Sect B.1 Tab 5 6-12-08.pdf

B.1 DETERMINATION OF INCENTIVE FEE

Incentive fee structure

Incentive Fees

This contract includes multiple incentive fees that emphasize Operational Performance (aircraft launch rates, mission completion, and Depot management. Because the Government considers Operational Performance to be more important than Depot management, the target incentive fee pool will be divided as follows: 60% Operational Performance/40% Depot management. The overall target fees available will be 3% of the six- month contract cost for meeting the target and up to 5% of the six-month contract cost for exceeding the target. The minimum fee available in both categories is zero percent. Fees will be awarded semiannually and based upon the calculation of fees described below.

Operational Performance Incentive

The target fee of 3% available in this category is based upon attaining a 90% launch rate and a 90% mission completion rate. The minimum fee available is zero percent. Fee related to Operational Performance is impacted by the following two variables:

1. Launch rate

2. Mission completion

The primary calculation is a ratio obtained by multiplying percentage launch rate by percentage mission completion. For example a launch rate of 90 percent and a mission completion rate of 90 percent equals a performance ratio of 81 percent (see chart below). Attaining the 81 percent performance ration would equate meeting the target of 3 percent. Exceeding the 81 percent target ratio would increase the incentive fee for this category up to a maximum of 5 percent (of the 60%). If either figure is less than 90 percent, there is zero operational performance fee.

Launch rate. The percentage of operational requests that are responded to with the numbers, types, and properly configured aircraft. This is not an operational readiness rate. Launch rates are not calculated based upon the status of each aircraft in the fleet. It is a measurement of the ability of the contractor to provide an aircraft in response to a specific operational request. On a quarterly basis, the Government will determine the number of requests that were properly responded to as a percentage of aircraft requested. All support sites will be rolled into one percentage.

Mission Completion. The percentage of missions that were fully completed versus the number flown. To be considered a completed mission, all systems under the control of the contractor must have functioned properly and not contributed to the inability of the crew to complete its assigned mission. If systems malfunction, the contractor will not be held accountable for this Incentive Fee metric if all three of the following are true:

1. The inoperative equipment was not the fault of the contractor. Unless for example, there was a failure to perform a scheduled maintenance, failure to perform a required test, or failure to repair or replace equipment the Government had noted was inoperative or not fully functional.

2. The problem was not readily foreseeable by the contractor.

3. The problem was beyond the contractor’s control to have avoided.

On a quarterly basis, the Government will determine the number of missions as a percentage of missions flown that were not completed due to contractor performance or failure to perform contractual requirements. All support sites will be rolled into one percentage.

The launch rate and mission completion rate percentages will then be multiplied together to obtain a fee related to operational performance. There will be zero incentive fee if either percentage is below 90 percent as shown in the Operational Performance Incentive Fee Matrix below.

The statistics will be calculated by the contractor and verified by the Government.

Incentive Fee Matrix for Operational Performance

Launch Rate Percentage

1.00 0.99 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.90 0.89 0.88 0.87 0.86 0.85

1.00 1.00 0.99 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.90

0.99 0.99 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.90 0.89

0.98 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.90 0.89 0.88

0.97 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.90 0.89 0.88 0.87

0.96 0.96 0.95 0.94 0.93 0.92 0.91 0.90 0.89 0.88 0.87 0.86

0.95 0.95 0.94 0.93 0.92 0.91 0.90 0.89 0.88 0.87 0.86 0.86

0.94 0.94 0.93 0.92 0.91 0.90 0.89 0.88 0.87 0.86 0.86 0.85

0.93 0.93 0.92 0.91 0.90 0.89 0.88 0.87 0.86 0.86 0.85 0.84

0.92 0.92 0.91 0.90 0.89 0.88 0.87 0.86 0.86 0.85 0.84 0.83

0.91 0.91 0.90 0.89 0.88 0.87 0.86 0.86 0.85 0.84 0.83 0.82

0.90 0.90 0.89 0.88 0.87 0.86 0.86 0.85 0.84 0.83 0.82 0.81 0.89 0.88

0.87 AREA OF ZERO INCENTIVE FEE

0.86

M is si on

C om pl et io n

R at e Pe rc en ta ge

0.85

Depot Management Incentive Fee

The Depot management factor is a negative incentive. This category will utilize the maximum incentive fee of 5 percent of the six-month contract cost (of 40%) and be reduced by the following detractors:

In any given quarter, each aircraft that fails to meet scheduled delivery dates within a 30-day window, identify all major over-and-above repairs within 90 days of induction, or mismanages long-lead time material requirements that could lead to a stop work, would result in the loss of 33 percent of the Depot management fee. Further, if three failures to meet the Depot factors in any given quarter, there will also be zero Depot management fee.

Example Rating

Example maximum incentive fee available as: $1,000,000.00

Target Operational Performance fee: $300,000.00

Maximum Operational Performance fee: $600,000.00 Maximum Depot Management fee: $400,000.00

Example Launch rate percentage of .95 and Mission Completion percentage rate of .90 equal 85% Operational Performance or $ 510,000.00

One aircraft fails to meet one major factor: $400,000 less 33% (-$132.000) equals $268,000.00

Total Incentive fee for the six-month be reviewed = $778,000.00