A cost plus contract with award fee reimburses the contractor for all allowable costs plus a fee that is based on performance criteria. The fee is typically based on goals or objectives that are more subjective. An amount of money is set aside for the contractor to earn through excellent performance, and the decision on how much to pay the contractor is left to the judgment of the project team. The amount is sufficient to motivate excellent performance.
The following Reuters story is about the use of an award fee to incentivize the contractor’s performance in maintaining the ship’s performance during transfer to other owners.
VSE Corporation (NASDAQ GS: VSEC) reported today that it has been awarded a $249 million cost-plus award fee contract option modification by the Naval Sea Systems Command that can be exercised by the Navy to provide one additional year of continued support to NAVSEA PMS 326 and 333 for ex-U.S. Navy ships that are sold, leased or otherwise transferred through the Foreign Military Sales (FMS) program to FMS clients.
This contract provides for services supporting U.S. ships that are sold, leased or otherwise transferred to FMS clients by providing engineering, technical, procurement, logistics, test, inspection, calibration, repair, maintenance and overhaul support services, including reactivation and modernization.
Since 1995, VSE’s International Group, GLOBAL Division (formerly BAV Division) has transferred 42 ships to foreign governments. VSE is currently reactivating EX-USNS Andrew J. Higgins (TAO-190) for transfer to Chile. Additionally, VSE actively supports various countries through the follow-on technical support requirements of the contract, providing training, maintenance, repair, and in-country infrastructure improvement assistance in support of transferred ships. Countries currently supported by VSE include Bahrain, Egypt, Japan, Mexico, Taiwan, Turkey, Poland, Philippines, Italy and Romania.
“We are extremely pleased to have won this award. It is a testament to the confidence and trust we have earned from the U.S. Navy and their foreign clients for the past 14 years,” said VSE CEO/COO/President Maurice “Mo” Gauthier. “We look forward to continuing to deliver excellence and innovative technology solutions to the world’s navies for years to come.” 1
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