Performance Incentives

I read an article today that is why I have shyed away from identifying performance incentives in the projects I manage Report Faults Performance Bonuses for Contractors.

I generally like the approach of sticks and carrots and I think that it should work in the federal environment, but you really have to do a good job in documenting areas from your Quality Assurance Surveilance Plan (QASP). If you fail to document well most Contract Officers will start with the assumption that the contractor deserves the performance bonus and it is up to the COR or GTR/GTM to justify when the incentive is not warranted.

It is really hard to build the incentives into the work statement because you don't know how much things will eventually cost when your receive proposals. For example, would it make sense to have a $20,000 bonus if the application is delivered a month ahead of schedule? Maybe. But if the proposal comes in at $2 Million do we really care? Is the $20K meaningful? Even with a really good IGCE you are still likely to be 20% off of the final price. So how much can you really structure into the acquisition?

Would it make a difference if there was a $20,000 penalty if it was a month late? Maybe, but I have never heard of a contractual penalty for any work that was in the services area.

These sticks and carrots could really work if you have a really well laid out QASP. You would have to identify milestones and then identify the levels of performance for schedule (due date), quality, price (cost), scope (this is the hard one) and satisfaction (the other really hard one). If you can develop completely objective measures for these factors in your deliverable then you should feel free to incentize the product and the contractor's performance. If you can't nail down all of these ahead of time, then you shouldn't waste time trying to develop performance incentives. The constractor will make sacrafices in one of those areas to meet the incentive criteria and that may harm the overall project.