Presentation on theme: "An Integrated Approach"— Presentation transcript:
1 An Integrated Approach Service Contracting:An Integrated ApproachWilliam Cox, CPCM, MAM United States Department of Veterans Affairs Office of Acquisition and Materiel Management Acquisition Assistance Division/049A5D April 11, 2007
2 Today’s Topics Introduction to Service Contracting Project Management of Service ContractingRisk Management in Service ContractsFinancial Aspects of Service ContractsCurrent Legislation About Service ContractingLabor Laws for Service ContractingContracts for Specialized Services
4 Introduction to Service Contracting Chapter 1Introduction to Service Contracting
5 Acquisition of Services Applicable processes and practices in:Acquisition PlanningSolicitation DevelopmentPerformance Assessment
6 Meet with your customer Reviewing recurring requirements Acquisition PlanningDetermining your customer’s requirementWho is your customerMeet with your customerReviewing recurring requirements
7 Market Research: Sum of Two Processes Provides a general sense of the services available in the market place and their characteristics and capabilities.+Determine, with a high degree of confidence, whether any services will satisfy the need, or can be modified or tailored accordingly.
8 Market Research Knowledge gained should assist in identifying: Best methods for conducting a service acquisitionBest available sources for performing the servicesBest marketplace practicesBest practices in the performance of servicesBenchmarking performance standards/measuresBest practices in evaluation and use of incentivesBest strategies for socioeconomic considerations
9 How Market Research Can Help? Commercial practicesLevel of competitionBuyer or Seller Market?Price estimateDelivery termsPayment termsWarranty termsInsurance RequirementsUnit pricing termsContract type and lengthContract renewal termsCommercial ClausesCommercial standardsQuality processesAre metrics used?Certifications/accreditationsRemedies-poor performanceSource Selection proceduresSample Work StatementsSample Contract ClausesMarketing literature/brochuresMonetary/non-monetary incentives
10 Market Research Process Step 1: Establish a group leader or facilitator for the acquisition teamStep 2: Define basic needs and identify type of serviceStep 3: Compile a list of potential sourcesStep 4: Develop written survey or oral interview questionsStep 5: Conduct surveys or interviewsStep 6: Document the market research
11 Identify Types of Services Process services (offsite) — performance of a particular taskExpert services (on- or off-site) — application of creativity or intelligenceOperational services (on-site) – service taking place on government property on a regular basis
12 Market Research Report Components Description of needDesired or required delivery scheduleExplanation of methodologyMethod used for compiling and refining list of potential suppliers/vendorsFirms or organizations contactedSummary of info received from firmsSummary of commercial terms and/or performance-based characteristicsIdentification of price ranges
13 What are Statements of Work and Statements of Objectives? A Statement of Work (SOW) is a document describing the:Minimum requirements for performance of tasks under a contractStandards of performance for determining if the requirements have been metA Statement of Objectives (SOO) is a document describing the:(1) Purpose;(2) Scope or mission;(3) Period and place of performance;(4) Background;(5) Performance objectives, i.e., required results; and(6) Any operating constraints.
14 What is a Performance Work Statement (PWS)? A Performance Work Statement is a document describing the work in terms of the required results rather than either “how” the work is to be accomplished or the number of hours to be provided, and it structures all aspects of the acquisition around the purpose of the work.
15 What is a Performance Work Statement (PWS)? A PWS may be prepared by the Government or result from a Statement of Objectives (SOO) prepared by the Government where the offeror proposes the PWS. The solicitation will include instructions to offerors to submit a PWS with the proposal.
16 What is a Performance Work Statement (PWS)? Enable assessment of work performance against measurable performance standards; andRely on the use of measurable performance standards and financial incentives in a competitive environment to encourage competitors to develop and institute innovative and cost-effective methods of performing the work.
17 Solicitation Development SOW, SOO, or Performance Work StatementUnique Clauses for ServicesProposal Preparation InstructionsEvaluation Criteria
18 Key to Procurement Actions Establishing contracts from new solicitationsModifying existing contractsProviding task orders and indefinite-quantity contractsEstablishing the basis for other documentsEvaluating performance
19 SOW or PWS Role In the Acquisition of Services Identifies tasks required of the contractorContractually binds the document stating those tasks the contractor must perform to get paidEngages the time and effort of a contractor to perform an identifiable task rather than to furnish an end item of supplyIdentifies either personal or non-personal service contractsDefines contractor effortsDefines deliverables for services and data
20 SOW/PWS Format Scope Definitions Government-furnished property and informationContractor-furnished itemsSpecific tasksApplicable Documents:Performance Requirement Summary (PRS) (Word Document)Performance Incentives (Word Document)Others as necessary
21 Statement of Work or Performance Work Statement Writing Guidelines Here are the steps when writing a Statement of Work SOW or PWS:Identify outputs.Structure around the purpose of the work to be performed.Ensure completeness.Communicate clearly
22 Ensuring Completeness Identify and define all tasksIdentify completion criteria for each taskIdentify relationships between tasksExclude unnecessary tasksIdentify logical flow of tasksExclude how-to requirementsMake sure that requirements track to performance standards and to evaluation criteria
23 Key to Writing ClearlyUse active voice – The passive voice should not be used.Choose descriptive verbsDistinguish between “shall/will” and “should/may”Avoid ambiguity – Eschew Obfuscation.Avoid generalities, but do not over specifyAvoid agreements to agreeDefine all abbreviations and acronymsUse short sentences
24 Issues Unique To Different Types of Services General issues:Payment schedule31 U.S.C specifies that a payment under a contract to provide a service or deliver an article for the United States Government may not be more than the value of the service already provided or the article already delivered.See FAR and for applicability and exclusionsTime of performanceAuthorization and changes
25 Issues Unique To Different Types of Services Issues related to expert servicesDelegationIntellectual propertyPatentsCopyrightDisclosure and confidentiality issuesLicense and royalties
26 Issues Unique To Different Types of Services Issues regarding process servicesScope - Define the limits of the work you want done. The scope of the work is the most frequent source of disputes with service suppliers.Issues related to this type of service’s examples include:PhotocopyingEquipment MaintenancePhotographic ServicesData ProcessingDefinition of ScopeQualityAuthorizationCompletion
27 Issues Unique To Different Types of Services Issues regarding operational servicesLiabilityInsuranceConductComplianceUse of asset/materials
28 Key Use of SOW/PWS in Source Selection Process Key to successful use of SOW/PWS in the source selection process:Establishment of a clear relationship between the SOW/PWS, Section L (instructions to offerors) and Section M (evaluation criteria)
29 Section L, Instruction to Offerors …is that place in the solicitation where information and guidance is posted to guide offerors in preparing proposals in response to the solicitation.
30 Section M: Source Selection Criteria Section M of the solicitation contains the evaluation factors for award. This part of a Request for Proposals is intended to represent a:Clear communication from the Government to potential offerorsStatement of what is most important to the customer(s) or end-user(s)Delineation of factors dealing with how proposals will be evaluated
31 Illustration of the Relationship Between SOW/PWS, Section L & M
33 Quality Assurance Surveillance Plan (QASP) Government’s technical management plan of proposed actions to evaluate performance; not a contractual item (Formulated with SOW/PWS)Provides information to potential offerors onWhat and when tasks are inspectedWhat standards will be employedHow assessment will be conductedTailored to requirement (risk management tool)Provide the means whereby deductions may properly be taken for non-performance
34 Contractor Quality Control Plan Those assessment methods identified in the QASP, together with the contractor’s quality control plan will help determine whether the contractor delivers the level of performance agreed to in the contract.
35 Implementing Performance Assessment Insight vs. OversightShift in focus from process inspection to insight-oriented outcomeInspection of Services ClauseGives the Government the right to inspect anytime, anywhereRequires the contractor to provide an inspection systemRe-performance is required for deficient servicesCommercial Services Inspection and Acceptance ClauseRequires contractors to tender only acceptance-conforming itemsReserves Government’s right to inspect services tenderedSurveillance is minimized
36 Performance Assessment Performance assessment should focus on the:QualityQuantityTimeliness of the performance outputs to be delivered by the contractorNot on the:Steps requiredProcedures used to provide the product or services
37 Contractor Assessment Documentation The record should contain as a minimum:The contractor numberA short description of the requirement being surveyedThe contract paragraph number referencing the requirementThe method of assessment and observationThe date, time, and location of assessmentThe results of the assessmentThe signature and title of the individual doing the assessment
38 The Federal Supply Schedule Program a. k The Federal Supply Schedule Program a.k.a Multiple Award Schedule (“MAS”)Provides Federal agencies with a simplified process of acquiring commonly used supplies and servicesIn Varying quantitiesWhile obtaining Quantity discountsIndefinite-delivery contracts are awarded using competitive proceduresThe firms provide supplies and services at stated prices for given periods of time
39 Industrial Funding Fee MAS contracts are funded through a ¾% fee paid to GSA by the agencies that purchase supplies and servicesThe fee is incorporated into the price of supplies and services sold on the Schedule
40 What are the advantages of the MAS Program for buying agencies? Provides buying agencies with:The flexibility to select the best value item that meets their needs at the lowest overall costOrdering directly from the vendorThe relief from the requirements of:developing a SOW/PWS (except when ordering professional services),issuing a Request for Proposals,and conducting a competitionadministrative activity
41 How does the MAS Program work for Contractors? Contractors may join to sell a single service under a single Schedule or multiple services under multiple SchedulesGSA determines that the vendor is responsible and the services are priced reasonablyReasonable pricing required of contractors by insisting that the Government be treated as the vendor’s “most favored customer”It does not guarantee sales for contractorsOnly a $2,500 minimum requirement is placed by GSA
42 Competition Requirements for MAS Program Any “authorized purchaser” may purchase services from that vendor without additional competitionIndividual purchasers under the MAS Program do not need to to meet the requirements of “CICA”.MAS contracts are awarded through “full and open competition,”Agencies must comply with certain basic requirements set forth at FAR 8.404:sole source awards are limited per FARseveral recent court decisions have emphasized the need for agencies to review at least three Schedule price lists
43 Risks inherent in the MAS Program for Contractors Volume RequirementsProduct RequirementsVendor Requirements
44 Risks inherent in the MAS Program for Buyers Conflicts of Interest between GSA and your agencySoftware license agreements are sometimes not included or, when included, conflict with federal lawNeed to retain complete copy of GSA schedule contract (not just the schedule itself) for contract administration
45 Current State of The MAS Program for Buyers Is quickly becoming the procurement vehicle of choice for many Government buyersIs open to most Government agenciesIt is considered easy to useSignificantly reduces the administrative burdens of traditional Government procurementsIs becoming restricted with the Department of Defense
46 Current State of MAS Program for Contractors Almost every major purveyor of commercial services holds one or more Schedule contracts.Provides excellent revenue-generating opportunities without many of the burdens of traditional Government contracts
47 When Procuring Services, Agencies Must look to the following sources in the order shown:· Services available from the Committee for Purchase from People Who Are Blind or Severely Disabled· Mandatory Federal Supply Schedules· Optional use Federal Supply Schedules· Federal Prison Industries, Inc. or commercial sources
48 Organizational Conflicts of Interest Organizational conflict of interests (OCI’s) exist when, because of other activities or relationships with other persons, a person is unable or potentially unable to render impartial assistance or advice to the Government, or the person's objectivity in performing the contract work is or might be otherwise impaired, or a person has an unfair competitive advantage.
49 Organizational Conflicts of Interest DEAR Incompatibility between regular duties and private interests.(a) Employees of a management and operating contractor shall not be permitted to make or influence any decisions on behalf of the contractor which directly or indirectly affect the interest of the Government, if the employee's personal concern in the matter may be incompatible with the interest of the Government. For example: An employee of a contractor will not negotiate, or influence the award of, a subcontract with a company in which the individual has an employment relationship or significant financial interest; and an employee of a contractor will not be assigned the preparation of an evaluation for DOE or for any DOE contractor of some technical aspect of the work of another organization with which the individual has an employment relationship, or significant financial interest, or which is a competitor of an organization (other than the contractor who is the individual's regular employer) in which the individual has an employment relationship or significant financial interest.
50 Organizational Conflicts of Interest DEAR Incompatibility between regular duties and private interests, continued:(b) The contractor shall be responsible for informing employees that they are expected to disclose any incompatibilities between duties performed for the contractor and their private interests and to refer undecided questions to the contractor.
51 Organizational Conflicts of Interest GAO: Three types of OCIImpaired Objectivity:Science Applications Int’l Corp., B et al., May 3, 2004 (sustained)PURVIS Systems, Inc. B ; B , August 16, 2004 (sustained)Biased Ground Rules:Lucent Technologies World Services, Inc.,B , Mar. 2, 2005 (denied)Unequal Access to InformationJohnson Controls World Services, Inc.,B , Feb 13, 2001 (sustained)
52 Organizational Conflicts of Interest Reasons for Increasing OCI’sThe consolidation within the industries serving the U.S. Government, particularly in the information technology and defense industriesThe Government is obtaining more and more services from contractors, and those services are increasingly likely to entail the exercise of judgment
53 Organizational Conflicts of Interest Reasons for Increasing OCI’s3. The use of contract vehicles that invite “marketing” by the contractor risks fostering OCI’s (hunting license)Usually Indefinite-Quantity, so guaranteed amount is very lowWhen a company expresses a view on whether its umbrella contract includes within its scope the goods or services that an agency wants, is the company viewed as having a conflict of interest?
54 Organizational Conflicts of Interest Reasons for Increasing OCI’s4. The desire of the contracting officer to enhance the agency’s revenue stream on an interagency contract that earns fees can create what looks like an OCI, which could affect the agency’s objectivity in making determinations about the scope of the contract.
55 Project Management of Service Contracting Chapter 2Project Management of Service Contracting
56 Learning Objectives Describe the nature of project management. Construct a project network.Perform critical path analysis on a project network.Allocate limited resources to a project.Crash activities to reduce the project completion time.Analyze a project with uncertain activity times.Use the earned value chart to monitor a project.Discuss the reasons why projects fail to meet performance, time, and cost objectives.
57 The Nature of Service Project Management Characteristics of Projects: purpose, life cycle, interdependencies, uniqueness, and conflict.Project Management Process: planning (work breakdown structure), scheduling, and controlling.Selecting the Project Manager: credibility, sensitivity, ability to handle stress, and leadership.Building the Project Team: Forming, Storming, Norming, and Performing.Principles of Effective Service Project Management: direct people individually and as a team, reinforce excitement, keep everyone informed, manage healthy conflict, empower team, encourage risk taking and creativity.
58 The Nature of Service Project Management The depth and breadth of service project management depends on the degree of criticality of the project and how the contracting parties have allocated risk.When the government controls the processes and methods of project execution, it will generally retain responsibility for all aspects of project management.When a project is executed through a performance-based services contract, the contractor will be primarily responsible for project management.
59 Project Management Questions What activities are required to complete a project and in what sequence?When should each activity be scheduled to begin and end?Which activities are critical to completing the project on time?What is the probability of meeting the project completion due date?How should resources be allocated to activities?
60 Work Breakdown Structure (WBS) WBS A Simple Tool to identify What work/tasks must be doneWBS LevelsGraphic Display1.0 System1.1 Hardware1.2 Software1.1.1 Design1.1.2 Mfg.Indented List1.0 System HardwareDesignMfg.1.2 Software123The WBS can be written functionally oriented or task orientedAdapted from Reference Text, pg. 171
61 WBS – Best PracticesThe WBS should be developed at an appropriate level of detail to manage the project.The WBS should be developed by the entire (multi-functional) project team to ensure completeness.Ensure the WBS includes all of the work contained in the contract Statement of Work (SOW).Your customer should review the WBS to ensure all project requirements are addressed.
62 Project Planning Guidelines (What you must know) Tools What is to be done.List of project deliverablesWork Breakdown Structure (WBS)Scope of WorkStatement of WorkWhen it should be done and what is the current status.Gantt ChartMilestone ChartCritical Path Method (CPM)Program Evaluation Review Technique (PERT)Who is responsible for doing it.Point of contact listsOrganizational Breakdown Structure (OBS)Responsibility Assignment Matrix (RAM)How much is it going to cost.Business CaseCost Breakdown Structure (CBS)Earned Value Concept
63 Tennis Tournament Activities ID Activity Description Network Immediate DurationNode Predecessor (days)1 Negotiate for Location A2 Contact Seeded Players B3 Plan Promotion C4 Locate Officials D5 Send RSVP Invitations E6 Sign Player Contracts F ,7 Purchase Balls and Trophies G8 Negotiate Catering H ,9 Prepare Location I ,10 Tournament J ,
64 Scheduling Tool – Gantt Chart Shows Start/finish and duration of various activitiesEasiest schedule to makeUses target dates – “Most Likely Time”Progress displayed by indicating actuals with symbolTells least amount of information
65 Early Start Gantt Chart for Tennis Tournament ID Activity Days Day of Project ScheduleA Negotiate forLocationB Contact SeededPlayersC Plan PromotionD Locate OfficialsE Send RSVPInvitationsF Sign PlayerContractsG Purchase Ballsand TrophiesH NegotiateCateringI Prepare Location 3J TournamentPersonnel RequiredCritical Path ActivitiesActivities with Slack
66 Resource Leveled Schedule for Tennis Tournament ID Activity Days Day of Project ScheduleA Negotiate forLocationB Contact SeededPlayersC Plan PromotionD Locate OfficialsE Send RSVPInvitationsF Sign PlayerContractsG Purchase Ballsand TrophiesH NegotiateCateringI Prepare Location 3J TournamentPersonnel RequiredCritical Path ActivitiesActivities with Slack
67 Scheduling Tool – Milestone Chart Determine RequirementsDesign HardwareDevelop HardwareCustomer AcceptanceTime MonthsCondensed graphic displayShows MilestonesPlanned Target datesRevised datesActual datesUsed on contracts of longer durationDoes not show relationship between Milestones
68 Network Schedules – CPM and PERT Critical Path Method Program Evaluation Review Technique (CPM) and (PERT)Shows longest path through a projectShows the path with zero slack time (Critical Path)Critical Path – is the shortest time to complete a projectShows explicit relationshipsCoordinates the big pictureTo reduce the schedule you must reduce the time it takes to complete activities on the critical path – Called Crashing the Critical PathLays out work flow
69 Network Schedules Network Schedule Scheduling Tool – Network Schedules CPM or PERTNetwork SchedulesNetwork Schedule42Developed from WBSShows time to finishShows activity interdependenciesMore difficult to makeProvides more info than Gantt or Milestone chartsMay use Target time estimate (i.e. CPM)May use multiple duration estimates (most likely, optimistic, and pessimistic times) to calculate expected time (i.e. PERT)6891735O = Event (Start/Finish) = Activity
70 Tennis Tournament Activity on Node Diagram TSESEFLSLFA2C3D2G4STARTE10I3J2B8F4H1
71 Notation for Critical Path Analysis Item Symbol DefinitionActivity duration t The expected duration of an activityEarly start ES The earliest time an activity can begin if all previousactivities are begun at their earliest timesEarly finish EF The earliest time an activity can be completed if itis started at its early start timeLate start LS The latest time an activity can begin withoutdelaying the completion of the projectLate finish LF The latest time an activity can be completed if itis started at its latest start timeTotal slack TS The amount of time an activity can be delayedwithout delaying the completion of the project
72 Completion Time Distribution for Tennis Tournament Critical PathActivities D VA /36C /36E /36I /36J= /36 = 5.2 =
73 Costs for Hypothetical Project Total CostIndirect CostCostOpportunity CostDirect Cost(0,0)Duration of ProjectSchedule with Minimum Total Cost
74 Activity Cost-time Tradeoff CrashC*Slope is cost to expedite per dayNormalCD*DActivity Duration (Days)
75 Cost-Time Estimates for Tennis Tournament Time Estimate Direct Cost Expedite CostActivity Normal Crash Normal Crash SlopeABCDEFGHIJTotal
76 Progressive CrashingProject Activity Direct Indirect Opportunity TotalDuration Crashed Cost Cost Cost CostNormalNormal Duration After Crashing ActivityProject Paths DurationA-C-D-G-I-JA-C-E-I-JA-C-E-H-JA-C-F-H-JB-F-H-J
78 Earned Value Chart Figure 16.17 Earned Value Chart Actual Cost DollarsTodayACActualCostBudgeted CostCost VariancePV(Baseline)ScheduleVarianceEVSTWPATWPDaysValueTimeCompletedVarianceFigure Earned Value Chart
79 Risk Management in Service Contracting Chapter 3Risk Management in Service Contracting
80 More Keys to Writing Clearly Be more or less specific.Don't repeat yourself, or say again what you have said before.Never use a big word when a diminutive alternative would suffice.No sentence fragments.And always be sure to finish what
81 Definition of RiskRisk is a measure of the inability to achieve overall program objectives within defined cost, schedule, and technical constraints and has two components: (1) the probability of failing to achieve a particular outcome and (2) the consequences/impacts of failing to achieve that outcome. ** RISK MANAGEMENT GUIDE FOR DOD ACQUISITION Fifth Edition (Version 2.0) (June 2003)
82 Definition of RiskRisk is the possibility of suffering loss.* In a development project, the loss describes the impact to the project which could be in the form of diminished quality of the end product, increased costs, delayed completion, or failure.* Software Engineering Institute and Webster’s Dictionary
83 Risk Management Overview PlanningIdentificationAssessmentHandlingMonitoringClosure-The steps in the risk management process are familiar to many. However, simply executing these steps is not enough to ensure an effective risk management program. What an organization needs is formal risk management processes. Risk management is a continuous process with risk identification, analysis, and handling, monitoring, planning and documenting continually occurring throughout a program’s life cycle. Processes provide the timely communication avenues to enable risk management processes to improve program management decision-making.-Implementing a successful risk management requires achieving the buy-in of all stakeholders in the process. Stakeholder buy-in provides for collaboration and the information exchange necessary to make risk management processes work.-In most organizations, managers do not have the authority to control risks through the allocation of budgets for mitigation plans. Too often this derails a risk program because senior management does not trust the program team to manage risks.-Processes also enable service technicians and providers the ability to quickly communicate with supervisors and other staff to make informed decisions. Processes enable service line staff to comply with long-term contract goals by remaining in scope of contract terms, but enable day to day efforts to be completed to plan without affecting resource allocation and delivery.
84 Planning Develop a Risk Management structure Ensure integration within the current program management frameworkIdentify key participants and stakeholdersDefine roles and responsibilitiesDefine the processes and methodologiesEstablish risk management tools, parameters, reports and formats.Train Program Team Members-Planning is iterative. Risks can occur throughout the program’s life cycle. Therefore, the risk plan must be a living document that the program manager uses to respond promptly and effectively to changes. The manager constantly revises the plan to reflect the effects of change on the program’s future. In addition, the benefits of the planning process can be achieved only if all key members of the program team participate throughout the process of developing, changing, and implementing the plan.-Creating the risk management manual codifies the program team’s approach to risk management. Documenting processes removes the my way, her way debates about process ownership.-The standardization of approach should not limit handling efforts. Quantitative techniques should provide for the program team to make consistent decisions based upon the input of risk champions.-Technology provides information inputs to the planning process from a variety of tools, from work orders, formal baseline reviews, hand-held devices and even cell phones. Planning provides focal point to eliminate those information sources that can distort important, consistent information within the project team.
85 Risk Management Planning Tips Risk management plan must include clear performance based metrics as inputs to your identification process.Create a committed project charter for the IPT dedicated to resolving risks without (first) requiring restructuring of the contract.Design and structure “how” team members will collaborate to implement effective processes, in order take advantage of these technologies.Be sure to evaluate and complete business process design first before building the process with electronic workflow tools-Inputs vary depending on the stage of the program’s life cycle during which the planning process takes place. However, in general, the inputs consist of any descriptive information, data, and analysis concerning the program’s objectives, progress to-date, projections, the proposal, contract, statement of work, specifications, schedule and description of deliverables, work breakdown structure, progress reports, and estimates-to-complete.-In addition, team members identify and address risks. Planners usually categorize risks by risk area, each of which may have one or more associated risk events.-The tips above detail the service contracting environment unique inputs to the planning process.-For example, site managers and team supervisors constantly communicate with technicians to mitigate scope creep even on long term time & material maintenance contracts. When scheduled maintenance includes mowing the parade field at a military installation and the sprinkler system is deployed at the same time, the technician, supervisor, and potentially contract staff communicate. From a business perspective, the technician must remain on billable tasks and not idle. What occurs? The team must quickly understand roles and responsibilities as dictated within the team’s risk process.
86 Identification Coordinated efforts of: Risk Manager Independent AssessmentsProgram Team MembersDefined communication streamsIdentify risk attributesRisk DefinitionRisk ElementsPotential ImpactsHow do you know what you do not know? Team collaboration is key.-Successful programs use technology tools that enable a risk manager to build a query such as, program, General Smith, upset, and affecting award fee. The system returns information regardless of content type, medium, or location including contract correspondence, technical testing, work order time cards, and subcontractor reports.- notifications using automated workflow can alert the Program Manager or Risk Manager of a newly identified potential risk event-Independent technical evaluations and work measurement studies can identify potential service risks, without leaning out tasks through value engineering.-Identification of risks should document the root cause to isolate the issue. A particularly useful technique is to evaluate each WBS element for tasks that include special test equipment and tooling. For example, as training of operators and maintainers of major system becomes a critical path item, the prototype testing tools for hands-on training is necessary for commissioning. Special tooling that may be necessary for steps in integration can also become a key resource necessary for completing critical path items on task and budget.
87 Risk Identification Tips Ensure risk identification processes are within each team member’s responsibilities and yearly performance goals for the entire program team.Evaluate the use of technology tools to support proactive risk identificationSources that have exposed risks in the past include: Long schedules, Excessive paperwork, Error-prone modules, Cancelled projects or tasks, Excessive schedule pressure, Low quality, Historical cost overruns, Creeping user requirements, and Unanticipated acceptance criteria.-Brainstorming, lessons learned, interviews, trend analysis, failure analysis, risk checklists, risk templates, program data, documentation, and process diagrams.-WBS Technique - The contractor uses its drawings, engineering design data, program plans, data from similar-to programs, manufacturing process information, and major subcontractor or vendor information, and any other data available, to make a list of those WBS elements which are risk events (i.e., to forecast which of the elements could go wrong, or not get produced)-Process Technique-Identifying and analyzing the technical risk is what this technique is intended for. The templates in DoDD M walk the reader through a series of logic steps based on Engineering, Manufacturing and Test, Operations Support, Logistics, and Management functional breakdowns, using the Total Quality Management tool, including industry best practices. For example, some technicians access work orders and maintenance standard operations procedures from hand-held devices to confirm corrective action processes for identified problems.-Program Documentation Evaluation Risk Identification-Proactive review from slide before.-Threat and Requirements Assessment -The approach used in this technique involves thoroughly reviewing all documents containing technical performance information to determine stability, accuracy, operating environment, logistics, and suitability requirements to ensure consistency between this information and the ORD and similar program documents. Cost as an Independent Variable should also be considered as a risk when using this technique.
88 AnalysisCollect basis of estimates for the impact and likelihood of risk events from subject matter experts.Establish dispositions of low, medium, and high risks, and appoint a risk champion to manage mitigation.Understand appropriate use of quantitative methods, SME bias, and hypnotic statistical powerThe first component of risk is the likelihood of a particular outcome (probability). The second is the magnitude of the effect if the outcome were to occur (consequence). Too often the analysis of risks is neither systemic nor objective. A consistent process that relies on historical information enables the program team to make the most informed decisions about risks.The likelihood of occurrence is defined to be the perceived chance that an identified risk will actually happen. Five levels of perceived likelihoodHighly unlikely= 1 There is almost no chance that the risk will occur (less than 20 percent probability).Unlikely= 2 There is little chance that the risk will occur (between 20 and 40 percent probability).Possible= 3 There is about a chance of occurrence (between 40 and 60 percent probability).Likely= 4 Occurrence of the risk is probable (between 60 and 80 percent probability).Highly likely= 5 It is almost certain that the risk will occur (over 80 percent probability).The consequence of occurrence is defined to be the perceived impact on the overall project attribute if an identified risk were actually to occur. Consequences are rated according to impact on cost, schedule and/or technical performance.No effect = 1 No increase in cost. No schedule slip. No impact on technical performance and overall project. No impactMinor = 2 Less than $250K increase in cost. Less than 3 days schedule slip. Negligible impact on technical performance and overall project.Moderate = 3 More than $250K and less than $IM increase in cost. More than 3 days and less than 2 weeks schedule slip. May be a small shortfall in meeting performance with little impact on the overall project.Major = 4 More than $lM and less than $lOM increase in cost. More than 2 weeks and less than one month schedule slip. Will be a significant shortfall in meeting performance with a major impact on the overall project.Critical = 5 More than $1 OM increase in cost. More than I month schedule slip. Performance will compromise ability to use system.
89 Risk Assessment Quantification Antennae BiasImpact ProbabilityDays Delayed beyond Baseline Schedule Impact100%18080%12060%Module AdjustmentAlgorithm Redesign40%60Antennae20%(Assuming everyone is familiar with ranking risks into a PIM…) Used mostly for Project Based Risk Processes-The probability impact matrix (PIM) is the accepted methodology for displaying individual and collective risks affecting programs.-Probability and consequence should not always be considered equally; for example, there may be consequences so severe that it is considered high risk even though the probability to achieve a particular outcome is low.-The Chapman “Constructively-Simple” modelThe English Program Management lecturer, Christopher Chapman delivers a focused risk decision analysis in a holistic way. His work focuses on the KISS method of keeping it simple systematically. In addition, Constructively Simple quantitative models provide a distinctly different view into the elements that make up a particular risk, risks related within a program, and comparing multiple programs.Constructive Simplicity - Provides a simplistic and effective means to quantify risks using:Uncertainty FactorsPessimistic and Optimistic FactorsRisk Impact ProbabilitiesPictorial Representation of Risks0%3050100150200Days Delayed (CAI)
90 Risk Quantification Tips The risk quantification process can be delayed for the technical person who wishes to “exhaustively study” the situation to determine a statistically significant BOE, rather than developing a rough-order of magnitude for decision-making.Evaluate use of Matrix- displays of quantification data to determine the best way to display risk data to support decisions at Program Management Review (PMR) meetings.-A SME’s, judgment or opinion on a subject may be clouded or skewed due to bias. Bias is something that develops in an opinion either inadvertently or intentionally and can skew the actual true situation that is being assessed.-At a minimum, though, your company can and ought to assess Cost, Schedule, and Performance risk for every program/contract. You know what risks are inherent in your products or services. You know the consequences of failure to meet the Schedule, or meet performance requirements. Rest assured that your management will (hopefully) remind you of the consequences of failure to meet the cost requirements of your contract.-Most base installation maintenance contract include terms and conditions that establish firm-fixed price orders for dollar thresholds on levels of service. For example, spares replacements and thermostat resetting may be considered in a category of up to $200 service orders. Larger dollar orders may include boiler system repairs and exceed $2,000 orders. In this case technical staff conducting triage on service calls, must communicate the appropriate level of service required. Since most contracts contain fixed amounts of orders by dollar threshold, technicians performing triage play a key risk management role.
91 Handling Develop Mitigations Plans Risk ChampionSME’sCollect relevant supporting documentationDetermine metrics to monitor Mitigation ActionsDevelop Risk Closure CriteriaTIP: Reward successful risk champions and the team for their time efforts and ideas and include incentives in annual performance reviews.-To reduce risk potentially affecting a program, project team members create viable mitigation plans with manageable actions. However, some mitigation plans may be cost prohibitive to fully reduce the likelihood and probability of risk outcomes. The approach used is to minimize the severity of the damage at the lowest possible program cost. The following are some of the techniques used to mitigate risk.-How can you reduce the risk? Classic approach:Avoid by eliminating the risk cause and/or consequencesTransfer the riskControl the cause likelihood and /or consequenceAssume the risk level and continue on current planalso:-Parallel or alternative approaches to a risky design or development work element. This technique attempts to identify the least risky of two or more paths to achieve the work element’s desired outcome.-Workarounds, which attempt to use alternative methods, processes, or resources to lower the damage caused by a risk event.-Too often the program team spends its time arguing over quantification results, rather than working through viable alternative mitigation strategies. Detailed Mitigation Plan Template Description includes the following characteristics: mitigation actions, estimate data, responsibility, significant notes, and status, the ultimate closure criteria.-For service and operations contracts, successful contractors store preventative actions with common fault items with standard operating procedures and technical instruction manuals.
92 Risk Management Monitoring Collect status from risk championsMonitor key plan metricsMaintain current supporting documentationUpdate the Risk Management DatabaseMonitor mitigation effortsGenerate and distribute summary and detail reports to relevant Program Team members and ManagementTIP: Experience has shown that the use of an electronic on-line database that stores and permits retrieval of risk related information is almost essential to effective risk monitoring.TIP: Understand the difference between EV and risk management metrics simulated through EV techniques to monitor actual cost to determine the effectiveness of mitigation plans.The primary objective of EVM is to ensure effective internal cost and schedule control systems. Earned value management supports a preordained cost estimate and may have nothing to do with true cost. Therefore, EV and risk management information can provide conflicting results. This occurs since the cost control managers do not adjust baselines until risk events mature. Applying risk management processes in an environment where EV destroys the credibility of the concept because risk management simulation is based on forward looking potential outcomes by simulating the BCWP. More specifically, the difference between the two measures is based on the timing of information. Earned Value is just that; credit for effort performed. The time at which a risk is identified and quantified, BCWP does not exist, because the additional effort contemplated has not occurred.-For non-project-based services, timely communication with centralized order dispatch provides the continued restructuring of resources based on identified issues and the ability to monitor the effectiveness of the mitigation decision.
93 ClosureCollect, verify, and analyze all requisite information pertaining to a potential risk closureCoordinate and agree risk closure with all relevant parties including Risk ChampionRecord the criteria supporting each risk close out including all supporting documentationPrepare and distribute regular reports detailing risk closures to the relevant parties (i.e Program Manager)-Because a risk may close at different times during a project’s lifecycle, a review of the information collected within the project is necessary.Has quantification occurred and what were the results?Has an assessment occurred and what were the results?Were closure metrics developed? Have the criteria been achieved?Based on this analysis, the Risk Champion must capture the supporting information needed to close a risk. This information can include successful test results, integration activities, achieved milestones, contractual acceptance or the form of correspondence. Example criteria include:Delivery of new maintenance equipment,Allocation of additional resources, andWritten Agreement with client for a change in the requirements, memorandums of understanding, contract changes, and deviation and waiver acceptance
94 Continuous Process Improvement Determine program goals for the use of Six Sigma when evaluating process areas influenced by inter-company members, and look to align risk process metrics with the rest of your organization.Continuous process improvement capture provides projects with innovative methods to avoid mistakes of the past. Too often program members recall mistakes and do not leverage advantageous outcomes for good decisions.Successful mitigation strategies and risk identification processes are not collected for sharing within programs or across the organization.-Six-Sigma is a quality management process proven to increase productivity, customer satisfaction, and company profit. Industry leaders like Motorola, Allied Signal (now Honeywell), and General Electric credit Six Sigma for saving their companies billions of dollars through waste reduction. Based on statistical and management principles, Six Sigma measures the number of variations in a business activity and methodically eliminates defects until a target quality level is obtained. How can the Six-Sigma methodology be applied to Risk Management? Either using weighted averages, or other risk management policies, many high consequence issues are placed on the back burner for best return on risk dollars while lower rated risk issues that slip projects but a few weeks and can be avoided with little expenditure of management reserves are given priority. Eliminating defects reduces unnecessary activities and improves the use of your resources by shifting them from processing paperwork to spending time on analytical activities of monitoring contracts for key performance indicators that may become risk issues, and calibrating current mitigation plans.-Boehm Spiral Model – The Boehm Spiral Model was developed by Dr. Barry Boehm to be used in the project management of software engineering projects. To evolve the risk management processes, the Risk Manager must evaluate the risk process. An owner of the risk process conducts formal periodic reviews of the Risk Management Processes used to manage programmatic risk by the Program Team. These reviews evaluate compliance with documented risk management plan practices and helps ensure that those practices comply with management objectives, regulations, and good business practices. Most organizations review their business practices at least once every twelve months.In addition, the Risk Manager evaluates the maturity of the processes.-Capability Maturity Model (CMM) – is a methodology developed by the Software Engineering Institute at Carnegie Mellon University. The CMM describes the essential elements of an organization’s processes that must exist to ensure efficient execution of value driven work products. Processes are categorized into five levels of sophistication:Ad hoc – No procedures, no standards. Success depends on individual.Repeatable – Individual projects have repeatable procedures that are different from project to project.Defined – The organization has defined standards for a procedure that all projects use.Managed – Procedures are standardized and metrics are in place are in place to ensure success.Optimizing – Continuous improvement through quantitative feedback from processes
95 Financial Issues of Service Contracts Chapter 4Financial Issues of Service Contracts
96 Financial Aspects of Service Contracts Chapter OverviewBudgeting and AppropriationsService Contract TypesCost Allowability and AllocabilityCost Accounting StandardsTruth-in-Negotiations ActFinancing and Payment Arrangements
97 Financial Aspects of Service Contracts Budgeting and Appropriation Process - Statutory requirements31 U.S.C. 1301(a); Appropriated funds used only for the intended purposes31 U.S.C. 1301(d); Reprogramming of funds cannot violate the intended use provision31 U.S.C – The Anti-deficiency Act; Spending limited to the amount stipulated in the appropriation;31 U.S.C. 1502(a) – The Bona Fide Needs Rule; Provisions of the “Bona Fide Needs Rule” are to be followed.Key Points:Appropriations laws affect all aspects of contracting process – ability to issue solicitations, maintain performance, follow-on and options, potential termination.Learning Objective:Awareness of budget and appropriations process and potential effect on contract/solicitation lifecycle.
98 Financial Aspects of Service Contracts Contract Types and CharacteristicsFirm Fixed-PriceCost ReimbursableTime-and-MaterialsLabor HourIndefinite Delivery / Indefinite QuantityGSA ScheduleKey Points:Several contract types exist, each has unique payment arrangements. Business systems and infrastructure requirements vary significantly among contract types.Cost reimbursable contracts generally carry the most pervasive business system requirements.Very important to identify the type of potential contract and understand related business system requirements during decision to bid/no bid process.Learning Objective:Awareness of various contract types and related business systems associated with each.
99 Financial Aspects of Service Contracts Cost Allowability and AllocabilityPertinent when actual cost data is used for estimating and billing purposes.Relevant contract clauses;FAR – Audit and RecordsFAR /11 – Price Reduction for Defective Cost or Pricing DataFAR – Allowable Cost and PaymentFAR – Payments under Time-and-Materials and Labor Hour ContractsFAR – Limitation of CostFAR – Limitation of FundsContract type and characteristics govern the inclusion of contract clauses and resultant business infrastructure requirementsKey Points:Only applicable when price estimates or invoices are based on actual cost.Awareness of pertinent contract clauses.Learning Objective:General awareness of applicability of the concept of cost allowability and allocability.
100 Financial Aspects of Service Contracts Cost Allowability and AllocabilityFundamental accounting conceptsActual costs are determined based on full absorption accountingActual costs are computed based on allowable costsFundamental business system capabilitiesAccounting systemConsistent definition of cost as direct or indirectIdentification and segregation of unallowable costsAccumulation and reporting of costs at job or project level and under general ledger controlTimekeeping and labor charging system – adequate timekeeping practices and distribution of labor costsKey Points:Basic accounting concepts of government contracting – full absorption and allowable costs.Application of basic concepts through integration of related business systems.Adequacy of accounting system is primary importance.Learning Objective:Understanding of basic accounting concepts and related business systems requirements.
101 Financial Aspects of Service Contracts Cost Allowability and Allocability; DefinitionsActual costAllocable costsAllowable costsDirect costFinal cost objectiveFull absorption accountingIndirect costReasonable costsUnallowable costsKey Points:Learning Objectives:Understanding of definitions and application within basic concepts.
102 Financial Aspects of Service Contracts Cost Allowability and AllocabilityAttributes of an adequate accounting systemConsistency with GAAPSegregation direct & indirect costsDirect costs by contract, project, task order, etc.Allocation of indirect costsJob costs under general ledger controlAdequate timekeeping systemKey Points:Identification of key system attributesLearning Objectives:Awareness of system attributes/requirements.
103 Financial Aspects of Service Contracts Cost Allowability and AllocabilityAttributes of an adequate accounting systemRoutine posting of books of accountSegregation of unallowable costsSegregation of pre-production costsFinancial information for compliance with notification and billing requirementsProvide reliable data for estimatingKey Points:Identification of key system attributesLearning Objectives:Awareness of system attributes/requirements.
104 Financial Aspects of Service Contracts Cost Allowability and AllocabilityIndirect cost collection & distribution examplesOverheadDirect labor dollarsDirect labor hoursDirect labor dollars and fringe benefitsFringe BenefitsTotal salariesKey Points:Identification of overhead and fringe benefits as most common indirect expense groupings (pools) within service contracting.Identification of common allocation bases associated with overhead and fringe benefits.Learning Objectives:Awareness of common pools and bases.
105 Financial Aspects of Service Contracts Cost Allowability and AllocabilityIndirect cost collection & distribution examplesBusiness Unit G&A ExpenseTotal cost inputDirect labor dollarsHome Office ExpenseTotal segment costTotal segment salesThree factor formulaKey Points:Awareness of potential G&A expense indirect expense groupings within service contracting.Identification of common allocation bases associated with business unit and home office expenses.Learning Objectives:Awareness of potential pool and bases.
106 Financial Aspects of Service Contracts Cost Allowability and AllocabilityAccounting practices for direct and indirect costs must be consistently applied for US Government contractsApplication of accounting practices is independent of the ability to bill or recover recorded costs under a US Government contractE.G, overtime cost normally accounted for and treated as a direct costsSpecific clause does not allow reimbursable under a given US government contract as a direct costThe cost is still accounted for as directThe cost may not be reclassified and reimbursed as an overall element of indirect expenseKey Points:Accounting practices must be consistently applied. If reimbursement is not available under established practice, you cannot change the practice to seek reimbursement.Learning Objectives:Understanding of consistency requirement and relationship to potential nonreimbursable items.
107 Financial Aspects of Service Contracts Cost Accounting StandardsPurpose is to ensure consistent and equitable accounting practices for costMeasurementAssignmentAllocationAdministrative remedies provided for accounting practice changes or non-complianceKey Points:Awareness of existence of CAS and what is its purpose.Learning Objectives:Same.
108 Financial Aspects of Service Contracts Cost Accounting StandardsApplication to negotiated contracts in excess of $500,000 unless otherwise exemptCoverageModified CAS coverage requires compliance with CAS 401, 402, 405 and 406Full CAS coverage includes applicability of all 19 standardsDisclosure statement may be required for larger contracts or contractorsKey Points:Identification of CAS applicability and types of coverage. Potential requirement for disclosure.Learning Objectives:Awareness of CAS and understanding of intent.
109 Financial Aspects of Service Contracts Cost Accounting StandardsCAS Consistency in Estimating, Accumulating, and Reporting CostsCAS Consistency in Allocating Costs Incurred for the Same PurposeCAS Allocation of Home Office Expenses to SegmentsCAS Capitalization of Tangible AssetsCAS Accounting for Unallowable CostsCAS Cost Accounting PeriodCAS Use of Standard Costs for Direct Material and Direct LaborKey Points:Identification of standards.Learning Objectives:Same.
110 Financial Aspects of Service Contracts Cost Accounting StandardsCAS Accounting for Costs of Compensated Personal AbsenceCAS Depreciation of Tangible Capital AssetsCAS Allocation of Business Unit General and Administrative Expenses to Final Cost ObjectivesCAS Accounting for Acquisition Costs of MaterialCAS Composition and Measurement of Pension CostCAS Adjustment and Allocation of Pension CostKey Points:Identification of standards.Learning Objectives:Same.
111 Financial Aspects of Service Contracts Cost Accounting StandardsCAS Cost of Money as an Element of the Cost of Facilities CapitalCAS Accounting for the Cost of Deferred CompensationCAS Accounting for Insurance CostsCAS Cost of Money as an Element of the Cost of Capital Assets Under constructionCAS Allocation of Direct and Indirect CostsCAS Accounting for Independent Research and Development Costs and Bid and Proposal CostsKey Points:Identification of standards.Learning Objectives:Same.
112 Financial Aspects of Service Contracts Taxes – Department of Energy ContractsDEAR Applicability of state and local taxes to the government:It is DOE policy to secure those immunities or exemptions from state and local taxes to which it is entitled under the Federal Constitution or state laws. In carrying out this policy, the Heads of Contracting Activities shall:(a) Take all necessary steps to preclude payment of any taxes for which any of the immunities or exemptions cited in this subpart are available. Advice of Counsel should be sought as to the availability of such immunities or exemptions;Key Points:Identification of standards.Learning Objectives:Same.
113 Financial Aspects of Service Contracts Taxes – Department of Energy ContractsApplicability of state and local taxes to the government, continued:(b) Acquire directly and furnish to contractors as Government furnished property, equipment, material, or services when, in the opinion of the Head of the Contracting Activity:(1) Such direct acquisition will result in substantial savings to the Government, taking into consideration any additional administrative costs;(2) Such direct acquisition will not have a substantial adverse effect on the relationship between DOE and its contractor; and(3) Such direct acquisition will not have a substantial adverse effect on the DOE program or schedules.Key Points:Identification of standards.Learning Objectives:Same.
114 Financial Aspects of Service Contracts Taxes – Department of Energy ContractsPayment in Lieu of Taxes Under the Atomic Energy Action of 1954 (DOE O 143.1)Discretionary financial assistance to state and local governmentsDOE publishes policy guidelines it uses to guide decisions with regard to applications by state or local jurisdictions for discretionary payments in lieu of taxes with regard to eligible real property that is not subject to State and local taxation because it is owned by the United States, is under the custody and control of DOE, and is used to carry out activities authorized by the Atomic Energy Act of 1954, as amended.Has exclusions if other acts are applicableKey Points:Identification of standards.Learning Objectives:Same.
115 Financial Aspects of Service Contracts Truth-in-Negotiations Act (defective pricing)Application to all negotiated pricing actions of $650,000 or more unless:Price is based on adequate price competitionPrice is set by law or regulationContract or subcontract is for a commercial itemRequirement waived by the head of the contracting activityKey Points:Definition of applicability and common exemptions.Learning Objectives:Awareness of above.
116 Financial Aspects of Service Contracts Truth-in-Negotiations Act (defective pricing)Contractors to certify that cost or pricing data was complete, accurate, and current as of the date of agreement on contract pricePrice reduced if significant overpricing occurred because the government relied on defective cost or pricing dataKey Points:Definition of TINA and implications.Learning Objectives:Awareness of TINA concept and potential risks.
117 Financial Aspects of Service Contracts Truth-in-Negotiations Act (defective pricing)FAR (a) defines defective pricingFAR , , and provides remediesGovernment is entitled toPrice reductionInterest on any overpaymentPenalty equal to the amount of any overpayment, if the contractor knowingly submitted cost or pricing data which were incomplete, inaccurate, or noncurrentOffsets are allowedKey Points:Identification of applicable contract clauses and potential financial effect.Learning Objectives:Awareness of potential risk and impact to contract pricing.
118 Financial Aspects of Service Contracts Truth-in-Negotiations Act (defective pricing)Applicable pricing actions includeAward of any negotiated contract (except for undefinitized actions such as letter contracts)Award of a subcontract at any tier, if the contractor and each higher tier subcontractor have been required to furnish cost or pricing dataModification of any sealed bid or negotiated contract (whether or not cost or pricing data were initially required) or subcontractKey Points:Definition of applicability to specific contract actions.Learning Objectives:Awareness of above.
119 Financial Aspects of Service Contracts Truth-in-Negotiations Act (defective pricing)Cost or pricing dataAll factsAs of the date of price agreementThat prudent buyers and sellers would reasonably expect to affect price negotiations significantlyCertified as accurate complete, and current in accordance with FARFactual, not judgmental, and are therefore verifiableIncludes the data that form the basis for the prospective offeror’s judgment about future cost projectionsKey Points:Definition of cost or pricing data;Learning Objectives:Awareness of above.
120 Financial Aspects of Service Contracts Truth-in-Negotiations Act (defective pricing)Contractor obligationsProvide the government a parity of position with respect to all the factual data supporting price proposalsUpdate cost or pricing data, but not necessarily the proposalCooperate during the conduct of a postaward auditObtain cost or pricing data from subcontractors and prospective subcontractors.Key Points:Identification of contractor responsibilities throughout process, pre and post award.Learning Objectives:Awareness of above.
121 Financial Aspects of Service Contracts Truth-in-Negotiations Act (defective pricing)Methods of protectionThe preparation and consistent use of an Estimating System ManualThe development of a sound pricing strategyConstant updating of the cost or pricing dataClear understanding of disclosure requirementsDocumentation of the information that is disclosedA well executed negotiation strategyCareful planning for post-award auditsKey Points:Identification of protective measures to minimize defective pricing risk/exposure.Learning Objectives:Awareness of above.
122 Financial Aspects of Service Contracts Truth-in-Negotiation Acts (defective pricing)Government has burden of proof that:The information is cost or pricing dataData existed and were reasonably availableData were not properly submitted or disclosedGovernment relied on the defective dataGovernment reliance on the data caused an increase in priceKey Points:Identification of what the government must prove to establish defective pricing existed. Burden of proof is on the government.Learning Objectives:Awareness and of above.
123 Financial Aspects of Service Contracts Financing and PaymentGeneralUS Government paying offices usually have 30 days to paySpecific agency may prescribe shorter period (but no shorter than 7 days)Audit or other review may delay paymentPayment request must be properLate payments may require US government interest paymentKey Points:Identification of basic elements of the payment process.Learning Objectives:Awareness of above.
124 Financial Aspects of Service Contracts Financing and PaymentDepartment of Energy Management and Operating ContractsIt is the policy of the DOE to finance management and operating contracts through advance payments and the use of special financial institution accounts. (DEAR )Key Points:Identification of basic elements of the payment process.Learning Objectives:Awareness of above.
125 Financial Aspects of Service Contracts Financing and PaymentPayments under Time-and-Materials and Labor-Hour ContractHourly rates multiplied by the number of direct labor hours performedVouchers normallySubmitted monthlyTo the contracting officer’s representativeTimecards or other documentation to support incurred hoursContracting officer may withhold of 5 % per task order, with total amount withheld not to exceed $50,000Allowable direct materials per FAR 31.2Normal indirect rates may be applied to materialsKey Points:Identification of the common attributes associated with payment under T&M contracts. Adequate timekeeping system required to support invoices.Learning Objectives:Awareness of above.
126 Financial Aspects of Service Contracts Financing and PaymentPayments under Time-and-Materials and Labor-Hour ContractsCeiling price established for contract or each orderNotification required of any expected overrunContractor not obligated to exceed the ceiling priceGovernment not obligated to pay in excess of ceiling priceInterim payments subject to Prompt Payment Act for services contracts, but not for other than services contracts.Key Points:Identification of the common attributes associated with payment under T&M contracts. Adequate timekeeping system required to support invoices.Learning Objectives:Awareness of above.
127 Financial Aspects of Service Contracts Financing and PaymentCost-reimbursable contracts; FAR , Allowable Cost and PaymentGovernment shall pay when requested as work progressesNo more than every two weeks (except small business)Allowable costs in accordance with FAR 31.2Small business can bill more often than two weeksKey Points:Identification of the common attributes associated with payment under cost reimbursable contracts. Adequate accounting system is critical to support payment requests. Claimed costs subject to FAR Subpart 31.2 requirements.Learning Objectives:Awareness of above.
128 Financial Aspects of Service Contracts Financing and PaymentCost-reimbursable contracts; FAR , Allowable Cost and PaymentReimbursable costs; “Costs” include:Recorded costs that have been paid for items and services purchased directly for the contractIncurred costs if the contractor is not delinquent in paying costs in the ordinary course of businessSupplies and services and subcontractor financing payments if payments will be madeIn accordance with terms and conditions of subcontract or invoiceOrdinarily within 30 daysKey Points:Primary FAR clause affecting definition of billable cost and related payment is “Allowable Cost and Payment”. Important to understand clause requirements.Learning Objectives:Understanding of above.
129 Financial Aspects of Service Contracts Financing and PaymentCost-reimbursable contracts; FAR , Allowable Cost and PaymentReimbursable costs; “Costs” include:Materials issued from inventory and placed into productionDirect travelOther direct in-house costsFinancing payments made to subcontractorsAllocable and allowable indirect costsPension, post-retirement, profit sharing, etc. includable in indirect billing rate if funded timelyKey Points:Primary FAR clause affecting definition of billable cost and related payment is “Allowable Cost and Payment”. Important to understand clause requirements.Learning Objectives:Understanding of above.
130 Financial Aspects of Service Contracts Financing and PaymentCost-reimbursable contracts; FAR , Allowable Cost and PaymentBilling ratesReimbursement at provisional billing ratesAnticipated final ratesRevised by mutual agreementAuditInvoices to be audited any timePayments reduced for unallowable costsPayments adjusted for over/under billingsKey Points:All billed costs are on interim or provisional basis. All billed costs subject to adjustment to actual. All costs subject to audit.Very important to maintain records well after contract completion to support audit and determination of final amounts due.Learning Objectives:Awareness of above.
131 Financial Aspects of Service Contracts Financing and PaymentCost-reimbursable contracts; FAR , Allowable Cost and PaymentFinal indirect rates established in accordance with FAR 42.7Final payment; contractor to submitCompletion invoice within 120 days of final rate establishmentAssignment of refunds, rebates, credits, or other amountsA release discharging government liabilitiesKey Points:All billed costs are on interim or provisional basis. All billed costs subject to adjustment to actual. All costs subject to audit.Very important to maintain records well after contract completion to support audit and determination of final amounts due.Learning Objectives:Awareness of above.
132 Financial Aspects of Service Contracts Financing and PaymentFixed price contracts; FAR 32.5, Progress Payments Based on CostsApplies to fixed price contractsRepresents financing (loans) against undelivered workCustomary; 80% of total costs (85% for small business)Higher rates considered "unusual" and require approval by agency headKey Points:Identification of opportunity to bill using cost based progress payments, not common in current service contract environment. Payment amounts represent loans and are liquidated upon delivery of goods or performance of services.Accounting system requirements similar to cost reimbursable contracts exist to support payment requests.Learning Objectives:Awareness of above.
133 Financial Aspects of Service Contracts Financing and PaymentFixed price contracts; FAR 32.5, Progress Payments Based on CostsProgress payments approved as matter of course if contractorIs reliable, competent, and capableHas an adequate accounting systemIs in sound financial conditionAll others require advance determination thatContractor will liquidateGovernment is protected against lossAccounting system is adequateKey Points:Identification of opportunity to bill using cost based progress payments, not common in current service contract environment. Payment amounts represent loans and are liquidated upon delivery of goods or performance of services.Accounting system requirements similar to cost reimbursable contracts exist to support payment requests.Learning Objectives:Awareness of above.
134 Financial Aspects of Service Contracts Financing and PaymentFixed price contracts; FAR 32.5, Progress Payments Based on CostsEligible costsTotal costs incurred under the contractSubcontractor financing payments under similar termsSupplies and services and subcontractor financing payments if payments will be madeIn accordance with terms and conditions of subcontract or invoiceOrdinarily in 30 daysPension, post-retirement, profit sharing, etc. includable in indirect billing rate if funded timelyKey Points:Identification of opportunity to bill using cost based progress payments, not common in current service contract environment. Payment amounts represent loans and are liquidated upon delivery of goods or performance of services.Accounting system requirements similar to cost reimbursable contracts exist to support payment requests.Learning Objectives:Awareness of above.
135 Financial Aspects of Service Contracts Financing and PaymentFixed-Price Contracts - Progress payments based on a percentage of completionPayments to be commensurate with work accomplishedPercentage or stage of completion must be measurableTypically used for contracts with tangible deliverablesKey Points:Payment requests based on percent complete of work, not cost based. If contract price is $100K and 25% complete, then payment is computed as 25% of contract price or $25,000. Stringent cost accounting system requirements are not required as payment requests are not cost based.Learning Objectives:Awareness of above and understanding that use of cost data is generally not required.
136 Financial Aspects of Service Contracts Financing and PaymentFixed-Price Contracts; FAR 32.10, Performance-Based Payments (FAR (P) and FAR (C))May be made against whole contract priceMay be made against a deliverable (line item) pricePerformance basesSpecifically described eventsSome measurable criterion of performanceEach event or performance criterion triggers a paymentEvents that do not qualifySigning of contractExercise of optionsExecution of modificationsKey Points:Similar concept as percentage of completion payment, except payment is triggered by occurrence of specific event or milestone. Payment requests are not cost based.More common in service contract environment.Learning Objectives:Awareness of above.
137 Financial Aspects of Service Contracts Financing and PaymentFixed-Price Contracts; FAR 32.10, Performance-Based PaymentsPerformance BasesEvents or criteria may be severable or cumulativeNo payment for cumulative items until dependent is accomplishedSeverable items specifically identified in contractContract shall identify preconditions for successful achievement of cumulative itemsIf payments is on deliverable item basis, then each event or criteria shall be part of performance necessary for that deliverable and be identified to the line itemKey Points:Similar concept as percentage of completion payment, except payment is triggered by occurrence of specific event or milestone. Payment requests are not cost based.More common in service contract environment.Learning Objectives:Awareness of above.
138 Financial Aspects of Service Contracts Financing and PaymentFixed-Price Contracts; FAR 32.10, Performance-Based PaymentsPayment amountsPayments not to exceed 90 % of contract price if on whole contract basisPayments not to exceed 90 % of deliverable item price if on CLIN basisAmount of each payment to be specifically stated as dollar amount or percentage of specific pricePayment amounts may be established on any rational basisPayment schedule to be adjusted to reflect actions required by modificationsKey Points:Similar concept as percentage of completion payment, except payment is triggered by occurrence of specific event or milestone. Payment requests are not cost based.More common in service contract environment.Learning Objectives:Awareness of above.
139 Financial Aspects of Service Contracts Financing and PaymentPrompt Payment and Electronic Funds TransferIf payment is not made by the specified due dateGovernment will automatically pay an interest penaltyWithout request from the contractorProvision does not apply to contract financing payments.Due date is usually later of30th day after paying office receives a proper invoice30th day after government acceptance of services performed,Key Points:Government is encourage to pay promptly. Identification of key aspects of the process.Learning objectives:Awareness of above.
140 Financial Aspects of Service Contracts Financing and PaymentPrompt Payment and Electronic Funds TransferProper invoice includes:Contractor name and addressInvoice date and numberContract numberDescription, quantity, unit of measure, unit price, and extended price of services performedName and address of contractor officialperson to notify if defective invoiceTaxpayer Identification Number (TIN)Any other information or documentation required by the contractKey Points:To expedite payment request, invoices must be proper. Identification of required elements of a proper invoice.Learning objectives:Awareness of above.
141 Financial Aspects of Service Contracts Financing and PaymentPrompt Payment and Electronic Funds TransferEFT to be used to make contract paymentsGovernment will protect contractors' EFT information from improper disclosureKey Points:EFT is standard means of government payment. Government is required to protect contractor EFT data.Learning Objectives:Awareness of above.
142 Financial Aspects of Service Contracts SummaryReview the solicitation and contract terms and conditionsEnsure that appropriate infrastructure exists or will be implementedEstablish appropriate internal controlsKey Points:Contractors need to understand the business system requirements and related responsibilities associated with the various contract types.Proper due diligence should be performed by contractors unaware of these requirements prior to acceptance of government contracts.Learning Objectives:If nothing else, understand that government contracts vary in business system requirements and without adequate systems in place, increased financial risk and exposure may arise.
143 Current Legislation and Regulation Affecting Service Contracting Chapter 5Current Legislation and Regulation Affecting Service Contracting
144 Overview of Regulatory Environment Increased government procurement of support services in the past several yearsSurge in service procurements has been greatly assisted by significant changes in laws and regulations (i.e., FASA)Increased sales and easing of rules creates the potential for actual or perceived abusesThis often leads Congress to go back and add requirements to the procurement processThe environment is always changing: Yesterday’s reform may be catalyst for tomorrow’s perceived abuse
145 GSA Schedule Requirements for DOD Ordering Agencies Section 803 of 2002 DoD Authorization Act imposed additional ordering obligations on DOD FSS service orders over $100,000Ordering agency must contact as many schedule holders as “practical”, and receive at least 3 responses from contactors capable of performing the requirementsThe Acquisition Advisory Panel (AAP) recently proposed making the Defense Department’s Section 803 rule for buying services apply to all agenciese-Buy established in response to increased competition requirementsOnline ordering system where agencies can post RFQs and attach SOWs for transmission to all or some of the schedule contractors on GSA Advantage!Allows agencies to fulfill Section 803 requirements easily
146 Services Acquisition Reform Act (SARA) of 2003 Acquisition workforce and trainingBusiness acquisition practicesCommercial item acquisitionsOther procurement flexibilitiesSection 1423 created Acquisition Advisory Panel (AAP) (
147 Performance-Based Acquisitions (FAR Subpart 37.6) Define the work in measurable terms of resultsDefine performance standards such as quality or timelinessEstablish a QASP to measure performance againstContracts are awarded competitively on best-value evaluation criteriaContracts are fixed-price completion type contracts, with limited exceptionsOMB goal: 40% of all service contracts will be performance-based by FY 2007FAR 7.105(b)(4)(i) states that an ordering agency must “provide rationale if PBSC contract will not be used”
148 Performance-Based Acquisitions (FAR Subpart 37 Performance-Based Acquisitions (FAR Subpart 37.6) – AAP RecommendationsOMB’s government-wide quota of requiring 40% of Acquisitions be Performance-Based should be adjusted to reflect individual agency assessments and plans for using PBA.OFPP should issue more explicit guidance and create a PBA “Opportunity Assessment” tool to help agencies identify when they should consider using performance-based acquisition.
149 Performance-Based Acquisitions (FAR Subpart 37 Performance-Based Acquisitions (FAR Subpart 37.6) – AAP RecommendationsPublish a Best Practice Guide on development of measurable performance standards for contracts.Modify the FAR to include an identification of the government’s need/requirements by defining a “Baseline Performance Case” in the PWS or SOO. OFPP should issue guidance as to the content of the Baseline Performance cases.
150 Performance-Based Acquisitions (FAR Subpart 37 Performance-Based Acquisitions (FAR Subpart 37.6) – AAP RecommendationsOFPP should provide improved guidance on types of incentives appropriate for various contract vehicles.Contracting Officer Technical Representatives (COTR’s), in PBA’s receive additional PBA training and be re-designated as Contracting Officer Performance Representatives (COPR’s).
151 Performance-Based Acquisitions (FAR Subpart 37 Performance-Based Acquisitions (FAR Subpart 37.6) – AAP RecommendationsOFPP should undertake a systematic study on the challenges, costs and benefits of using performance-based acquisition techniques five years from the date of the Panel’s delivery of its final report.
152 National Defense Authorization Act for Fiscal Year 2004 Specific focus on Title XIV ─ Services Acquisition ReformAdopted from the Services Acquisition Reform Act (SARA)Stemmed from efforts of Congressman Tom Davis (R-VA), Chairman of the House Government Reform CommitteeSigned into law by the President
153 National Defense Authorization Act for Fiscal Year 2004 Acquisition Workforce and TrainingSection 1412 establishes a civilian acquisition workforce training fund within GSAFinanced by 5% fee on the following non-DOD contractsGovernment-wide task and delivery-orders under Sections 303H and 303I of the Federal Property and Administrative Services ActGovernment-wide contracts for acquisition of IT under Section of Title 40, U.S.C.MAS contracts entered into by administrator of General ServicesSection 1414 voices emphasis on importance of government maintaining expertise in determining requirements for A&E services
154 National Defense Authorization Act for Fiscal Year 2004 Adaptation of Business Acquisition PracticesSection 1421 calls for each executive agency to establish a chief acquisition officer and a senior procurement officerSection 1422 establishes a Chief Acquisition Officers CouncilSection 1427 establishes restrictions under which A&E services can be offered under GSA MAS contracts or governmentwide task and delivery-order contracts
155 National Defense Authorization Act for Fiscal Year 2004 Acquisition of Commercial ItemsSection 1431 indicates a preference for PBSC by:Declaring maximum for PBSC contract to be $25 millionEstablishes a Center of Excellence in Service ContractingSection 1432 authorizes conditional use of time-and-materials contracts and labor-hour contractsSection 1433 enhances the definition of a commercial item to include services that are sold for “specific outcomes to be achieved”
156 National Defense Authorization Act for Fiscal Year 2004 Mandate for Performance-Based SOW’sThis act clearly states a mandate for use of this toolCongress and the Bush Administration have also encouraged its widespread useIntent is to move away from heavily detailed specifications and move toward more streamlined methods associated with private industryIdea is to contract for results, not just pay for best efforts
157 National Defense Authorization Act for Fiscal Year 2007 Section 818 of the 2007 Defense Authorization Act provides for fixed-price contracts for development programs, and requires the justification for the use of a cost type contract that explains how the program is so complex and technically challenging that it would not be practicable to reduce program risk to a level that would permit the use of a fixed-price type contract; and the complexity and technical challenge of the program is not the result of a failure to meet the requirements established in section 2366a of title 10, United States Code.
158 Commercial Items Contracts Now Include Time-and Materials and Labor- Hour Type Contracts Effective February 12, 2007, the Federal Acquisition Regulation (FAR) expressly authorized the use of time-and-materials (T&M) and labor-hour (LH) contracts for commercial services under specified conditions. Before this change, commercial services were limited to firm-fixed-price (FFP) and firm-fixed-price with economic price adjustment (EPA) type contracts when using FAR Part 12 procedures, and services based on hourly rates were generally excluded. The FAR definition of commercial services now does not prohibit services sold based on hourly rates without an established catalog or market price for a specific service performed or a specific outcome to be achieved.
159 Commercial Items Contracts Now Include Time-and Materials and Labor- Hour Type Contracts Contracting Officers are required to execute D&F's for T&M and LH types of contract for each order placed under those contracts. If an indefinite-delivery contract only allows for the issuance of orders on a time-and-materials or labor-hour basis, the D&F for the type of contract shall be executed to support the basic contract and shall also explain why providing for an alternative firm-fixed-price or fixed-price with economic price adjustment pricing structure is not practicable. The D&F for this contract shall be approved one level above the contracting officer, and for any D&F's that extend the performance period beyond five years, the head of the contracting activity must first approve the D&F.
160 Accountability in Contracting Act, H.R. 1362 – March 6, 2007 Requires the revision of the Federal Acquisition Regulation (FAR) to restrict the period to a maximum of one year for noncompetitive federal contracts issued for unusual and compelling urgency, unless the head of the executive agency concerned determines that the Government would be seriously injured by the limitation on the contract period.
161 Accountability in Contracting Act, H.R. 1362 – March 6, 2007 Amends the Federal Property and Administrative Services Act of 1949 to require specified executive agency heads to develop and implement plans to minimize the use of: (1) noncompetitive contracts; and (2) cost-reimbursement type contracts. Requires agencies to make justification and approval documents for noncompetitive contracts, including defense agency contracts, publicly available.
162 Labor Laws Affecting Service Contracting Chapter 6Labor Laws Affecting Service Contracting
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164 The primary federal labor statutes Fair Labor Standards Act (FLSA)Davis-Bacon Act (DBA)McNamara-O’Hara Service Contract Act (SCA)Walsh-Healey Public Contracts Act (WHA)Contract Work Hours and Safety Standards Act (CWHSSA)Copeland Anti-Kickback Act (Copeland Act)Worker Adjustment and Retraining Notification Act (WARN)
165 Fair Labor Standards Act (FLSA) Employers to compensate their covered employees at a rate of one and one-half times the employee’s regular rate of payBans employers from hiring child laborersRequires that men and women be paid equal pay for work performed under similar working conditions requiring the same skillsFLSA imposes certain recordkeeping requirements on employers covered by the Act.
166 FLSA ApplicabilityEmployers that have “employees handling, selling or otherwise working on goods or materials that have been moved in or produced for commerce” who have gross annual sales of $500,000 are presumptively covered by the FLSAAll activities of public agencies are covered by the FLSANumerous exceptions and exemptions for specific provisionsVarious state laws supplement applicability and enforcement
167 Davis-Bacon Act (DBA)Requires payment of locally prevailing wages and fringe benefits to laborers and mechanics employed to perform contracts for construction, alteration, or repair of public buildings.Workers must be paid “unconditionally” and not less often than once per week, without subsequent rebates or deductions (except for payroll tax and other related deductions).Contractor must post wage schedules in a visible location at the work site.Contractor must maintain payroll and related records pertaining to its compliance with the DBA provisions during performance of the contract and for three years thereafter.Proponents argue that it is necessary to prevent government contractors from underbidding each other by lowering workers’ salaries.The Act imposes a considerable bureaucratic and regulatory burden on government agencies and contractors.
168 DBA ApplicabilityEvery contract in excess of $2,000 to which the United States or the District of Columbia is a party, for construction, alteration, and/or repair, including painting and decorating, of public buildings or public works of the United States or the District of ColumbiaTypes of contracts covered by the DBA include highway construction, dredging, demolition, and cleaning and painting of public buildingsRequires both the prime contractor and all subcontractors to comply with the terms of the contract
169 Service Contract Act (SCA) Service employees who perform services under contracts covered by the SCA must be paid at the prevailing local wage rate as determined by the Department of Labor.Service employees include skilled and unskilled manual laborers and craftsmen, guards and watchmen.Establishes minimum fringe benefits.Requires employers to maintain certain records and to post required information at the workplace.Imposes minimum safety and health standards for workers.Designed to address the concern that, by awarding contracts to the bidder with the lowest proposed hourly wage rate, the government would contribute to an overall reduction in the wages of service employees.
170 SCA ApplicabilityEvery contract entered into by the United States or the District of Columbia in excess of $2,500 the principal purpose of which is to furnish services through the use of service employees.Services must be provided in the United States, including any State of the United States, the District of Columbia, Puerto Rico, or the Virgin Islands.Numerous exemptions.
171 Walsh-Healey Public Contracts Act (WHA) All contractors who furnish materials, supplies, articles and equipment in any amount exceeding $10,000 mustPay their employees not less than the prevailing minimum wage for persons employed in similar positions in the locality;Compensate employees for overtime hours worked at the wage rate set forth in the Fair Labor Standards Act;Not hire any male worker under age 16 or any female worker under age 18; andEnsure that no part of the contract is performed under conditions that are unsanitary, hazardous or dangerous to the health and safety of the employees engaged in the performance of the contract (or subcontracts) .
172 WHA ApplicabilityAny contract entered into by the United States or its agents.For the manufacture or furnishing of materials, supplies, articles, and equipment.In any amount exceeding $10,000ExceptionsContracts for public utility services including electric light and power, water, steam and gas;Deliverables completely manufactured or furnished outside the geographic limits of the United States, Puerto Rico, the Virgin Islands, or the District of Columbia; andContracts awarded to sales agents or publisher representatives, for the delivery of newspapers, magazines or periodicals by the publishers thereofContracts for the purchase of materials, supplies or equipment that may “usually be bought in the open market,” perishables, livestock and nursery products, or to agricultural or farm products processed for first sale by the original producers.
173 Contract Work Hours and Safety Standards Act (CWHSSA) No contractor or subcontractor contracting for any part of the work which may involve the employment of laborers or mechanics shall require or permit any such laborer or mechanic to work more than 40 hours in any workweekUnless the worker is paid a wage of time-and-one-half for all hours worked in excess of 40.
174 CWHSSA ApplicabilityAny contract which may require or involve the employment of laborers or mechanicsUpon a public work in the United States in any territory.Does not apply to:Contracts of less than $100,000.Contracts “done in accordance with the provisions of the Walsh-Healey Public Contract Act.Contracts for transportation by land, air, or water, or for the transmission of intelligence, or for the purchase of supplies or materials or articles ordinarily available in the open market.
175 Copeland Anti-Kickback Act Prevents employers from forcing, intimidating, or threatening dismissal, or by any other manner whatsoever, employees to give up any part of the compensation to which he is entitled.The Act is intended to aid in the enforcement of the minimum wage provisions of the Davis-Bacon Act.Requires contractors and subcontractors to submit weekly statements detailing the hours worked and wages paid, including deductions, to workers.Maintain weekly payroll records on file for three years from the date of completion of the contract.
176 Copeland Act Applicability Any contract which is subject to federal wage standards.For an amount greater than $2,000.For the construction, prosecution, completion, or repair of public buildings or works financed in whole or in part by loans or grants from the United States.
177 Worker Adjustment and Retraining Notification Act (WARN) Intended to protect employees against unexpected losses of employment due to plant shutdowns or mass layoffs.Requires employers provide their employees with 60 days notice of impending plant closings or mass layoffs.A “plant closing” occurs when a “single site of employment,” or a discrete “operating unit” within a single site, shuts down, terminating the employment of SO or more employees — exclusive of “part-time” employees — during any 30-day periodA “mass layoff’ occurs when a reduction, other than a “plant closing”, affects (i) one-third (33 percent) of the workforce — exclusive of “part-time” employees — but a minimum of 50 employees or (ii) 500 employees, at a “single site” of employment during any 30-day period
178 WARN ApplicabilityEmployers with 100 or more employees, other than “part-time” employees.Test is met if in the aggregate, all of the employees together work more than 4,000 hours each week, excluding overtime.Employees on temporary layoff who have a reasonable expectation of recall or who are on leave of absence also are included when determining whether the 100-employee test is satisfied.ExceptionsNatural disasterFaltering companyUnforeseen business circumstances
179 Contracts for Specialized Services Chapter 7Contracts for Specialized Services
180 Department of Energy Contracts Agency has contracts with various organizations to manage and operate (M&O) numerous sitesPredominantly cost-type contractsExtensive set of regulations govern the acquisition and oversight of the M&O contracts (FAR 17.6 and DEAR 970)Although no longer required to employ the “federal norm”, M&O contractors are still required to have approved purchasing systems
181 Advisory and Assistance Services The acquisition of advisory and assistance services is a legitimate way to improve Government services and operations.May be used at all organizational levels to help managers achieve maximum effectiveness or economy in their operations.
182 Applications and Restrictions Can be used to:(1) Obtain outside points of view to avoid too limited judgment on critical issues;(2) Obtain advice regarding developments in industry, university, or foundation research;(3) Obtain the opinions, special knowledge, or skills of noted experts;(4) Enhance the understanding of, and develop alternative solutions to, complex issues;(5) Support and improve the operation of organizations; or(6) Ensure the more efficient or effective operation of managerial or hardware systems.Shall not be-(1) Used in performing work of a policy, decision-making, or managerial nature which is the direct responsibility of agency officials;(2) Used to bypass or undermine personnel ceilings, pay limitations, or competitive employment procedures;(3) Contracted for on a preferential basis to former Government employees;(4) Used under any circumstances specifically to aid in influencing or enacting legislation; or(5) Used to obtain professional or technical advice which is readily available within the agency or another Federal agency.
183 Research and Development The primary purpose is to advance scientific and technical knowledge and apply that knowledge to the extent necessary to achieve agency and national goals.R&D contracts are directed toward objectives for which the work or methods cannot be precisely described in advance.It is difficult to judge the probabilities of success or required effort for technical approaches, some of which offer little or no early assurance of full success.Process must encourage the best sources from the scientific and industrial community to become involved in the program.
184 Use of contracts (FAR )Contracts shall be used only when the principal purpose is the acquisition of supplies or services for the direct benefit or use of the Federal Government.Grants or cooperative agreements should be used when the principal purpose of the transaction is to stimulate or support research and development for another public purpose.
185 Acquisition ProcessIn R&D acquisitions, the precise specifications necessary for sealed bidding are generally not available, thus making negotiation necessary.Fixed-price arrangement preference applies in R&D contracting only to the extent that goals, objectives, specifications, and cost estimates are sufficient to permit such a preference.Absence of precise specifications and difficulties in estimating costs with accuracy normally precludes using fixed-price contracting for R&D, the use of cost-reimbursement contracts is usually appropriate.Projects having production requirements as a follow-on to R&D efforts normally should progress from cost-reimbursement contracts to fixed-price contracts as designs become more firmly established, risks are reduced, and production tooling, equipment, and processes are developed and proven.
186 Architecture and Engineering Services Unique source selection procedures are applied, rather than the solicitation or source selection procedures prescribed in FAR Parts 13, 14, and 15.Services that do not require performance by a registered or licensed architect or engineer should be acquired pursuant to FAR Parts 13, 14, and 15.When the statement of work includes both architect-engineer services (that require performance by a registered or licensed architect or engineer) and other services, the contracting officer shall follow the A&E procedures.
187 Construction Contracting Sealed bid procedures are used for construction contracts, unless the contract will be performed outside the United States and its outlying areas.Generally, firm-fixed-price contracts shall be used to acquire construction.Special Aspects of Contracting for ConstructionDisclosure of the magnitude of construction projectsModified sealed bidding proceduresStatutory cost limitationsLiquidated damages2 phase design-build selection procedures
188 Personal Services Contracts Personal services contract" means a contract that, by its express terms or as administered, makes the contractor personnel appear to be, in effect, Government employees.The Government is normally required to obtain its employees by direct hire under competitive appointment or other procedures required by the civil service laws. Obtaining personal services by contract, rather than by direct hire, circumvents those laws.
189 Personal Services Contracts An employer-employee relationship under a service contract occurs when, as a result of (i) the contract's terms or (ii) the manner of its administration during performance, contractor personnel are subject to the relatively continuous supervision and control of a Government officer or employee.Performance on site.Principal tools and equipment furnished by the Government.Services are applied directly to the integral effort of agencies or an organizational subpart in furtherance of assigned function or mission.Comparable services, meeting comparable needs, are performed in the same or similar agencies using civil service personnel.The need for the type of service provided can reasonably be expected to last beyond 1 year.The inherent nature of the service, or the manner in which it is provided, reasonably requires directly or indirectly, Government direction or supervision of contractor employees
190 Information Technology Services When acquiring information technology services, solicitations must not describe any minimum experience or educational requirement for proposed contractor personnel (FAR ).
191 Information Technology Services When acquiring software licensing, recommend not signing any contractor-provided license agreementsMajor items to consider when negotiating licensing terms and conditionsSelf-termination provisions (conflicts with Contract Disputes Act)Entire agreement provisions (conflicts with other terms)Advance payments (see FAR Subparts 32.2 and 32.4)IndemnificationSoftware development on federal contracts allows for the government to acquire unlimited rights (FAR )
192 Information Technology Services Major items to consider when negotiating licensing terms and conditions, continued:Automatic renewal provisions (violate Anti-deficiency Act)In summary, don’t just sign a contractor’s license agreement; use government-drafted contract documents as is done with other types of services
193 Utility ServicesUtility service" means a service such as furnishing electricity, natural or manufactured gas, water, sewerage, thermal energy, chilled water, steam, hot water, or high temperature hot water.The General Services Administration (GSA) is authorized to prescribe policies and methods governing the acquisition and supply of utility services for Federal agencies.GSA is authorized to contract for utility services for periods not exceeding ten years.GSA has delegated its authority to enter into utility service contracts for periods not exceeding ten years to:The Department of Defense (DOD) is authorized to acquire utility services for military facilities.The Department of Energy (DOE) is authorized to acquire utility services, and to enter into new contracts or modify existing contracts for electric services for periods not exceeding 25 years for uranium enrichment installationsConnection charges only to the Department of Veteran Affairs.
194 Policies for Utilities Services Agencies shall acquire utility services by a bilateral written contract regardless of whether rates or terms and conditions of service are fixed or adjusted by a regulatory body.Agencies may not use the utility supplier's forms and clauses to avoid the inclusion of required provisions and clauses.Prior to acquiring electric utility services on a competitive basis, the contracting officer shall determine that such competition would not be inconsistent with state law governing the provision of electric utility service.Proposals from alternative electric suppliers shall provide a representation that service can be provided in a manner consistent with public law.
195 Indefinite Delivery Contracts Difference between IDIQ and Requirements ContractsIDIQ is bound with a guaranteed minimum; the contract maximum cannot be exceededRequirements is bound through the guarantee of all of the supplies or services for the contract period; the contract estimated ceiling price may be exceeded
196 Multiple Award Schedule Contracts GSA uses the MAS program to establish long-term, government-wide contracts that permit Government offices and certain prime contractors to order from over four million commercial services and products.These contracts are indefinite delivery contracts, and orders can be placed directly off the GSA Schedule or through the GSA Advantage! Online system, .MAS contracts offer customers the advantages of the latest technology, quality services, convenience and most-favored-customer pricing.
197 Multiple Award Schedule Contracts Open market items may be included on orders provided that competition requirements are met for those itemsBlanket Purchase Agreements (BPA’s) may be issued for recurring itemsThey may also offer shorter lead-times and lower administrative costs.
198 Questions?Good Luck, and may your contracts be unambiguous!
199 ReferencesLibrary of Congress, (Track Legislation)Acquisition Advisory Panel,Risk Management Guide for Information Technology - NIST (Jul 2002)Acquisition Reform Journal Articles – Risk MgmtJoint Aeronautical Commander’s Group (JACG) Performance Risk Assessment Group (PRAG) Desk Guide