Contract Contract Incentives for Incentives for 2121stst Century Century WarfightingWarfighting

Alan J. Boykin7 February 2007

National Contract Management Association

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Session Overview

• Definition of the Incentive Contract (IC)• IC and DoD Leadership Focus• Advising the warfighter• Key objectives of IC in acquisition planning• Contract execution from concept evolution• Key examples of effective ICs• Gaining “Leverage” through IC vehicles• Summary of IC discussion

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Incentive Contract - Defined IC arrangements are described

as appropriate when a firm-fixed-price contract is not appropriate and the required supplies or services can be acquired at lower costs and, in certain instances, with improved delivery or technical performance, by relating the amount of profit or fee payable under the contract to the contractor’s performance.

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Over last three years… key messages to reshape• Dual leadership focus from SECDEF & SECAF: a

more efficient force (quality, capability, structure)• Promulgates more effective and efficient acquisition

strategies to support warfighter• GAO (2005)… DoD has issues with use of incentives• DAPA (2006)… Top to bottom review of acquisition

process• Finley memo (2006)… Effective and efficient

business decisions

Leadership focus: Contract Incentives

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Pricing Imperatives for the

SMART Business Advisor• Lead: Customer-focused

planning & execution• Forging key stakeholder

relationships• Understanding risk-based

environment• Understanding leveraging

as an opportunity• Conduit to key end-state

objectives

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Key Objectives of IC

• Establish reasonable and attainable targets that are clearly communicated to contractor

• Include appropriate IC arrangements designed to– Motivate contractor efforts– Discourage contractor inefficiency and waste

• Create incentives large enough to influence behavior– Cost– Performance– Delivery– Multiples

CONTRACT TYPE

HIGH LOW

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Examples of IC Application• Used for cost control & performance

• Shared cost risk

• Final profit determined share ratio

– Costs compared to targets

– Profit adjusted for under/overrun

• Ceiling price = Max Govt liability

Fee earned on performance• Motivates: Quality / Schedule /

Technical innovation / Cost control• Measured against established

criteria

• Unilateral FDO determination

FPIF CPAF

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Gaining Leverage through IC Vehicles

• Identify measurable parameters to motivate performance

• Apply mechanics to increased compensation

• Use innovative strategies to empower performance

• Use to impact performance through direct & indirect means

The ContractWarfighter

Needs

Leverage

ContractingWorkforce

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Summary

• IC defined: Use to improve overall performance

• DoD leadership paves the way ahead• Business Advisor: Lead the warfighter to success• IC objectives: Cost / Performance / Schedule• Real-time IC examples: GPS (FPIF) / JASSM (CPAF)• Leverage to success using IC vehicles• Appropriate IC strategies produce “Win/Win”

outcomes

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QUESTIONS?