What distinguishes an award fee contract?

An award fee contract is characterized by the payment of additional fees that are contingent upon the contractor's performance as evaluated by the contracting authority. This contract type aligns the contractor's incentives with desired outcomes, encouraging high levels of performance beyond the base contract requirements. The award fee is typically assessed through periodic performance reviews, where the contractor's work is evaluated against specific criteria, and the amount of the fee is determined based on the results of these assessments.

In contrast, fixed amounts based on predetermined milestones refer to a structure where payments are made for achieving specific project phases or deliverables, rather than being related to performance. Contracts awarded solely based on the lowest bid typically use a competitive bidding process where the emphasis is on cost rather than performance quality. Finally, payment only after satisfactory completion of all tasks suggests a different contract structure which may not provide incentives for ongoing performance improvement, as it does not reward exceptional performance during the contract's execution.