Attachment A17.docx

Attachment A17

Attachment A17 is divided into three sections. Section 1 is a diagram illustrating the incentive fee structure of the ERS contract. Section 2 provides additional information explaining the ERS Incentive Fee Program. Section 3 provides an example Performance Incentive Fee evaluation spreadsheet and an illustration of how Performance Incentive Fee is calculated.

Section 1: ERS Contract Incentive Fee Structure

Section 2: Additional information about Target Cost Incentive Fee and Performance Incentive Fee

The Incentive Fee “pool” is the maximum fee that the contractor proposes to earn through effective cost control and performance. Area 1 (effective cost control) is the Target Cost Incentive portion of the Incentive Fee Pool, which consists of 20% of the total Incentive Fee Pool proposed. Area 2 (effective performance) is the Performance Incentive portion of the Incentive Fee Pool, which consists of 80% of the total Incentive Fee Pool proposed. These are further described below:

Area 1 – Target Cost Incentive Fee (20% of Incentive Fee Pool):

The purpose of the Target Cost Incentive Fee is to motivate the Contractor to effectively manage costs. The Target Cost Incentive Fee will be based upon performance against the Target Cost for the three-year Base Period and the Target Cost will be negotiated with the Contractor prior to award. The Target Cost for subsequent Option Period(s) will be negotiated prior to award if the Option Period(s) are exercised. The Target Cost Incentive Fee bid item shall include all fee per month for the three-year Base Period and two three-year option periods that the Offeror proposes to earn on this contract. This bid item shall be the only place where fee (or profit) for this contract is placed. No other bid item shall contain any fee (or profit). Following award of the contract, the fee amount proposed will be divided into two portions, the Target Cost Incentive Fee portion that shall be twenty percent of the total Incentive Fee Pool, and a Performance Incentive Fee portion that shall be eighty percent of the total Incentive Fee Pool. Both the Target Cost Incentive Fee and Performance Incentive Fee will accumulate on a monthly basis.

The amount earned from the Target Cost Incentive Fee portion will be paid at completion of the initial three-year contract term as well as at the end of each of the two subsequent three-year contract option periods, if exercised, in accordance with the requirements of PWS Section C1.22 - Incentive Fee Program. The Performance Incentive Fee portion will be evaluated and paid on a semi-annual basis. The first Performance Incentive Fee evaluation period will end six months following the date of Notice to Proceed, or other specific date as determined by the Contracting Officer. The Performance Incentive Fee will be earned and paid in accordance with the requirements of PWS Section C1.22 Incentive Fee Program and Attachment A5, Period 1 – Performance Incentive Fee Criteria. All Incentive Fee from both portions shall be entirely at risk and fully dependent upon the performance of the Contractor. Any unearned Target Cost Incentive Fee or Performance Incentive Fee for a given period will be lost and will not roll over to the next period.

The Target Cost Incentive Fee may be earned as follows:

Twenty (20) percent of the monthly amount proposed for CLINs ending in 004 Incentive Fee Pool, will be placed in the Target Cost Incentive Fee portion of the pool. This amount will accumulate monthly for the three-year Base Period. The total amount accumulated in the Target Cost Incentive Fee portion at the end of the three-year Base Period is the Target Cost Incentive Fee. The percentage of the Target Cost Incentive Fee earned will be based upon a comparison of the Contractor’s total cost to the Target Cost.

Scenarios:

Total cost that equals the Target Cost: This scenario will result in the Contractor earning the Target Cost Incentive Fee.

Total cost that exceeds the Target Cost: This scenario will result in a downward adjustment of the Contractor’s share of the Target Cost Incentive Fee. Any overrun of the Target Cost will be shared between the Government and the Contractor at a ratio of 70/30 (70% Government and 30% Contractor) and will reduce the Contractor’s share of the Target Cost Incentive Fee accordingly. Depending on the actual amount of the cost overrun, the Contractor’s share of the Target Cost Incentive Fee may be reduced to, but not below, zero.

Example 1:

Assume the negotiated Target Cost is $5,000,000 and the Target Cost Incentive Fee portion after 3 years is $100,000 for both examples.

Should the total cost be $5,300,000, exceeding the Target Cost by $300,000, the Contractor’s share of the Target Cost Incentive Fee would be reduced by 0.2 X $300,000 = $60,000 and the Contractor would earn $40,000. ($100,000 Target Cost Incentive Fee minus the cost overrun adjustment of $60,000)

Example 2:

Should the total cost be $6,000,000, exceeding the Target Cost by $1,000,000, the Contractor’s share of the Target Cost Incentive Fee would be reduced by 0.2 X $1,000,000 = $200,000.

Since the total cost overrun adjustment of $200,000 exceeds the Target Cost Incentive Fee of $100,000 and the Contractor’s share of the Target Cost Incentive Fee is not allowed to go below zero, the Contractor would earn no fee.

Total cost that is below the Target Cost: This scenario will result in the Contractor receiving the entire Target Cost Incentive Fee plus a share of the savings up to the Maximum Fee. Savings from 0% to 15% of the Target Cost will be shared between the Government and the Contractor at a ratio of 70/30 (70% Government and 30% Contractor). The Government will retain any savings greater than 15% of the Target Cost. The Maximum Fee equals the Target Cost Incentive Fee plus 30% of 15% of the Target Cost, or Target Cost Incentive Fee plus 4.5% of the Target Cost.

Example 1:

Assume the negotiated Target Cost is $5,000,000 and the Target Cost Incentive Fee after 3 years is $100,000 for both examples. Should the total cost be $4,500,000, under-running the Target Cost by $500,000, the fee earned would increase by 0.3 (Contractor’s share) X $500,000 = $150,000. Therefore, the Contractor would receive the Target Cost Incentive Fee of $100,000 plus the $150,000 Contractor’s share of the total cost under-run, for a total fee earned of $250,000.

Example 2:

Should the total cost be $4,000,000, under-running the Target Cost by $1,000,000 or 20%, the Contractor would receive the Maximum Fee. The Contractor would earn .30 (Contractor’s share) X (15% of 5,000,000) = $225,000 plus the Target Cost Incentive Fee of $100,000 for a total fee of $325,000.

Impact of Non-Routine Actions and/or Scope Reduction on Incentive Fee:

Should a significant non-routine event occur, which results in a separate task order being issued by the Contracting Officer and requires additional OMC personnel, the Contracting Officer, at his/her discretion, may include a separate Incentive Fee Pool. Should a significant reduction to the scope of work occur, the Contracting Officer, at his/her discretion, may make a downward adjustment to the existing Incentive Fee Pool.

Area 2 – Performance Incentive Fee (80% of Incentive Fee Pool)

In addition to the Target Cost Incentive fee, the Contractor may also earn Performance Incentive Fee based upon achieving the criteria as described in Attachment 5, Period 1 - Performance Incentive Fee Criteria. These criteria consist of two components, objective performance incentive criteria, and subjective performance incentive criteria. The Contracting Officer, based upon the evaluation of the Contractor’s performance against the Incentive Fee Criteria by an Incentive Fee Board, will determine the amount awarded to the Contractor.

Eighty (80) percent of the monthly amount bid for CLINs ending in 001, Incentive Fee Pool, will be placed in the Performance Incentive portion of the Incentive Fee Pool. The Performance Incentive Fee Pool for each six-month performance period will be 80% of the six-month accumulation of the monthly amount proposed by the Contractor for CLINs ending in 001 on the Bid Schedule. The Contractor can earn from 0% to 100% of the Performance Incentive Fee Pool depending on its evaluated performance by the Incentive Fee Board against the Performance Incentive Fee criteria for that period.

The amount of Performance Incentive Fee earned in each six-month performance period will be determined by the Government at the conclusion of that six-month performance period. RMA Government Site Representatives will complete an evaluation of the Contractor’s performance that will be used by the Incentive Fee Board in its evaluation. The Contractor shall also provide a self-evaluation of its performance for the Board to consider in its evaluation. The Incentive Fee Board will make a recommendation to the Contracting Officer who will make the final determination of the Performance Incentive Fee amount to be awarded. Unearned Performance Incentive Fee for each 6-month evaluation period is lost and does not roll over into the next performance period.

Section 3: Example Performance Incentive Fee Evaluation Spreadsheet

Illustration of Performance Incentive Fee Calculation

Contractor proposed Fee Pool for Period 1: $100,000 Amount of Fee pool allocated for Performance Incentive Fee= 80% of $100,000 or $80,000 Total Performance Incentive Fee Earned= 93.26% (sum of all earned percentages) Total Performance Incentive Fee Awarded= 93.26% of $80,000 or $74,608 image1.tmp image2.tmp image3.tmp