awardfee

Award fee is a form of incentive compensation used in contract management, particularly in government and large-scale procurement. It is not a guaranteed portion of the contract price; instead, the contractor can earn an additional fee based on the evaluation of performance during defined award-fee periods.

Typically defined in an Award Fee Plan, the plan specifies the evaluation criteria (for example, technical performance, schedule adherence, cost management, and business relations), the award-fee periods, and the scale used to rate performance (such as outstanding, good, satisfactory, or below satisfactory). An Award Fee Board or designated evaluators assess the contractor's performance against the criteria and assign a rating that determines the amount of award fee earned, subject to the contract's ceiling.

Payment mechanics generally separate a fixed base fee from the discretionary award fee. The base fee is paid as agreed in the contract, while the award fee is an additional amount that may be paid if the rating meets thresholds. The maximum award fee is capped by the contract, and the fee is funded from contract funds and paid in installments during or after the award-fee periods.

Usage and purpose vary, but award-fee arrangements are predominant in U.S. federal government contracts (such as defense or national-security programs) and other sectors employing performance-based contracting. The intent is to incentivize high performance, timely delivery, and alignment with the client’s objectives, while providing a mechanism to adjust compensation based on demonstrated results.

Critics note that the process can be subjective and complex; effective governance, clear criteria, and independent evaluation are important to mitigate bias and manipulation. See also incentive fee and performance-based contracting.