Section_J _Attachment_1 _Incentive_Fee_Plan.docx

Incentive Fee Plan for

Information Technology Capabilities Contract II

(ITCC II)

4 April 2014

INCENTIVE FEE PLAN FOR ITCC II

1.0 INTRODUCTION

This Incentive Fee Plan (IFP) documents the structure and implementation of fee provisions for Cost Plus Incentive Fee (CPIF) CLINs. The overall intent is to incentivize the Contractor to deliver quality products and services within program cost, performance, 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 – Baseline Engineering

This CPIF structure applies to CLIN X101 (Baseline Engineering). This incentive fee structure is designed to address the three aspects of any project or deliverable: cost, performance (quality), and schedule (timeliness).

Cost concerns are addressed similarly to other CPIF contracts, as delivering under budget will result in a greater fee and delivering over budget will result in a decreased fee. No matter the circumstances, fees earned will be between a maximum and minimum fee for deliverable; both of which are calculated as a percentage of the original target cost.

This plan also provides structure allowing the government to assign a weighted importance to quality and timeliness, with the realization that putting weight in one area reduces the relative importance of the other. For example, the government may decide a project absolutely must be done by a specific date. This shortened timeline may cause the quality of the project to suffer. Alternatively, the government may have a project that must meet certain quality criteria, even if that means exceeding deadlines. This plan allows for these contingencies and adjusts IAW government requirements.

Regardless of the weights assigned to quality and timeliness, both will be scored based on objective criteria described in section 6.0 PERFORMANCE OBJECTIVES (POs). The POs are combined with the weights to determine what percentage of the earned fee will be paid.

All products, deliverables, and milestones affected by this document are due at 1700 Central Time on the due date scheduled. The Government project manager with inputs from other Government personnel will verify that the Contractor met all documented quality and timeliness requirements. The Government project manager will perform this verification at deliverable completion by inspecting deliverables, counting errors and government inspections, and comparing due dates with delivery dates. A project delivered, but returned for rework based solely on poor quality (quality metrics are outlined in section 6) will not be counted as delivered until the quality issues are resolved to government satisfaction.

Unless otherwise specified by the government, documents must be written with 1 inch margins. Font size will be no greater than 12 point. Font selection may be mandated by the government. Typically, a page must use at least 80% of available space (after margin space is subtracted) to count as a page. This rule may be occasionally overlooked by the government if the extra space enhances document content and readability.

Number reporting and rounding shall be done IAW PWS 3.2.2. Formulas and Definitions.

3.0 DEFINITIONS

Acceptable Delays – Project delays caused by government action and delays caused by unforeseeable events beyond the contractor control that are without fault or negligence of the Contractor may be deemed acceptable delays. The contractor must request a timeline extension caused by an acceptable delay by notifying the ITCC II 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.

Acceptable Document – a document no more than one formatting error per 5 pages (total formatting errors / total pages ≤ 0.20), no major content errors, and no more than one minor content error per 5 pages (total minor content errors / total pages ≤ af0.20). Error rates are an average for the document [total number of counted (major or minor) errors / total non-blank pages in the delivered document] Agreed-to timeline – The timelines originally projected by the engineer and agreed to by the government. This timeline may be changed if the contractor provides the government 5 working day notice of the new timeline, and the government PM and user agree to the change.

Document categorization – Determination of a document to be pristine, acceptable, or unacceptable.

Major content error - any error (grammar, data omission, incorrect reference, etc.) that changes the meaning of the document or prevents the document from meeting its intent.

Minor content error - an error (spelling, grammar, format, etc.) that is incorrect or outside document requirements, but does not change the technical intent of the document and still meets user requirements.

Quality and Timeliness Objectives Met (QTOM) – Value earned by the contractor based on the quality and timeliness of work delivered to the Government Pristine– a document with no major content errors, and no more than one minor content error.

Quality Performance Index (QPI) – Percentage calculated for fee purposes based upon the quality and timeliness of work delivered to the government Unacceptable Document – a document that does not meet minimum acceptable standards.

4.0 Cost Incentives

Cost incentives provide a focus for ensuring costs stay close to the negotiated target cost (TC), with the goal being to meet the TC. Understanding that always meeting the TC exactly is unlikely, there is a range of incentive effectiveness in which the fee will change in accordance with the final cost and bounded by the maximum/minimum fee (See Table 1). The Government will adjust the fee by the QPI.

Table 1 CPIF Incentive Calculation Structure

Share ratio is expressed as Government percentage share of cost risk (i.e., 60%) divided by the Contractor percentage share of cost risk (i.e., 40%). This appears as 60/40 for underrun and 20/80 for overrun on the graph above.

The Government will use the following formulas, definitions, and values for cost fee calculation:

Maximum Fee = 10% of TC Minimum Fee = 4% of TC TC = Target Cost = Negotiated Cost TAC = Total Allowable Cost = Actual Cost of Work CS = Cost Share % for Contractor =. (As applicable to the adjusted total allowable cost)

TF = Target Fee (8% of TC) ATF = Adjusted Target Fee = ((TC – TAC) x CS) + TF

ATF reflects the maximum fee available for a deliverable. ATF can be no greater than the maximum fee for a deliverable. The ATF will be adjusted based on meeting performance objectives (POs) that express required quality and timeliness of the deliverables.

AFF = Adjusted Final Fee = ATF * QPI. AFF can be no less than the minimum fee for a deliverable.

5.0 WEIGHTING

Weighting is applied to the Quality and Timeliness Objectives for each CPIF deliverable.

Each project due will have five weighting points assigned to it. The weighting points will be assigned by the government in such a way as to incentivize correct deliverable completion, timeliness, or both. There are two incentive points categories available, the sum of these two must always equal five. I.e.:

Quality Incentive + Timeliness Incentive = 5

Points may only be assigned as whole or half points. Possible point assignments are:

The default point assignment is 2.5/2.5. Any other assignment must be made before contractor work on the deliverable starts.

For example, if the government is willing to let an assignment slip slightly as long as the quality is met, 1 point could be assigned to timeliness, 4 points to the quality.

For each task assigned, the ratio of award, or QPI is calculate as follows:

QPI = (QTOM for Quality * Quality weighting + QTOM for Timeliness * Timeliness weighting) /5

6.0 PERFORMANCE OBJECTIVES (POs)

POs specify objective requirements for each deliverable. Meeting, or partially meeting, the POs result in Quality and Timeliness Objectives Met (QTOM), which can range from 0 – 1 (zero to one). Possible QTOM values are: 1 (one), 0.5(zero point five), or 0 (zero). In all cases, if the minimum standards for a QTOM of 0.5 are not achieved, than the QTOM = 0.

6.1. Requirements Analysis (RA) Development

Performance Objective #1 (PO-1): The Government project manager (PM) with inputs from the user will verify the contractor has fully captured user requirements and documented those requirements in a manner that allows for successful project completion. The Government PM will perform verification that 100% of user requirements are captured and documented, and determine document categorization.

6.2. Security Authorization

Performance Objective #2 (PO-2): The Government PM with inputs from the user and USSTRATCOM Cybersecurity will verify the contractor has successfully performed documentation and configuration required to meet DOD and USSTRATCOM Cybersecurity requirements.

6.3. Develop Technical Solutions

Performance Objective #3 (PO-3): The Government PM with inputs from the user and USSTRATCOM engineering resources will verify the contractor has successfully developed, documented, and delivered a technical solution that: 1) meets user requirements, 2) is developed in accordance with the USSTRATCOM IT infrastructure, 3) meets USSTRATCOM format requirements, 4) identifies all moderate to high risks, and 5) develops a risk mitigation plan for all moderate to high risks.

6.4. Develop Test Plans

Performance Objective #4 (PO-4): The Government PM with inputs from the user and USSTRATCOM engineering resources will verify the contractor has successfully developed and documented a test plan that verifies the viability of a project.

· The test plan is pristine and approved by the government PM.

· One document rework after one government review is permitted.

· All deliverables are completed in agreed-to timelines

· The test plan is acceptable and approved by the government PM.

· Two document reworks after two government reviews are permitted.

· All documents delivered within 2 days after agreed-to timelines.

6.5. Project Testing

Performance Objective #5 (PO-5): The Government PM with inputs from the user, USSTRATCOM engineering, and affected USSTRATCOM users will verify the contractor has successfully tested the project, made changes to the test plan as deemed necessary to improve results, and documented the results.

· The test plan was followed as closely as possible and all deviations were documented

· The test results are pristine, fully documented, and approved by the government PM.

· One document rework after one government review is permitted.

· All deliverables are completed in agreed-to timelines

· The test plan was followed as closely as possible and all deviations were documented

· The test results are acceptable, fully documented, and approved by the government PM.

· All documents delivered within 2 days after agreed-to timelines.

6.6. Develop Communications Plan

Performance Objective #6 (PO-6): The Government PM with inputs from the user, USSTRATCOM engineering, and affected USSTRATCOM users will review the contractor developed communications plan. The communications plan must 1) meet user requirements, 2) fully capture the projected communications environment, 3) be developed in accordance with the USSTRATCOM IT infrastructure, 4) meet USSTRATCOM format requirements

· One document rework after one government review is permitted.

· All deliverables are completed in agreed-to timelines

· All documents delivered within 2 days after agreed-to timelines.

6.7. Project Deployment

Performance Objective #7 (PO-7): The Government PM with inputs from the user, USSTRATCOM engineering, and affected USSTRATCOM users will verify the contractor has successfully deployed the project. A successful project deployment must: 1) meet documented user requirements. Documented user requirements may be updated as the project progresses with the approval of the government PM assigned to the project. 2) The project meets agreed-to timelines, 3) all changes to the USSTRATCOM IT or communications infrastructure are fully documented IAW government approved formats, 4) Risk mitigation plans are followed and updated as needed.

· Changes to the USSTRATCOM IT or communications infrastructure are fully documented IAW government approved formats within 10 working days of project delivery

· All documents delivered are pristine.

· All deliverables are completed in agreed-to timelines

· Changes to the USSTRATCOM IT or communications infrastructure are fully documented IAW government approved formats within 15 working days of project delivery

· All documents delivered are acceptable.

· All documents delivered within 2 days after agreed-to timelines.

7.0 ADMINISTRATING THE INCENTIVE FEE PLAN

a) During the course of contract performance, the contractor may bill monthly against CPIF CLINs for the lesser of: all costs incurred plus 4% of costs incurred, or, all costs incurred plus the minimum fee of the project.

b) The adjusted final fee calculation shall be completed on an annual basis by the Contracting Officer. This calculation will be accomplished using the data for all projects in Appendix A, CPIF Workbook, and a combination of Contractor-submitted CDRL’s and Invoices.

c) 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, broken down by each project. This shall be accomplished by filling in the “Actual Costs” Tab in the CPIF Workbook, unless the Contracting Officer provides written consent for another format. Actuals shall be used for cost incurred.

d) Within 15 days following receipt of TAC incurred for the performance period, the AFF will be determined and a contract modification issued.

e) Scoring will be complete within 5 working days after the project is deemed completed. This total will be made available to the contractor upon request.

f) Projects are deemed completed when the contractor completes all deliverable items and delivers those items to the government IAW the PWS. If a project is past its due date at no fault of the government, the government reserves the right to cancel the project and award zero QPIs for that project.

g) A project delayed because of government delays or actions, or delayed because of circumstances deemed reasonable by the government, may have its due date extended.

8.0 PROJECT CANCELLATION

8.1. No Effort Expended

Projects cancelled by the government where no work has been done by the contractor shall simply be removed from the schedule.

8.2. Original Timelines and Costs not exceeded

When the contractor has expended hours on the cancelled project, and the original projected cost and timeline have not been exceeded:

· the contractor’s actual cost will become the target cost for calculation purposes (TC = TAC)

· the QTOM for Quality and the QTOM for Timeliness shall each be 1

8.3. Only Timelines Exceeded

8.3.1. Cancelation for government convenience

If the contractor exceeds the projected timelines when a project is cancelled and cancellation is for government convenience:

· the contractor’s actual cost will become the target cost for calculation purposes (TC = TAC)

· the due date in existence at the time of cancellation will remain unchanged

· the QTOM for Quality shall be 1

· the cancellation date will be used as the delivery date

8.3.2. Cancelation because of contractor neglect

If the contractor exceeds the projected timelines and that delay causes the project to no longer be needed, or causes additional cost to the government:

· the contractor’s actual cost will become the target cost for calculation purposes (TC = TAC)

· the due date in existence at the time of cancellation will remain unchanged

· the QTOM for Quality shall be 0

· the cancellation date will be used as the delivery date

8.4. Only Costs are Exceeded

8.4.1. Cancellation for government convenience

If a deliverable is cancelled when target costs (TC) are already exceeded by 15 percent or less:

· the contractor’s actual cost will become the value already expended (TAC)

· the QTOM for Quality and the QTOM for Timeliness shall will each be 1

8.4.2. Cancellation for extreme cost overage:

If a deliverable is cancelled when target costs (TC) are already exceeded by over 15 percent:

· the contractor’s actual cost will become the value already expended (TAC)

· the QTOM for Quality and the QTOM for Timeliness shall will each be 0

8.5. Timelines and Costs are Exceeded

8.5.1. Cancelation for government convenience

If the contractor has exceeded the projected timelines and target costs (TC) when a project is cancelled, and cancellation is for government convenience:

· the contractor’s actual cost will become the value already expended (TAC)

· the QTOM for Quality shall be 1

· the completion date will be the date the project is cancelled

8.5.2. Cancelation because of contractor neglect

If the contractor has exceeded the projected timelines and target costs (TC) when a project is cancelled, and the delay causes the project to no longer be needed or makes the project unaffordable to the government:

· the contractor’s actual cost will become the value already expended (TAC)

· the due date in existence at the time of cancellation will remain unchanged

· the QTOM for Quality shall be 0

· the cancellation date will be used as the delivery date

9.0 COST PLUS INCENTIVE FEE (CPIF) STRUCTURE – Modification and Expansion Taskings This section discusses any changes outside the scope of baseline engineering.

This contract has the potential for two types of additions to engineering taskings. The first is a modification to baseline engineering CLIN X101. The second is the addition of a separately identified and tracked expansion tasking using its own CLIN.

9.1. Modifications to baseline engineering

These projects will use the same fee structure as baseline engineering, and will utilize an existing performance objective in Section 6. The adjustment to CLIN X101’s TC will be proposed by the Contractor, and either accepted or negotiated by the Contracting Officer.

9.2. Expansion taskings

Unique performance objectives will be developed at the time of project IPT. Cost shares, minimum fees, maximum fees, and QPI calculations will be determined between the government and contractor at the time of project IPT. The final decision will be made by the contracting officer. Incentive calculations will use the same structure and numbering as for baseline engineering tasks.

10.0 RESERVED

The performance objectives developed for projects created in section 9.2 shall be added to this section at time of individual modification award and removed when final incentive fee modification is completed.

11.0 CALCULATIONS

Step 1: data collection For each task assigned to the contractor, the following information must be recorded by the government at the beginning of the project.

· Deliverable name

· Remedy number

· Due date (as agreed to by the contractor and government)

· Target cost.

· Quality Incentive (if other than 2.5). The Timeliness Incentive will be calculated as 5-Quality Incentive.

This data will be entered into Appendix A, CPIF Workbook, Tab “COR.”

Step 2: record final project data Upon completion of the deliverable, the government will evaluate the deliverable. If the deliverable is not acceptable, it will be returned to the contractor with specifications on why the deliverable is unacceptable. If the delivery is acceptable, the government will evaluate the deliverable according to the criteria in section 6 and note the weighting for quality and timeliness. Using the CPIF Workbook, the government will record:

· the QTOMs for quality and timeliness

· the completion date

· the actual cost as reported by the contractor at time of project completion

The Workbook will calculate and record fees for the deliverable. If the AFF calculates to be greater than the maximum fee for the project, AFF = the maximum fee. If the AFF calculates to be less than the minimum fee for the deliverable, then AFF = the minimum fee.

Step 3: Cost adjustments It is possible that the Contractor’s indirect rates may change between the time of project completion and the end of the annual performance period. For this reason, it is important that the Contractor review all project TAC before submitting the final TAC described in paragraph 7.c.

12.0 EXAMPLES

Examples are provided to aid in the understanding of the process. The costs and timelines are artificial and in no way reflect government expectations.

Example 1:

The contractor is assigned the development of and RA for a customer server upgrade. Remedy number R12345 is assigned. The government assigns equal weighting to the quality and timeliness (2.5 points each). The cost is estimated to be $1,000, and is due on 2 May 2016.

Step 1: data collection The following information is recorded in the CPIF Workbook:

· Deliverable name: Customer server upgrade RA

· Remedy number: R12345

· Due date (as agreed to by the contractor and government): 2 May 2016

· Target cost: $1,000

· Quality Incentive: 2.5. The Timeliness Incentive will be calculated as 2.5.

The RA is delivered completed ahead of schedule, but is rejected by the government for multiple reasons. A list of corrections required is provided to the contractor. The contractor makes the corrections and delivers on the actual due date. The corrected RA is considered to be in pristine condition. The contractor reports the deliverable cost is the same as the target cost. The following is recorded in the CPIF workbook:

· the QTOM for quality: 1

· the QTOM for timeliness: 1

· the completion date: 2 May 2014

· the actual cost: $1,000

Maximum Fee = 10%* TC = 100 Minimum Fee = 4% * TC = 40

TC = $1000

TAC = $1000

CS = NA, as TC = TAC TF = 8% of TC ATF = ((TC – TAC) x CS) + TF ATF = ((1000-1000)xCS)+TF = TF = 8% of $1000 = $80

QPI – (1*2.5 +1*2.5)/5 = 1

AFF = 80 * 1 = $80. $80 is between the maximum and minimum fee, so AFF = $80.

90 days later, the contractor has an adjustment to cost based on billing changes made by a subcontractor. The new cost is $1,100.

Maximum Fee = 100 Minimum Fee = 40

TC = $1000

New TAC = $1100

CS = 80%

TF = 8% of TC ATF = ((TC – TAC) x CS) + TF

ATF = ((1000-1100)*.80)+80 = $0.

The QPI is unchanged. The new calculated AFF = $0*1 = $0. $0 is less than the minimum fee of $40, so AFF = $40.

The new fee for the deliverable is $40.

Example 2:

The contractor is assigned the development of a C/A package for a new system. Remedy number R23456 is assigned. The government has schedule constraints so assigns a weighting to the quality 1.5 and timeliness weighting of 3.5. The cost is estimated to be $5,000 and is due on 10 June 2016.

Step 1: data collection The following information is recorded in the CPIF workbook:

· Deliverable name: New System C/A package

· Remedy number: R23456

· Due date (as agreed to by the contractor and government): 10 June 2016

· Target cost: $5,000

· Quality Incentive: 1.5. The Timeliness Incentive will be calculated as 3.5.

The C/A is delivered completed on schedule after two document reworks. The quality of the C/A is acceptable. The contractor reports the deliverable cost as $4700. The following is recorded in the CPIF workbook:

· the QTOM for quality: 0.5

· the QTOM for timeliness: 1

· the completion date: 10 Jun 2016

· the actual cost: $4,700

Maximum Fee = .10*5000 = 500 Minimum Fee = .04*5000 = 200

TC = $5000

TAC = $4700

CS = 40%

TF = 8% of TC ATF = ((TC – TAC) x CS) + TF ATF = ((5000-4700)x.40)+.08*5000 = $520. 520 is greater than the maximum fee, so ATF = $500.

QPI – (.5*1.5 +1*3.5)/5 = 0.85

AFF = .85 * 500 = $425, which is greater than the minimum fee.

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Adjusted Fee Amount

Range Of Incentive Effectiveness

(Max Fee )

(Target Fee)

(Min Fee)

Adjusted Total Allowable Cost

>0% up to 5%

(60/40)

Target Cost

Overrun

4% Fee

8% Fee

10% Fee

Adjusted Fee % Value

Share-line

Underrun

>0% up to 5%

(20/80)

UNCLASSIFIED

UNCLASSIFIED