The Department of Energy (Department) began to incorporate performance-based incentive fees into its major management contracts after the 1994 Contract Reform report recommended the use of performancebased management contracts. The performance-based incentive approach ties elements of the contractor’s profits to the achievement of specific technical performance objectives, delivery schedules, or cost control objectives. Thus, fees paid to contractors should bear a direct relationship to performance and require that each incentive have objective performance metrics and an objective evaluation of contractor performance. Successful use of performance-based incentives should also result in improved contractor performance. The objective of the audit was to determine whether the Department’s use of performance-based incentives has resulted in improved contractor performance at selected Departmental field sites.