Evaluation of the Award Fee Mechanism

The evaluation of the award fee mechanism was conducted by SSG Advisors, LLC (d/b/a Resonance) to assess the effectiveness of the use of the award fee mechanism to incentivize superior performance in the implementation of ERA. The evaluation found that it was not just the award fee incentive, but rather the specific design of ERA's award fee process that fostered success. This process allowed for clarity of expectations, extra time given to USAID management for feedback and problem solving, and an alignment of interests in the award fee process that led to respondents concluding that ERA was high performing. ERA's innovative award fee criteria, which focuses not just on results but also adherence to implementation principles, flexibility, adaptation, and collaboration, is found to be useful but can also draw focus away from achievement of results. The award fee assessment findings led to significant changes in both ERA implementation and management. Not all of these changes were requested directly by USAID. Other changes were based on less formal feedback from USAID or on Resonance's recommendations in the award fee assessments. Ultimately, ERA is not just using the award fee assessments to respond to USAID, but to self-identify challenges in implementation and directly address them. Multiple factors should influence decision-making around whether to use an award fee mechanism of this type in the future. Specifically, this type of mechanism poses a significant management burden for both USAID and the implementer as well as an opportunity cost as this burden takes resources away from beneficiary activities. A third-party evaluator is useful in reducing that burden. Contractors chosen to implement such types of activities need extensive experience with USAID. While the mechanism allows for flexibility, it may not be as helpful in contracts with straightforward results that need to be seen and observed quickly. The evaluation provides recommendations for improving the award fee assessment process to be more effective and efficient. These recommendations include integrating management best practices used on ERA, synchronizing work planning with the release of adjusted sub-factors, continuing to use criteria around flexibility, collaboration, and adaptive management, and documenting and sharing recommendations and adjustments memos with the award fee board, the third-party evaluator, and all staff. Additionally, building in a specific space for learning, not just fee determination, into the process and increasing engagement of the third-party evaluator are also recommended. The evaluation highlights the importance of a well-designed award fee process in achieving success in implementing a contract. It also emphasizes the need for careful consideration of the factors that influence the use of an award fee mechanism, including the management burden, opportunity cost, and the need for extensive experience with USAID among contractors.