appropriate evaluations of contractor performance.
• The award fee determination was documented in sufficient detail to show
that the integrity of the award fee determination process has been
maintained.
For a discussion of the audit scope, methodology, and a summary of prior coverage,
see Appendix A. For definitions of the acronyms used in this report, see Appendix B.
For the list of contract files reviewed see Appendix C. For a list of the audit team
members, see Appendix F.
2

Award Fee Process
Award Fee Process Administration Criteria
The 18 contracts and associated contract files reviewed consisted of 11 design-build
(DB) contracts with a not-to-exceed value of up to $6.75 billion, and 7 program
management and support (PMAS) contracts with a value in excess of $200 million.
The contracts, contract files, and the Award Fee Evaluation Board’s (AFEB)
summaries and supporting documentation were located at PCO and JCC-I/A. The
Award Fee Plan for each contract describes the policies and procedures for
determining award fees and outlines the duties and responsibilities of personnel
associated with the award fee process.
Documentation could not be located for the required appointment of the AFEB
Chairperson, performance monitors, or for the other board members in the contracts.
Moreover, the AFEB recommendations and determinations were not documented in
sufficient detail to show that the integrity of the award fee determination process had
been maintained. Additionally, the Award Fee Determination Official’s (AFDO)
decisions were not documented in sufficient detail to show that the integrity of the
award fee determination process has been maintained during the entire period
reviewed. These conditions occurred because the PCO did not establish adequate
administrative processes, controls, and criteria to properly administer the Award Fee
Evaluation Board.
We looked at two award fee periods governing the 18 contracts awarded in January
2004 through July 2005. For those periods, we found deficiencies in the following
areas for each contract file reviewed:
AFEB Chairperson:
• 1st Award Fee Period: 9 of 18 contract files reviewed did not document the
required chairperson appointment.
• 2nd Award Fee Period: 7 of 18 contract files reviewed did not document the
required chairperson appointment.
Contract Performance Monitor:
• 1st Award Fee Period: 14 of 18 contract files reviewed did not document any
monitor appointments.
• 2nd Award Fee Period: 12 of 18 contract files reviewed did not document any
monitor appointments.
AFEB Members:
• 1st Award Fee Period: 13 of 18 contract files reviewed did not document any
appointments.
• 2nd Award Fee Period: 12 of 18 contract files reviewed did not document any
appointments.
3

Moreover, limited evidence was found indicating that the required monthly contract
assessments were performed.
Performance Monitor’s Monthly Reports:
• 1st Award Fee Period: 13 of 18 contract files reviewed showed no evidence of
monthly monitoring being performed.
• 2nd Award Fee Period: 12 of 18 contract files reviewed showed no evidence
of monthly monitoring being performed.
AFEB Monthly Meetings:
• 1st Award Fee Period: 16 of 18 contract files reviewed showed no evidence of
monthly meetings.
• 2nd Award Fee Period: 13 of 18 contract files reviewed showed no evidence
of monthly meetings.
Additionally, self-assessments from contractors were not always documented in the
contract files.
• 1st Award Fee Period: 9 of 18 contract files reviewed showed no evidence of
the contractor’s self-assessments.
• 2nd Award Fee Period: 5 of 18 contract files reviewed showed no evidence of
the contractor’s self-assessments.
Because of the poor administration of contract files for award fees, contractors have
successfully appealed adverse decisions made by the AFEB. For example, Contract
No. W914NS-04-C-0007, awarded to Foster Wheeler, received an evaluation score of
15% at the end of the 1st award period (March – September 2004), which should have
resulted in no award fee to the contractor. However, Foster Wheeler appealed the
decision because of management’s failure to perform monthly performance meetings
and the absence of the required performance feedback. The U.S. Government
subsequently awarded Foster Wheeler a score of 50%, which resulted in an award fee
of $439,145 that was paid from the award fee pool of $878,291. The final decision
approving the award fee was issued in a contract modification that allowed payment
of the award fee in February 2005.
Award Fee Plan Criteria
The Award Fee Plan in each contract describes the policies and procedures for
determining award fees and outlines the duties and responsibilities of personnel
associated with the award fee process. However, Award Fee Plans we reviewed did
not clearly identify specific award fee evaluation criteria and performance indicators
were not properly established.
Specifically, we found that the evaluation criteria were subjective with few metrics
being used. Schedule Adherence Criteria used undefined terms such as “timeliness,
accuracy, and completeness of performance,” as the standard of review. Cost Control
Criteria used general terms such as “maintain effective cost control measures” as the
standard of review. Quality Control Criteria used measurement terms such as
“minimization of rework” as the standard of review. The effect of having evaluation
criteria without clearly defined metrics could have the potential to result in inflated
contractor performance evaluations and consequently inappropriately approved award
fees.
4

We reviewed 11 award fee contract files for design-build contractors and 7 award fee
files for program management and support contractors. We found the following
performance ratings for the 2nd award fee period, as approved by the AFEB for the 18
contracts:
For the 11 Design-Build contract files:
• 1 below average rating of 66.9%.
• 1 average rating of 67.3%.
• 4 above average ratings of 82.0% to 86.6%.
• 5 excellent ratings of 93.8% to 96%.
For the 7 PMAS contract files:
• 1 very good rating of 78.3%.
• 6 outstanding ratings of 93.5% to 98.7%.
Cost-plus award-fee contracts allow the government to evaluate a contractor’s
performance according to specific criteria and to grant an award amount within
designated parameters. Award fees can serve as a valuable tool to help control
program risk and encourage excellence in contract performance.
The current award fee plan does not provide proper incentives for contractors to strive
for better-than-expected results. For example, 16 of the 18 Award Fee Plans reviewed
allow awards tied the amount of the award directly to the performance grade (e.g., a
70 percent performance score results in a 70 percent award from the fee pool),
whereas the other two Award Fee Plans3 were scaled, allowing no award fee for a
score less than 70 and rising proportionally from there.
Per the Army FAR Supplement (AFARS 5116.405-2) “contractors should not receive
an award fee (above the base fee) for simply meeting contract requirements.” The
base fee is three percent of the negotiated contract/task order cost for 16 of the 18
contracts we reviewed; which is the highest base fee percentage allowed by the
DFARS. For 7 of the 18 contracts (the PMAS contracts), the award fee plans allowed
awards of an additional 60-70 percent of the award fee pool for performance above
standard (but still with several weaknesses). For 9 of the 18 contracts (design-build
contracts), the award fee plans allowed awards of 50-74 percent of the award fee pool
for simply average results.
The award fee plans allowed 50-60 percent of the award fee pool to be earned for
meeting minimum requirements. For example, for the seven PMAS contracts, a
minimum of 60 percent of the award fee pool is awarded if the contractor receives a
performance score of 60 (which equates to some part of the performance above
standard but with several weaknesses) and earns up to 100 percent of the award fee
pool for earning a performance score of 100. This is illustrated in Chart 1. For 9
design-build contracts, a minimum of 50 percent of the award fee pool is awarded if
the contractor receives a performance score of 50 (which equates into average results)
3 Contracts W9126G-04-D-0001 and W9126G-04-D-0002 have criteria that performance scores less
than 70 percent receive no fees, and award fees begin at zero percent for meeting the specifications and
increasing to 100 percent of the award fee for a performance score of 100. The remaining 16 contracts
receive a percentage of the award fee pool equal to their performance score, provided the score is not
unsatisfactory (i.e. performance score of 75 received 75 percent of award fee pool, 91 performance
score receives 91 percents of the award fee pool, etc.)
5

and earns 100 percent of the award fee pool for earning a performance score of 100.
The chart also illustrates the award fee pool awards used by W9126G-04-D-0001 (D-
001) and W9126G04-D-0002 (D-002) for their performance rating.
Chart 1 - Based Upon Performance Rating
Current Award Fee Plan - Percent of Award Fee Pool That Can be Earned
100
PMAS Contracts (7 of 18)
Design-Build Contracts (9 of 18)
Percent of fee awarded
80
D-001/D-002 Contracts (2 of 18)
60
40
20
0
0 10 20 30 40 50 60 70 80 90 100
Performance Score
The Army Contracting Activity (ACA) Award Fee Contracts Guide identifies a more
common and apt award fee mechanism called the “cubic scale.” This alternate
method for distributing award fees more properly rewards superior performances and
complies more fully with the Army FAR Supplement (AFARS 5116.405-2), which
requires superior performance for an award fee. As illustrated in Chart 2, the cubic
scale is similar to the award used for D-001 and D-002, although the cubic scale is
slightly more generous in awarding fees at the lower scores than D-001/D-002.
6

Chart 2 - Comparative Analysis of the Current Scoring Scale to the Cubic Scale
D-001/D-002
Cubic
100
80
PMAS
Design-Build
Percent of Award Fee
60
40
20
0
40 50 60 70 80 90 100
Performance Rating
The cubic award fee scale or another award fee scale as deemed appropriate by the
Contracting Officer could be applied through a unilateral modification to existing
contracts prior to the start of a performance period.
The effect of using the cubic scale to compute the award fee pool to be awarded for a
corresponding performance score is shown by the following table, which illustrates
the award fee that would have been awarded using the cubic award fee scale for
awarding fee versus using the current methodology of awarding fee.
Table 1: Comparison of Cubic Award Fee Scale verses Current Award Fee
Methodology
Award Fees
Actual Award
Using Cubic
Fees Using
Strategy for
Current Fee
Awarding Fee
Strategy
For the 11 Design-Build Contracts Reviewed:
1 below average rating of 66.9%* $ 0 $ 0
1 average rating of 67.3% 309,436 1,666,772
4 above average ratings of 84.7% to 86.6% 21,088,041 27,616,696
5 excellent ratings of 93.8% to 96% 20,536,016 21,062,281
For the 7 PMAS contracts reviewed:
1 very good rating of 78.3% 49,787 86,667
6 outstanding ratings of 93.5% to 98.7% 9,327,239 9,479,620
* No award fee is awarded for below average performance.
7

As is evident from Table 1, the contractors who exceed contract expectations make
award fees approaching the maximum. The contractors whose award fees are affected
most are those who perform at a marginal level or average level.
Documentation of the AFEB’s Determination Criteria
To determine whether the AFEB recommendations and determinations are supported
by appropriate evaluations of contractor performance, we reviewed the supporting
documentation provided to the AFDO to support the AFEB’s determination.
The AFEB recommendations and determinations were not documented in sufficient
detail to show that the integrity of the award fee determination process has been
maintained. Specifically, we found that:
• 15 of 18 contracts reviewed showed no evidence of either the monitor’s
monthly reviews or the AFEB board monthly meetings with the contractor
during the first award fee period as required by the award fee plan.
• 12 of 18 contracts reviewed showed no evidence of either the monitor’s
monthly reviews or the AFEB board monthly meetings with the contractor
during the second award fee period as required by the award fee plan.
In addition, we reviewed the method used by the AFEB to determine the award fee on
the Design Build contracts that involved multiple Task Orders (TO). Each TO has its
own award fee pool, and thus, each TO should be evaluated individually. For the first
award fee period, the contracts had not matured to the point of having significant TOs
under each contract, so we took no exception for this period. However, during the
second award fee period that we reviewed, we found no evidence that the AFEB
looked at the TOs on an individual basis and found no evidence that the AFEB
weighed the TOs as to their significance in award dollars (to the total contract value)
in 10 of the 18 contracts reviewed. Thus, without sufficient evidence to document
and support the awarding of award fees under each TO, we were unable to ensure the
validity of the fees or the integrity of the award fee determination process.
Documentation of the Award Fee Determination Criteria
Overall, the award fee determinations we reviewed were not documented in sufficient
detail to demonstrate that the integrity of the award fee determination process had
been maintained.
• 16 of the 18 contracts reviewed showed no evidence that the AFDO decisions
were documented in sufficient detail to maintain the integrity of the Award
Fee Process for the first award fee period.
• 7 of the 18 contracts reviewed showed no evidence that the AFDO decisions
were documented in sufficient detail to maintain the integrity of the Award
Fee Process for the second award fee period
We did note that during the second award fee period, improvements had been made
regarding the level of contract file documentation maintained by the AFDO. In
addition to the written correspondence that either approved or disapproved the AFEB
decision, the current AFDO documented the meetings held with the AFEB regarding
their recommendations, the rationale behind his decisions, and made his personal
electronic and written files available for our review.
8

Management Actions
JCC-I/A and PCO have been proactive in implementing corrective actions that we
identified. Notable examples include:
• Contract files have been indexed and filing system improved.
• JCC-I/A has conducted additional training regarding Award Fees and the
process to use for personnel involved in evaluating contractor performance.
• JCC-I/A issued an Award Fee Board policy dated July 23, 2005, to provide
guidance on the responsibilities for award fee evaluation and administration –
see Appendix D. This policy include provisions that:
o Emphasize that the contractor earns an award fee by performing the
work requirements as stated in the contract and by excelling in the
areas specified in the award fee plan.
o The contractor begins each evaluation period with 0% of the available
award fee and works up to the evaluated fee for each evaluation period,
the PMAS contractors serve primarily as performance monitors and
provide input to the AFEB on contractor performance.
o The AFEB shall be composed of only Government personnel and that
performance monitors and other technical experts serve in advisory
capacity only and may not participate during AFEB discussions.
o Rollover of fees to successive periods is normally not permitted other
than for reasons such as Government-caused delay or changes to the
performance work statement.
o The Contracting Officer is an AFEB member to ensure contract
integrity, contract compliance, and centralization of contract files.
• JCC-I/A has coordinated with PCO and the AFDO, and has notified the
contractors of the intent to change the award fee plans for the next award fee
evaluation period to ensure that issues such as property management,
inventory control, and changes in the rating and applications of award fees
will be incorporated into future award fee plans.4
• JCC-I/A is in the process of revising the award fee scales to provide added
incentives to encourage excellence in contract performance; a performance
evaluation of less than good will no longer earn award fee.
Because management actions were still ongoing at the time our audit work was
concluded, we could not assess the ultimate efficacy of all those actions. In our
opinion, however, two of the cited conditions have been corrected and the results of
these remaining actions probably will aid in the correction of the other conditions
identified in this report.
Conclusion
Although JCC-I/A and PCO have been proactive in improving the award fee process,
we believe there are additional opportunities that can be made by leveraging the
award fee pool by applying an alternate methodology (e.g., cubic scale, improved
metrics and criteria) that is transparent to determine award fees in a way that
4In response to Interim Briefing to the Project and Contracting Office - Iraq and the Joint Contracting
Command - Iraq on the Audit of the Award Fee Process, dated July 19, 2005.
9

encourages contractors to demonstrate above-expectations efforts toward
accomplishing the tasks and functions cited in the contract to reward performance
excellence.
Since our July 19th briefing, the JCC-I/A has been proactive in implementing
corrective actions we identified during our review, including interim
recommendations. In fact, on July 23, 2005, JCC-I/A issued a new Award Fee Board
Policy (see Appendix D). Consequently, two of our recommendations in the interim
report have already been implemented. However, during the finalization of our audit,
we identified conditions that continue to need to be addressed and make the following
additional recommendations.
Recommendations, Management Comments, and Audit
Response
We recommend that the Commanding General, Joint Contracting Command -
Iraq/Afghanistan:
1. 2. 3. 4. Ensure the appointments of the members of the Award Fee Evaluation Board,
specifically the Chairperson of the board, the board members (both voting and
non-voting), and the contract performance monitors are documented.
Continue to revise award fee plans to more clearly identify the specific award fee
evaluation criteria for assessing contractor performance (i.e. more metrics, and/or
quantifiable criteria to distinguish between a poor performer and an excellent
performer).
Continue to review and modify the current contracts to utilize a method of
applying the award fee to provide additional incentive for contractors to achieve
quality results.
Ensure that the Award Fee Determination Official’s and the Award Fee
Evaluation Board’s recommendations and determinations are appropriately
documented as to their rationale.
Management Comments. The Joint Contracting Command - Iraq/Afghanistan
concurred with four of five recommendations made in a draft of this report, and
provided a reason for the non-concurrence. For management comments, see page 22.
Audit Response. We agreed and changed our report accordingly.
10

Appendix A. Scope and Methodology
We initiated this audit because Mr. Stuart W. Bowen, Jr., Special Inspector General
for Iraq Reconstruction met with the AFDO, Mr. James Dalton, Director of Business
Management, United States Army Corps of Engineers, Gulf Region Division (GRD),
to discuss the Award Fee Process. Mr. Dalton identified several deficiencies
occurring in the award fee process during the meeting as follows:
• The current procedure of awarding fees by the AFEB is that the contractor
starts at 100 percent of the award fee pool, decreases the percentage if
problems are found with the contractor’s performance. This is contrary to the
concept of award fees. The award fee process should operate according to the
award fee plan, that is, award fees are awarded based upon the performance
score which ranges from average performance to excellent (performance
scores of less than average receive no award fees.)
• Previous AFEB comments have not been sufficient to justify the contractor’s
performance, either good or bad.
• Unearned fee was carried over into the next evaluation period by the previous
AFDO. Mr. Dalton did not believe this was the correct process, that the
contractor should do their best to earn the entire award fee during the period
being rated, and no carryover will be provided, except for elements of the
award fee plan that cannot be performed during the rating period.
Mr. Dalton identified the 18 contracts that were Cost Plus Award Fee (CPAF)
contracts. We decided to review all 18 contracts. The 18 contracts reviewed consisted
of 11 design-build contracts valued at up to $6.75 billion, and 7 program management
and support (PMAS) contracts valued in excess of $200 million. These 18 contracts
were awarded by six different procuring activities.
The on-site review of the AFDO’s files was conducted from the 1st and 2nd Award
Fee periods, at the PCO Compound in June 2005. We also evaluated documents,
procedures, and processes at the JCC-I/A. We reviewed the hard contract files and
electronic contract files including emails, WORD documents, EXCEL spreadsheets,
and PDF files not contained in hardcopy format at the JCC-I/A between June 11, 2005
and June 25, 2005. We conducted interviews with JCC-I/A managers and staff to
discuss contract and task order procedures with key personnel at both JCC-I/A and the
PCO.
As a basis for our review and evaluation, we used:
• Provisions of Public Law 108-106, “Emergency Supplemental
Appropriations Act for Defense and for the Reconstruction of Iraq and
Afghanistan, 2004”.
• Federal Acquisition Regulation Part 16.3 and 16.4, “Cost-reimbursable
Contracts”.
• Defense Federal Acquisition Regulations 216.405-2, Cost-plus-award-fee.
• Army Federal Acquisition Regulations 5116.405-2, Cost-plus-award-fee
contracts.
• Procedural guides from the Army Contracting Agency.
11

We conducted interviews with the Head of the Contracting Activity and the Principal
Assistant Responsible for Contracting, a Sector Chief, five contracting officers, and
two contract specialists. Our review included contracts with effective dates from
January 2004 through July 2005.
In addition, we made inquires to the other recipients of IRRF monies, specifically, the
U.S. Agency for International Development, the Multi-National Security Transition
Command – Iraq, the Air Force Center for Environmental Excellence, Gulf Region
Division, and the Department of State. Except for the Department of State, who did
not respond to our inquiries, none of the recipients utilized CPAF contracts at the time
of this review. However, based upon our review of available IRRF contract
databases, we believe that any CPAF contracts awarded by the Department of State
were not significant to this review. Thus, we used our universe of 18 contract files to
test the Award Fee process by determining whether the minimally required documents
were contained in each file.
We performed this performance audit in accordance with generally accepted
government auditing standards.
Use of Computer-Processed Data. perform this audit.
Prior Coverage. We did a search of the Government Accountability Office (GAO),
the Office of Inspector General Department of Defense (DoDIG), and the Special
Inspector General for Iraq Reconstruction (SIGIR - formerly the Office of the
Inspector General, Coalition Provisional Authority), NASA, and Army Audit Agency
web sites for “Cost Plus Award Fee,” type reports. The GAO reports can be accessed
over the Internet at http://www.gao.gov. The DoDIG reports can be assessed at
http://www.dodig.osd.mil/audit/reports. SIGIR reports can be located over the
internet at http://www.sigir.mil. The search was conducted for dates July 2000 to
August 2005, using “Cost Plus Award Fee,” as the search keywords. There were no
recent GAO, DoDIG, or SIGIR reports on Cost Plus Award Fee contracts. One Army
Audit Agency report was provided in hardcopy and is referenced below.
Army Audit Report No. 01-169, “Best Practices for Using Award Fees.” February
20, 2001.
We did not use computer-processed data to
12

Appendix B. Acronyms
ACA Army Contracting Activity
AFDO Award Fee Determination Official
AFEB Award Fee Evaluation Board
CPA Coalition Provisional Authority
CPAF Cost Plus Award Fee
DB Design-Build
FAR Federal Acquisition Regulation
GRD Gulf Region Division
IRRF Iraq Relief and Reconstruction Fund
JCC-I/A Joint Contracting Command – Iraq/Afghanistan
MNF-I Multi-National Force - Iraq
PCO Project and Contracting Office
PMAS Program Management and Support
PMO Project Management Office
SIGIR Special Inspector General for Iraq Reconstruction
TO Task Order
13

Appendix C. Contract Files Reviewed
The 18 contract files reviewed during this audit are listed below.
Contract Value
Contract Number Contractor Sector
7 June 2005
W914NS-04-C-0001 AECOMS PCO Services $ 40,466,723 W914NS-04-C-0002
Iraq Power
Alliance PMAS Electrical 49,202,499 W914NS-04-C-0003
CH2M
Hill/Parsons
PMAS Public Works
& Water 67,001,082 W914NS-04-C-0004 Berger, URS
PMAS Facilities &
Transportation 3,000,000 W914NS-04-C-0005 Berger, URS
PMAS Facilities &
Transportation 4,000,000 W914NS-04-C-0006 Berger, URS
PMAS Facilities &
Transportation 5,553,043 W914NS-04-C-0007
Foster
Wheeler PMAS Oil 29,802,165 W912G6-04-D-0001 KBR Oil 763,077,645 W912G6-04-D-0002 Parsons/Iraq Oil 267,139,474 W914NS-04-D-0003 Fluor-AMEC Electrical Generation 193,839,567 W914NS-04-D-0005 Lucent
Facilities,
Transportation. &
Communications 142,497,133 W914NS-04-D-0006
Parson's
Delaware
Facilities,
Transportation. &
Communications 382,492,138 W914NS-04-D-0007
Washington
International
Public Works &
Water 86,131,671 W914NS-04-D-0008 Fluor-AMEC
Public Works &
Water North 41,557,713 W914NS-04-D-0009
Parson's
Delaware
Facilities,
Transportation. &
Communications 381,192,583 W914NS-04-D-0010
Washington
International Electrical T/D North 368,515,403 W914NS-04-D-0011 Perini Electrical T/D South 291,323,523 W914NS-04-D-0022 Fluor-AMEC
Public Works &
Water South 15,768,393 TOTAL $ 3,331,586,267
14
Contract
Issue Date 3/10/2004
3/10/2004
3/10/2004
3/10/2004
3/10/2004
3/10/2004
3/11/2004
1/16/2004
1/16/2004
3/11/2004
3/23/2004
3/25/2004
3/11/2004
3/23/2004
3/26/2004
3/12/2004
3/12/2004
3/23/2004
Contract Issued By
Pentagon Renovation
Office
Pentagon Renovation
Office
Pentagon Renovation
Office
Pentagon Renovation
Office
Pentagon Renovation
Office
Pentagon Renovation
Office
Pentagon Renovation
Office
United States Agency
for International
Development
Army Corps of
Engineers
Coalition Provisional
Authority
Coalition Provisional
Authority
Department of the
Army
Coalition Provisional
Authority
Naval Facilities
Engineering
Coalition Provisional
Authority
Coalition Provisional
Authority
Coalition Provisional
Authority
Naval Facilities
Engineering

Appendix D. JCC-I/A Award Fee Board Policy
US DEPARTMENT OF THE ARMY
JOINT CONTRACTING COMMAND-IRAQ/AFGHANISTAN
APO AE 09316
Reply to:
JCC-I/A/A-R 23 July 2005
MEMORANDUM FOR: JCCI-R Sector Chiefs / Contracting Officers / Award Fee
Determining Official / Award Fee Board Chairmen / PCO Program Managers
SUBJECT: Award Fee Board Policy
1. The purpose of this policy is to provide information and guidance on the responsibilities
for award fee evaluation and administration on JCC-I/A/A-R CPAF contracts. Contracting
officers and those who participate during award fee management in the Iraq theater may
change several times during the extended performance of IDIQ contracts for reconstruction
and construction management services. This policy is an effort to maintain continuity during
transitions which will inevitably occur. This policy does not restrict or deviate from any
requirement of the FAR, DFARS, or AFARS. A more in-depth review of award fee
contracts is provided in the ACA Handbook for “Award Fee Contracts” and is posted on the
ACA web site at http://aca.saalt.army.mil/. We strongly encourage that anyone administering
a CPAF contract or participating on an AFB to read or review this guide periodically.
2. Under the terms of a cost reimbursement contract, the Government reimburses for a “best
effort” where the Government assumes all or most of the performance risk. Award fee
provisions are added to a cost reimbursement contract to provide an incentive to excel in
critical performance areas emphasized in an Award Fee Plan (AFP). The award fee process
evaluates a contractor’s performance level and rewards superior performance by providing a
“bonus” based upon evaluated factors incorporated in the contract AFP.
3. The CPAF type contract provides for a fixed portion of the fee (base fee) to be paid for
compliance when meeting all term and conditions of the contract and by an additional award
fee to be earned based upon level of performance tied to critical evaluation factors contained
in the AFP. It is important to emphasize that the contractor earns an award fee by performing
the work requirements as stated in contract and by excelling in the areas specified in the AFP
and not by doing what the program manager or other government personnel may want of the
contractor on a particular day. Government personnel must avoid the temptation to try to get
“extra” work using the subtle threat of withholding award fee.
4. Available award fee during the evaluation period must be earned. The contractor begins
each evaluation period with 0% of the available award fee and works up to the evaluated fee
for each evaluation period. Contractors do not begin with 100% of available fee and have
deductions withdrawn to arrive at the evaluated fee.
15

5. The AFP and the managing structure should avoid becoming an overly structured process.
Simplicity is the key – a simple plan is more direct, easier to follow and simpler to defend. It
should be based on a few critical factors that best reflect desired end product. A simple plan
also reduces layers of review. The AFP establishes the methods that the Government will use
to assess performance and includes performance evaluation criteria. The AFP is a living
document and, due to changing priorities, may change during contract performance. The AFP
may be changed unilaterally by the Government if the change occurs at least 30 days before
the beginning of the next evaluation period. If the change occurs during the evaluation period,
then it must be bilateral, i.e. a negotiated agreement between the parties. The plan also
establishes the standard to measure how well a contractor is performing.
6. AF evaluations and earned fee determinations are based upon subjective performance
evaluations provided by the Award Fee Evaluation Board (AFEB) and an Award Fee
Determining Official (AFDO). It is important that the personnel involved with the AF
process understand their roles and responsibilities. This team includes the program manager,
performance monitors (PMAS contractors or CORs), the AFEB and the AFDO.
7. The program manager has responsibility for the performance work statement (PWS)
technical function. The PM maintains overall technical responsibility for the mission and
provides technical oversight and guidance to the performance monitors.
8. The PMAS contractors serve primarily as performance monitors and provide input to the
AFEB on contractor performance. The monitors provide continuous evaluation and
assessment of the contractor’s daily performance. This daily monitoring and regular reporting
are the foundation of the award fee evaluation process. The monitor must be familiar with the
contract requirements and the rating criteria of the AFP. Performance monitors are not
members of the AFEB.
9. The AFEB is responsible for review of the performance monitors’ evaluations, the
contractor’s self-evaluation, and any other information to arrive at an overall objective and
impartial position on the contractor’s performance. The AFEB shall be composed of only
Government personnel. The AFEB will consist of a chairperson, the contracting officer and
up to five additional voting members. The contracting officer will be a voting member. All
members will be experts in their fields. In addition there will be a recorder who is a non-
voting member. The recorder coordinates the administrative actions required by the AFDO,
AFEB and performance monitors. The AFEB members must be familiar with the award fee
process, contract requirements, and the AFP. Performance monitors and other technical
experts serve in advisory capacity only and may not participate during AFEB discussions.
10. The AFDO is independent of the AFEB and makes the final decision that determines the
amount of award fee earned during the evaluation period. The AFDO will be appointed in
accordance with the AFP and should be a staff member at a senior level. The AFDO will be
designated by position title rather than by name in the AFP. The AFDO becomes involved in
the evaluation process only after the AFEB has met and agreed on a recommended award fee
amount. The AFDO’s role is to independently evaluate the AFEB recommendation, to
consider any contractor self-assessment, and to render a final decision on the amount of fee
earned for the period. The AFDO’s final decision must be documented and provided to the
contractor. If the decision varies upward or downward from the AFEB’s recommendation,
the rationale for the change shall be documented in the contract file (not with the decision
letter) and related back to the AFP. The AFDO letter should be provided to the contractor
within 5 days after the decision and simultaneously with the modification signed by the
contracting officer to obligate the fee amount. The contractor can then immediately invoice
for the earned fee.
16

11. The board processes and timelines will be established in the AFP. All members should be
prepared and available for the scheduled session(s). The chairperson or recorder will
generally set the meeting date and assure that all documents are ready to review. The
contracting officer will notify the contractor of the date, time and location where the
contractor may present a self-evaluation to the AFEB. The performance monitors provide
surveillance observations for the period to the program manager who will then provide this
information to the AFEB. The AFEB chairperson should meet monthly with the performance
monitors to ensure that they are documenting performance. Feedback should also be provided
to the contractor on a monthly basis to identify negative performance trends and to give the
contractor an opportunity to take corrective action.
12. The AFEB will convene within two weeks after the end of the rating period in order to
complete the process within 45 days from the end of the rating period. The chairperson should
arrange for refresher training or training of new board members prior to the meeting if
needed. Once the board is in session the chairperson should provide a brief overview of the
evaluation criteria, purpose of the meeting, and introduction of any new members. The
contractor will be allowed to present a self-evaluation to the AFEB with a follow-up written
analysis. The board members may ask questions, but will not discuss the Government
surveillance reports with the contractor. Performance monitors will not attend the board
meeting. This is a fact-finding meeting and should be conducted in a non-adversarial manner.
13. After completion of the contractor self-evaluation, the board will reconvene and discuss
the performance monitor’s evaluation report along with any other information relating to
contractor performance. The task is then to decide how well the contractor performed in each
area using the metrics provided in the AFP. Voting members will individually score
contractor performance in writing. These individual reports will be submitted to an assigned
individual for consolidation into a single weighted and rated recommendation for award fee.
The consolidated rating will be included in the AFEB report to the AFDO along with a
synopsis of strengths and weaknesses, the contractor’s self-evaluation, and any other key
factors that were considered.
14. The AFDO will review the recommendation for award fee and, if necessary, request
clarification of issues. The AFDO will determine the dollar amount and provide a written
analysis of the contractor’s strengths, weaknesses and award fee amount for distribution to the
contractor. This process should be complete within 45 days after the end of the rating period.
Once the decision has been made the Contracting Officer will unilaterally modify the contract
to obligate funds. (NOTE: In accordance with DFAS-IN 37-1, a CPAF contract is to be
obligated upon award less the award fee amount.) Once the AF determination is made, the
Prompt Payment Act becomes effective so timely modification is critical.
15. The definition of the award fee pool is the total dollars available for each evaluation
period. The award fee allocated for each evaluation period is the maximum amount that can
be earned during that period. This amount is established prior to award of the contract or task
order and included in the AFP. Changes to this amount may occur only as a result of new
work negotiated via supplemental agreement to an existing task order or definitization of a
new task order.
16. Rollover of fees to successive periods is normally not permitted other than for reasons
such as Government-caused delay or changes to the performance work statement. The reason
for rollover of fee must be documented in the file. If the unearned fee is rolled over, the
contracting officer must monitor the appropriation for violation of the “bona fide need rule”.
However, the Government may move a portion of fee from one performance period to another
17

so long as it is not associated with failure to earn fee in previous evaluation periods. may be done unilaterally if done before the start of the next evaluation period.
This
17. Continuous communication with the contractor during the evaluation period is critical.
Meetings should be conducted monthly and attended by the contractor, performance monitors
and members of the AFEB. Informal monthly evaluation reports will be prepared; however,
these reports will not be scored or assigned any type of rating. These reports should be used
when the AFEB convenes for the formal evaluation at the end of the award fee period.
/s/
Edwin H. Martin
Colonel, USA
Principal Assistant Responsible
for Contracting
18

Appendix E. Report Distribution
Department of State
Secretary of State
Senior Advisor to the Secretary and Coordinator for Iraq
U.S. Ambassador to Iraq
Director, Iraq Reconstruction Management Office
Inspector General, Department of State
Department of Defense
Secretary of Defense
Deputy Secretary of Defense
Director, Defense Reconstruction Support Office
Under Secretary of Defense (Comptroller)/Chief Financial Officer
Deputy Chief Financial Officer
Deputy Comptroller (Program/Budget)
Inspector General, Department of Defense
Department of the Army
Assistant Secretary of the Army for Acquisition, Logistics, and Technology
Principal Deputy to the Assistant Secretary of the Army for Acquisition,
Logistics, and Technology
Deputy Assistant Secretary of the Army (Policy and Procurement)
Director, Project and Contracting Office
Commanding General, Joint Contracting Command – Iraq/Afghanistan
Assistant Secretary of the Army for Financial Management and Comptroller
Chief of Engineers and Commander, U.S. Army Corps of Engineers
Commander, Gulf Region Division
Auditor General of the Army
U.S. Central Command
Commanding General, Multi-National Force – Iraq
Commanding General, Multi-National Security Transition Command – Iraq
Commander, Joint Area Support Group – Central
Other Defense Organizations
Director, Defense Contract Audit Agency
19

Other Federal Government Organizations
Director, Office of Management and Budget
Comptroller General of the United States
Inspector General, Department of the Treasury
Inspector General, Department of Commerce
Inspector General, Department of Health and Human Services
Inspector General, U.S. Agency for International Development
Mission Director – Iraq, U.S. Agency for International Development
Congressional Committees and Subcommittees, Chairman
and Ranking Minority Member
U.S. Senate
Senate Committee on Appropriations
Subcommittee on Defense
Subcommittee on State, Foreign Operations and Related Programs
Senate Committee on Armed Services
Senate Committee on Foreign Relations
Subcommittee on International Operations and Terrorism
Subcommittee on Near Eastern and South Asian Affairs
Senate Committee on Homeland Security and Governmental Affairs
Subcommittee on Federal Financial Management, Government Information
and International Security
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia
U.S. House of Representatives
House Committee on Appropriations
Subcommittee on Defense
Subcommittee on Foreign Operations, Export Financing and Related
Programs
Subcommittee on Science, State, Justice and Commerce and Related
Agencies
House Committee on Armed Services
House Committee on Government Reform
Subcommittee on Management, Finance and Accountability
Subcommittee on National Security, Emerging Threats and International
Relations
House Committee on International Relations
Subcommittee on Middle East and Central Asia
20

Appendix F. Audit Team Members
The Office of the Assistant Inspector General for Auditing, Office of the Special
Inspector General for Iraq Reconstruction, prepared this audit report. The staff
members who contributed to the report include:
Tony L. Adams
James A. Carrera
Ronald L. Rembold
21

Management Comments
Joint Contracting Command - Iraq/Afghanistan
22

23