DATE: October 24, 2000

FROM: Barry McVay, CPCM

SUBJECT: Office of Federal Procurement Policy (OFPP); Development and Application of Contract Incentives

SOURCE: Federal Register, October 24, 2000, Vol. 65, No. 206, page 63628

AGENCIES: Office of Federal Procurement Policy (OFPP), Office of Management and Budget (OMB)

ACTION: Notice

SYNOPSIS: OFPP is developing a new initiative to fundamentally examine the manner by which the government develops and applies incentives to its contractual vehicles, and is seeking information and advice that would advance this effort.

DATES: Comments and information regarding the proposed initiative must be received on or before December 26, 2000.

ADDRESSES: Send comments and information to Stanley Kaufman, Deputy Associate Administrator, OMB, OFPP, 725 17th Street NW, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Stanley Kaufman, 202-395-6810, or e-mail: skaufman@omb.eop.gov.

SUPPLEMENTAL INFORMATION: Recent acquisition reform and streamlining efforts are moving the acquisition process from a process-oriented, rules-based, risk avoidance culture to one emphasizing performance outcomes, business judgment, streamlined procedures, and risk management. However, research by the Army and studies by OFPP and industry have found that innovative contracting methods are not being used sufficiently, and effective incentives exist which are not being considered.

"Consideration of incentives typically was limited to the fee portion of contracts to the detriment of other incentives that contractors would find more appropriate and meaningful, such as a consistent revenue flow and the promise of future business," says OFPP in its notice. "In addition, incentives too often focused on the process of the work to be performed vs. the outcomes, thereby rewarding unnecessary and/or even counterproductive behavior. Furthermore, profit is not an effective incentive for non-profit entities such as universities and research laboratories. As a result, contractors often did not provide their best solutions and government requirements were not fulfilled in as timely, quality-related, and cost-effective manner as possible."

Therefore, OFPP is attempting to gather "any experiences and literature regarding non-fee type incentives," and OFPP will seek consultations with the private, non-profit, and public sectors. It is seeking ideas, recommendations, practices, and lessons learned on what works in industry, the non-profit environment, and state and local governments. "Such information tailored to specific industries (e.g., manufacturing, services, construction), subsets of industries (e.g., information technology, advisory and assistance services, environmental remediation), types of contractors (e.g., universities, small businesses) and types of endeavors (e.g., research and development) would be welcomed. We also would welcome any studies or literature that analyzes, assesses, or validates these practices, as well as information on relevant training courses and materials."

As part of this effort, OFPP will conduct a review of current policy, regulatory, and statutory guidance to determine whether there are any barriers to achieving its objective. OFPP is already surveying federal agencies to determine whether they have any ongoing innovative practices that could be used in the initiative.

OFPP is welcoming written comments and materials, and is willing to meet with individual companies, associations, and other organizations to hear their views and recommendations. Also, OFPP would like to receive expressions of interest in a public meeting to facilitate the exchange of information between the government and the general public. Topics could include developing alternative incentive strategies, providing recommendations, sharing best practices and lessons learned, reviewing existing literature, and identifying barriers and potential benefits and disadvantages for both agencies and contractors.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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