Award Term – Part 2

In the earlier post (see Award Term – Part 1) I looked at the key elements of an Award Term.  In this post let’s look at how the buyer determines whether to grant an Award Term to the seller.

Award Term Assessment Method

Before considering the assessment criteria there are 3 methods that can be used to decide whether an Award Term should be granted.   While each of these 3 methods are valid, the need to seek a fair position for both buyer and seller has led to an increased used of the ‘Balanced’ method described below as it offers a good mix of flexibility and transparency.

Award Term Assessment Method Advantages Disadvantages
Balanced – where the Award Term is granted based on a combination of specified general rules and buyer discretion
  • Provides seller clarity on the requirements and process for an extension
  • Allows buyer discretion to grant an extension
  • Discretion based on human judgement
  • More complex contract drafting than Qualitative approach

Award Term Assessment Method

Award Term Assessment Criteria

In addition to the assessment methods the buyer will need to develop the Award Term assessment criteria. A couple of years ago a senior executive once joked that from the buyer’s perspective that the Award Term assessment criteria were two simple questions; (1) do I still love you? and (2) can I still afford you?  Humour aside, the intent of these two questions is sound.  Firstly, is the seller’s both performance and relationship / behaviours still delivering the buyer’s outcome (i.e. am I still in love)? Secondly, has the seller improved the value of the contract by reducing the price of the services or improving / increasing the scope of the services (i.e. can I still afford you)?  The message, while silly, is simple; for a contract extension to be granted the seller needs to deliver good performance supported by positive, collaborative behaviours and improved value for money over the life of the contract.

The table below provides further Award Term assessment criteria based on the Support variant of the Australian Standard for Defence Contracts (ASDEFCON) contract templates.

Core Award Term Assessment Criteria
(Seller . . .)
Optional Award Term Assessment Criteria
  • performs obligations in a way that satisfies the Contract objectives;
  • behaviours have positively contributed to seller performance;
  • performance against each financial performance measure for the review period is assessed as meeting or exceeding the contracted level of performance; and
  • performance against all non-financial performance measures is assessed as meeting or exceeding the contracted level of performance.
  • outcome of any cost review is assessed as acceptable.
  • no Remediation Plan required during review period, or if one has been raised, the seller has completed all steps to the satisfaction of the buyer.

Core and Optional Award Term Assessment Criteria

Importantly, as these contract extensions reflect additional price to the buyer, it is recommended that any Award Term determination occur before the buyer’s annual budget cycle to allow this price, and any variation, to be included in the buyer budget for the next Financial Year.  This may need the Award Term determination to occur many months before the end of a financial period since in many organisations, especially large organisations, the budget cycle can be up to 4 months earlier.

In the last post of the series I will look at 3 examples to hopefully aid the understanding and practical application of this Performance Based Contracting approach.

This entry was posted in Contract Consequences, Incentives, the How and tagged , , , , , , , . Bookmark the permalink.

1 Response to Award Term – Part 2

  1. Pingback: Award Term – Part 3 | Performance Based Contracting (PBC) Blog

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