Are Incentives Always Earned?

When it comes to the Department of Defense (DOD) incentives may not always be earned but they are almost always paid. Perhaps, they are not paid in full, but the DOD contractors do get a good piece of the incentive.

The Government Accountability Office (GAO) recently looked at 93 contracts in which DOD offered incentives to the contractor. In general, GAO found that incentive payments did not appear to be connected with the results of the contract. For example, the Comanche helicopter was 41% ($3.7 billion) over the baseline for R&D costs and was late by 33 months; yet, it 'earned' 85% of the possible incentives. The performance under the contract for the F/A-22 Raptor fighter was equally poor - 47% over R&D baseline, 27 months late - yet 91% of the incentive was paid.

In the 93 contracts studied, the GAO estimates that $8 billion in unearned incentives was paid. There are 597 contracts of this type. If the overpayment rate is about the same for all of these contracts, about $50 billion in our funds went down the tubes.