Section J Attachment 5 - Final Incentive Plan.doc

INCENTIVE FEE PLAN FOR MASS II

1.0 INTRODUCTION

This Incentive Fee Plan (IFP) documents the structure and implementation of fee provisions. The overall intent is to incentivize the Contractor to deliver quality products and services within program performance, cost and schedule constraints. The Contractor’s performance in achieving these results will be measured in accordance with the methods detailed in this plan.

2.0 COST PLUS INCENTIVE FEE (CPIF) STRUCTURE – Maintenance/Sustainment The incentive provisions consist of performance and schedule incentives applied in a Quality Performance Index (QPI) for the program. This allows a balance between cost and quality while meeting Government needs. The concept consists of points assigned to various service summary items; this number is converted to a percentage to complete the fee calculation. (See table 3 for point structure)

2.1 Quality Incentives

Quality incentives apply to the services being delivered under this contract, supporting Task Orders (TO). The quality incentive will measure Contractor performance against the relevant performance requirements for the type of work performed.

2.1.1 Customer Satisfaction

Performance Objective #1 (PO-1): Results of a Government conducted Customer Satisfaction Survey (See Attachment #1) of Contractor performance based on the Performance Work Statement (PWS) and TO requirements. On a monthly basis, a standard survey will be completed by the Government program manager (with input from others as required) to determine the level of satisfaction with the service provided by the Contractor.

2.1.2 Quality Software. Quality incentives for success in software focus on minimizing discrepancy reports (DRs) found by the Government (or non-developer Contractor) in Government Development Test and Evaluation (GDT&E) or production. NOTE: DRs found by the developers will not be counted in the following POs.

Specifically, incentives will be provided for minimizing the number of Functional Category (CAT) 1 (Emergency and Urgent) and CAT 2 DRs (Urgent and Routine) as defined in Air Force Technical Order 00-35D-54 (see Table 1 below) and Security CAT 1 and CAT 2 vulnerabilities as outlined in DoDI 8510.01 (see Table 2 below).

PO-2: Provide Quality Major Software Deliveries: In a six-month period, software deliveries should have no more than one CAT 1 (Emergency and Urgent) defects, no more than ten CAT 2 (Urgent or Routine) defects, zero Security CAT 1 vulnerabilities and all CAT 2 vulnerabilities have documented workarounds. If any category has more defects than allowed, no points will be granted for this area.

PO-3: Provide Quality Software Patch Deliveries: In a six-month period, software patch deliveries should have no more than one CAT 1 (Emergency and Urgent) defect, no more than two CAT 2 (Urgent and Routine) defects, zero Security CAT 1 vulnerabilities and all CAT 2 vulnerabilities have documented workarounds. If any category has more defects than allowed, no points will be granted for this area.

Final categorization of DRs will be adjudicated through Government-led deficiency review boards (DRB). The DRB will also determine if the defect is due to an issue outside of the developer’s control (i.e. – Third Party). DRs attributed to a Third Party will not be scored against the Contractor. If a defect is first observed while running a patch release, the MASS Configuration Board (CCB) and/or DRB will meet to determine the official cause of the defect. If the CCB and/or DRB deem the defect to originate during a major software delivery, the quality incentives listed in PO-2 above apply. If the CCB and/or DRB deem the defect to originate during a patch release, the quality incentives listed in PO-3 above apply.

PO-4: Provide Quality Software: In a six-month period, software (all deliveries) should have no more than 1.5% of rework. The calculation is as follows:

For a 6 month period:

(Total number of coding hours to fix the CAT 1 (Emergency and Urgent) defects / Total coding hours initially planned for all deliveries) x 100 Table 1 Functional Testing Problem Report Category

annoyance. Adequate performance is achieved through minimal compensation. Results in inconvenience or annoyance for development or maintenance personnel, but does not prevent the accomplishment of the task. Adequate performance is achieved through minimal compensation. Any other effect, i.e., enhancements having little or no impact to OSS&E under current requirements.

Table 2 Government Security Test Problem Report Category

access, or bypass a firewall.

intruder.

2.1.3 Schedule Incentives

Schedule incentives provide a focus for meeting program timelines for key events as identified in the Integrated Master Schedule (IMS). The delivery date of record will be the date when the item meets Government satisfaction. Government satisfaction will be acceptance of the CDRL.

In the case of Government-caused delays or other delays beyond the control, and without fault or negligence of the Contractor to specific delivery or event closure, the Contractor shall notify the MASS Government Contracting Officer (CO) in writing of the applicable circumstances and request a corresponding adjustment to the event/delivery schedule. The Government will coordinate with the Contractor for final determination.

PO-5: Provide Timely Software Delivery: In a six-month period, deliver 95% on-time with remaining 5% within 2 business days per IMS.

PO-6: Provide Timely Non-Software CDRLs Delivery: In a six-month period, deliver 95% early or on-time or with remaining 5% within 5 business days per IMS.

2.2 Scored Service Summary

Based on the Quality Incentives in Section 2.1, Table 3 assigns values and timelines for earning the quality incentive points.

Table 3 Scored Service Summary - Maintenance/Sustainment

2.3 Cost Incentives

Cost incentives provide a focus for ensuring costs stay within allotted program budgets. The goal in maintenance is to meet the Target Cost (TC). Understanding that meeting the TC exactly is highly unlikely, there is bounded area to which the Contractor can receive fee (See Table 4). This amount will calculate the value of the QPI points.

Table 4 CPIF Incentive - Maintenance/Sustainment

Note: Cost share ratios above are illustrated as Government/Contractor

The following will calculate the value of the QPI Points in Table 3.

Maximum Fee = 8% Minimum Fee = 2%

TC = Target Cost = Negotiated Cost

TAC = Total Allowable Cost = Actual Cost of Work

CS = Cost Share % Contractor = (As applicable to the adjusted total allowable cost)

TF = Target Fee (6.5% of TC)

ATF = Adjusted Target Fee = ((TC – TAC) x CS) + TF

QPI = Number of QPI points earned expressed as %

AFF = Adjusted Final Fee = ATF x QPI%

Also expressed as:

AFF = (((TC-TAC) x CS) + TF) x QPI%

Note: See 4.0 Incentive Fee Calculations and Quality Performance Index for examples

3.0 COST PLUS INCENTIVE FEE (CPIF) STRUCTURE – Development

The incentive provisions consist of performance and schedule incentives applied in a Quality Performance Index (QPI) for the program. This allows a balance between cost and quality while meeting Government needs. The concept consists of points assigned to various service summary items; this number is converted to a percentage to complete the fee calculation. (See table 5 for point structure)

3.1 Quality Incentives

Quality incentives apply to the services being delivered under this contract, supporting TO. The quality incentive will measure Contractor performance against the relevant performance requirements for the type of work performed.

3.1.1 Customer Satisfaction

PO-1: Results of a Government conducted Customer Satisfaction Survey (See Attachment #1) of Contractor performance based on the Performance Work Statement (PWS) and TO requirements. On a monthly basis, a standard survey will be completed by the Government program manager (with input from others as required) to determine the level of satisfaction with the service provided by the Contractor.

3.1.2 Quality Software. Quality incentives for success in software focus on minimizing DRs found by the Government (or non-developer Contractor) in GDT&E or production. NOTE: DRs found by the developers will not be counted in the following POs.

Specifically, incentives will be provided for minimizing the number of Functional Category (CAT) 1 (Emergency and Urgent) and CAT 2 DRs (Urgent and Routine) as defined in Air Force Technical Order 00-35D-54 (see Table 1 below) and Security CAT 1 and CAT 2 vulnerabilities as outlined in DoDI 8510.01 (see Table 2 below).

PO-2: Provide Quality Major Software Deliveries: In a six-month period, software deliveries should have no more than four CAT 1 (Emergency and Urgent) defects, no more than twenty CAT 2 (Urgent or Routine) defects, zero Security CAT 1 vulnerabilities and all CAT 2 vulnerabilities have documented workarounds. If any category has more defects than allowed, no points will be granted for this area.

PO-3: Provide Quality Software Patch Deliveries: In a six-month period, software patch deliveries should have no more than one CAT 1 (Emergency and Urgent) defect, no more than two CAT 2 (Urgent and Routine) defects, one Security CAT 1 vulnerabilities and all CAT 2 vulnerabilities have documented workarounds. If any category has more defects than allowed, no points will be granted for this area.

Final categorization of DRs will be adjudicated through Government-led DRB. The DRB will also determine if the defect is due to an issue outside of the developer’s control (i.e. – Third Party). DRs attributed to a Third Party will not be scored against the Contractor.

PO-4: Provide Quality Software: In a six-month period, software (all deliveries) should have no more than 3% of rework. The calculation is as follows:

For a 6 month period:

(Total number of coding hours to fix the CAT 1 (Emergency and Urgent) defects / Total coding hours initially planned for all deliveries) x 100

3.1.3 Schedule Incentives

Schedule incentives provide a focus for meeting program timelines for key events as identified in the IMS. The delivery date of record for will be the date when the item meets Government satisfaction. Government satisfaction will be acceptance of the CDRL.

In the case of Government-caused delays or other delays beyond the control, and without fault or negligence of the Contractor to specific delivery or event closure, the Contractor shall notify the MPAS Government Contracting Officer (CO) in writing of the applicable circumstances and request a corresponding adjustment to the event/delivery schedule. The Government will coordinate with the Contractor for final determination.

PO-5: Provide Timely Software Delivery: In a six-month period, deliver 95% on-time with remaining 5% within 2 business days per IMS.

PO-6: Provide Timely Non-Software CDRLs Delivery: In a six-month period, deliver 95% early or on-time or with remaining 5% within 5 business days per IMS.

3.2 Scored Service Summary

Based on the Quality Incentives in Section 2.1, Table 5 assigns values and timelines for earning the quality incentive points.

Table 5 Scored Service Summary - Development

3.3 Cost Incentives

Cost incentives provide a focus for ensuring costs stay within allotted program budgets. The goal in maintenance is to meet the Target Cost (TC). Understanding that meeting the TC exactly is highly unlikely, there is bounded area to which the Contractor can receive fee (See Table 6). This amount will calculate the value of the QPI points.

Table 6 CPIF Incentive

Note: Cost share ratios above are illustrated as Government/Contractor The following will calculate the value of the QPI Points in Table 6.

Maximum Fee = 12%

Minimum Fee = 5%

TC = Target Cost = Negotiated Cost

TAC = Total Allowable Cost = Actual Cost of Work

CS = Cost Share % Contractor = (As applicable to the adjusted total allowable cost)

TF = Target Fee (10% of TC)

ATF = Adjusted Target Fee = ((TC – TAC) x CS) + TF) QPI = number of QPI points earned expressed as %

AFF = Adjusted Final Fee = ATF x QPI%

Also expressed as:

AFF = (((TC-TAC) x CS) + TF) x QPI% Note: See 4.0 Incentive Fee Calculations and Quality Performance Index for examples

4.0 Incentive Fee Calculations and Quality Performance Index

a) This section applies only to contract line item numbers X001, X003, X004, and X006 (see Schedule B) and consists of both cost and performance incentives. The Government shall calculate an Adjusted Target Fee (ATF) in accordance with this supplemental section.

b) This contract has a target fee, minimum fee, maximum fee, and multiple share ratios set by the Government.

c) Incentive Fee will be calculated as follows:

1) Step One (Adjusted Target Fee): The Target Cost (TC) minus the Total Allowable Cost (TAC) multiplied by the appropriate Contractor Share (CS) Ratio. The result is then added to the Target Fee (TF).

2) Step Two (Adjusted Final Fee): the fee calculated in step one shall be adjusted through application of the Quality Performance Index (QPI), as described in paragraph (d) of this section (Administering the Two-Step Incentive Plan). The QPI adjustment shall be the final determination of the fee amount authorized for the payment. At no time shall the Adjusted Final Fee be below the minimum fee or above the maximum fee.

3) Total Allowable Cost (TAC) for the purpose of this section is “interim” until contract completion and is subject to final adjustment after DCAA final rate revisions and determination of allowable costs. However, after the end of each contract performance period, the “interim” TAC will only be modified if finalized costs incurred for non-severable projects are different than what was estimated, correction of invoicing errors (found prior to the start of the next fiscal year) is required to revise the Adjusted Final Fee (AFF).

d) Administering the Two-Step Incentive Plan

1) The adjusted final fee calculation shall be accomplished on an annual basis.

2) Within 75 days following the end of each annual performance period, the Contractor will provide the contracting officer with the TAC incurred for that performance period. Actuals should be used for cost incurred.

3) Within 90 days following the end of each annual performance period, the AFF will be determined and a contract modification issued. Once the Step One adjustment is calculated as set forth below in paragraph (g). Step Two, the QPI, must be calculated. The QPI is designed to ensure that performance expectations are not sacrificed to achieve cost objectives. The QPI reflects the Contractor’s success in achieving acceptable levels of performance acceptable measures in metrics and other contract requirements.

4) In addition to adjusting the incentive fee due to quality and schedule indicators, failure to meet the service summary may also result in the Government taking corrective action under the Inspection of Services clause or Contractor Performance Assessment Reporting System.

5) Each of the Performance Objectives within the Scored Service Summary (See Table 3 (M&S/Enhancements) and Table 5 (Development)) will be reviewed to determine if the acceptable standard has been achieved. The Scored Service Summary QPI basis points earned will be determined on a semi-annual basis by the Contracting Officer (CO). The CO will notify the Contractor, in writing, of the status of QPI basis points earned at the mid-year point. Final Scored Service Summary QPI basis points earned will be determined and approved by the CO within 45 days following the end of the fiscal year. NOTE: The Government will identify whether a future task order is considered an enhancement or a development in the request for proposal for each future task order to determine the applicable performance objectives used.

i. The QPI consists of 100 basis points. Basis points are then converted to a percentage that is applied to the ATF. For example, if the Contractor earned 79 basis points during the period of performance, the Contractor would be entitled to receive 79% of the ATF. A complete example of the incentive calculations are provided below in paragraph (g). The QPI basis points are listed on the Scored Service Summary above in Table 3 (M&S/Enhancements) and Table 5 (Development).

ii. QPI Adjustments. See paragraph (e) below.

6) The Contractor may only earn up to 100% of the basis points if performance is achieved as described in the following subparagraphs of the Service Summary. If performance declines, the Contractor will lose basis points. This scale is described below:

Each of the Performance Objectives within the Service Summary will be reviewed to determine if the acceptable standard has been achieved. The Contractors’ performance will be measured as a percentage of the acceptable Performance Objectives achieved. For example, if the Performance Objective is assigned 12 Annual QPI basis points and the periodic QPI point is 1, then the Contractor can earn 1 QPI basis point per month. If the Performance Objective is assigned 30 Annual QPI basis points and the periodic QPI points are 15, then the Contractor can earn 15 QPI basis points semi-annually. If the Contractor meets the performance threshold for each Performance Objective, the Contractor is awarded the full periodic QPI point(s) indicated for that objective. If they do not meet the performance threshold for each Performance Objective, the Contractor is awarded zero points for that particular objective. The total basis points for each Performance Objective is then added together and then converted into a percentage. For example, if 78 out of 100 QPI basis points were earned during the annual evaluation period, the percentage of effectiveness would be 78%. This percentage would then be used to determine the AFF.

e) Incentive Plan Change Procedures

All significant changes to the Incentive Plan are approved by the CO. Significant changes are those relating to performance objective criteria, adjusting weight to QPI points, and revising the distribution of the range of incentive effectiveness. The Contractor may recommend changes to the Contracting Officer no later than ten (10) working days prior to the beginning of the new evaluation period. After approval, the Contracting Officer shall notify the Contractor in writing of any change(s). Unilateral changes may be made to the Incentive Plan if the Contracting Officer gives the Contractor written notification 30 days prior to the start of the ensuing evaluation period or task order. Changes affecting the current evaluation period must be by bilateral concurrence.

f) Contract Termination

In the event this contract is terminated for the convenience of the Government after the start of an evaluation period, the incentive fee deemed earned and to be paid for this period will be a matter of equitable adjustment in accordance with the termination clause of this contract. The remaining incentive fee dollars for all periods subsequent to this termination shall not be considered earned, and therefore shall not be paid.

g) Sample Incentive Calculations

Examples of how the Government will calculate AFF:

Assume the following This task is for Maintenance/Sustainment (Table 4)

Target Cost (TC):

$1,000,000

Target Fee (TF) (6.5% of TC):

$65,000

Minimum Fee:

2% ($20,000)

Maximum Fee:

8% ($80,000)

Total possible QPI:

Total Earned QPI:

Min/Max Fee:

If AFF > Max Fee, then AFF = Max Fee

If AFF < Min Fee, then AFF = Min Fee

Example 1 (Underrun) In Step One of this scenario, the Contractor’s TAC is $970,000 has earned an adjustment target fee of $74,000, before the QPI adjustment. Assuming the QPI basis points earned in Step Two for the annual performance period is 90 out of 100 points, the Government would pay the Contractor a fee of 90% of $74,000 or $66,600.

Total Allowable Cost (TAC):

$970,000

Formula: (TC-TAC) x CS + TF = Adjusted Target Fee

($1,000,000 - $970,000) x 30% + $65,000 = $74,000

Note: Contractor Share (CS) is determined by the TAC. The TAC is $970,000, which correlates to a 3% underrun. A 3% underrun has a Government to Contractor cost share ratio of 70/30 (See Table 4). The Contractor share of 30% is used in the incentive formula.

ATF x (Percentage of QPI Earned) = Adjusted Final Fee

$74,000 x 90% = $66,600

Example 2 (Overrun)

In Step One of this scenario, the Contractor has earned an adjusted target fee of $55,000, before QPI adjustment. Assuming the QPI basis points earned in Step Two of the performance period is 80 out of 100 points, the Government would pay the Contractor a fee of 80% of $55,000, or $44,000. Note: If the adjusted target fee is less than the minimum fee, the Contractor will receive the minimum fee.

Total Allowable Cost (TAC):

$1,020,000

Formula: (TC-TAC) x CS – TF = Adjusted Target Fee

($1,000,000 - $1,020,000) x 50% + $65,000 = $55,000

Note: Contractor Share (CS) is determined by the TAC. The TAC is $1,020,000, which correlates to a 2% overrun. A 2% overrun has a Government to Contractor cost share ratio of 50/50 (See Table 4). The Contractor share of 50% is used in the incentive formula.

ATF x (Percentage of QPI Earned) = Adjusted Final Fee

$55,000 x 80% = $44,000

ATTACHMENT# 1

CUSTOMER SURVEY QUESTIONNAIRE

Instructions for form completion:

For each question below circle the appropriate rating, or Not Observed. Use these guidelines to assist in determining your ratings:

Outstanding (OUT)--Contract performance has been carried out in a manner demonstrative of high professional accomplishment. Areas of deficient performance are few and low in importance and are offset by excellent performance in other areas.

Excellent (EXC)--The Contractor has performed in a manner that generally exceeds requirements. Areas of deficiency are minor, relatively few, and are offset by areas of good performance.

Satisfactory (SAT)--Work has been performed in a manner that conforms to requirements. Other areas of above average performance offset areas of deficiency.

Marginal (MAR)--The Contractor has demonstrated an overall level of performance that is less than expected in significant areas. Improvement is required.

Unsatisfactory (UNS)--The Contractor has demonstrated on overall level of performance that is unacceptable in significant areas. Immediate improvement is required.

Comments are required for any question receiving an Unsatisfactory or Outstanding rating.

For determination of monthly scoring, the following numerical scores will be awarded for each adjectival rating:

Outstanding = 4 Excellent = 3 Satisfactory = 2 Marginal = 1 Unsatisfactory = 0

The total points awarded will be divided by the number of questions scored, to determine an overall score for each questionnaire. For calculation purposes, a Not Observed/Applicable rating will not be counted in the total number of questions.

To obtain a QPI award, the average score for all questionnaires submitted for the reporting period must equal or exceed 3 points.

Program Evaluated: _________________________________________________________________________________

Evaluator: ________________________________________________________________________________________

Period Evaluated: from __________________________ to __________________________

Attachment 5: Incentive Fee Plan

Adjusted Fee Amount

Range Of Incentive Effectiveness

(Max Fee )

(Target Fee)

(Min Fee)

CPIF Incentive (M&S)

Adjusted Total Allowable Cost

>1% up to 5%

(70/30)

Target Cost

Overrun

2% Fee

6.5% Fee

8% Fee

Adjusted Fee % Value

Share-line

Underrun up to 1%

(50/50) up to 1%

(80/20)

>1% up to 2%

(50/50)

>2% up to 5%

(10/90)

UNCLASSIFIED

Adjusted Fee Amount

Range Of Incentive Effectiveness

(Max Fee )

(Target Fee)

(Min Fee)

CPIF Incentive (Development)

Adjusted Total Allowable Cost

Underrun

Target Cost

Overrun

5% Fee

10% Fee

12% Fee

Adjusted Fee % Value

Share-line

>3% up to 10%

(80/20) up to 3%

(60/40) up to 3%

(75/25)

>3% up to 5%

(60/40)

>5% up to 10%

(50/50)