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An Integrated Approach

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1 An Integrated Approach
Service Contracting: An Integrated Approach William 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 Contracting Risk Management in Service Contracts Financial Aspects of Service Contracts Current Legislation About Service Contracting Labor Laws for Service Contracting Contracts for Specialized Services

3 Get Hooked on Lone Star Chapter Austin, TX

4 Introduction to Service Contracting
Chapter 1 Introduction to Service Contracting

5 Acquisition of Services
Applicable processes and practices in: Acquisition Planning Solicitation Development Performance Assessment

6 Meet with your customer Reviewing recurring requirements
Acquisition Planning Determining your customer’s requirement Who is your customer Meet with your customer Reviewing 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 acquisition Best available sources for performing the services Best marketplace practices Best practices in the performance of services Benchmarking performance standards/measures Best practices in evaluation and use of incentives Best strategies for socioeconomic considerations

9 How Market Research Can Help?
Commercial practices Level of competition Buyer or Seller Market? Price estimate Delivery terms Payment terms Warranty terms Insurance Requirements Unit pricing terms Contract type and length Contract renewal terms Commercial Clauses Commercial standards Quality processes Are metrics used? Certifications/accreditations Remedies-poor performance Source Selection procedures Sample Work Statements Sample Contract Clauses Marketing literature/brochures Monetary/non-monetary incentives

10 Market Research Process
Step 1: Establish a group leader or facilitator for the acquisition team Step 2: Define basic needs and identify type of service Step 3: Compile a list of potential sources Step 4: Develop written survey or oral interview questions Step 5: Conduct surveys or interviews Step 6: Document the market research

11 Identify Types of Services
Process services (offsite) — performance of a particular task Expert services (on- or off-site) — application of creativity or intelligence Operational services (on-site) – service taking place on government property on a regular basis

12 Market Research Report Components
Description of need Desired or required delivery schedule Explanation of methodology Method used for compiling and refining list of potential suppliers/vendors Firms or organizations contacted Summary of info received from firms Summary of commercial terms and/or performance-based characteristics Identification 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 contract Standards of performance for determining if the requirements have been met A 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; and Rely 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 Statement Unique Clauses for Services Proposal Preparation Instructions Evaluation Criteria

18 Key to Procurement Actions
Establishing contracts from new solicitations Modifying existing contracts Providing task orders and indefinite-quantity contracts Establishing the basis for other documents Evaluating performance

19 SOW or PWS Role In the Acquisition of Services
Identifies tasks required of the contractor Contractually binds the document stating those tasks the contractor must perform to get paid Engages the time and effort of a contractor to perform an identifiable task rather than to furnish an end item of supply Identifies either personal or non-personal service contracts Defines contractor efforts Defines deliverables for services and data

20 SOW/PWS Format Scope Definitions
Government-furnished property and information Contractor-furnished items Specific tasks Applicable 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 tasks Identify completion criteria for each task Identify relationships between tasks Exclude unnecessary tasks Identify logical flow of tasks Exclude how-to requirements Make sure that requirements track to performance standards and to evaluation criteria

23 Key to Writing Clearly Use active voice – The passive voice should not be used. Choose descriptive verbs Distinguish between “shall/will” and “should/may” Avoid ambiguity – Eschew Obfuscation. Avoid generalities, but do not over specify Avoid agreements to agree Define all abbreviations and acronyms Use short sentences

24 Issues Unique To Different Types of Services
General issues: Payment schedule 31 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 exclusions Time of performance Authorization and changes

25 Issues Unique To Different Types of Services
Issues related to expert services Delegation Intellectual property Patents Copyright Disclosure and confidentiality issues License and royalties

26 Issues Unique To Different Types of Services
Issues regarding process services Scope - 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: Photocopying Equipment Maintenance Photographic Services Data Processing Definition of Scope Quality Authorization Completion

27 Issues Unique To Different Types of Services
Issues regarding operational services Liability Insurance Conduct Compliance Use 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 offerors Statement 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

32 Performance Assessment
Quality Assurance Surveillance Plan (QASP) Development Implementing Performance Assessment Contractor Assessment Documentation

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 on What and when tasks are inspected What standards will be employed How assessment will be conducted Tailored 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. Oversight Shift in focus from process inspection to insight-oriented outcome Inspection of Services Clause Gives the Government the right to inspect anytime, anywhere Requires the contractor to provide an inspection system Re-performance is required for deficient services Commercial Services Inspection and Acceptance Clause Requires contractors to tender only acceptance-conforming items Reserves Government’s right to inspect services tendered Surveillance is minimized

36 Performance Assessment
Performance assessment should focus on the: Quality Quantity Timeliness of the performance outputs to be delivered by the contractor Not on the: Steps required Procedures used to provide the product or services

37 Contractor Assessment Documentation
The record should contain as a minimum: The contractor number A short description of the requirement being surveyed The contract paragraph number referencing the requirement The method of assessment and observation The date, time, and location of assessment The results of the assessment The 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 services In Varying quantities While obtaining Quantity discounts Indefinite-delivery contracts are awarded using competitive procedures The 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 services The 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 cost Ordering directly from the vendor The relief from the requirements of: developing a SOW/PWS (except when ordering professional services), issuing a Request for Proposals, and conducting a competition administrative 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 Schedules GSA determines that the vendor is responsible and the services are priced reasonably Reasonable pricing required of contractors by insisting that the Government be treated as the vendor’s “most favored customer” It does not guarantee sales for contractors Only 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 competition Individual 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 FAR several 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 Requirements Product Requirements Vendor Requirements

44 Risks inherent in the MAS Program for Buyers
Conflicts of Interest between GSA and your agency Software license agreements are sometimes not included or, when included, conflict with federal law Need 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 buyers Is open to most Government agencies It is considered easy to use Significantly reduces the administrative burdens of traditional Government procurements Is 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 OCI Impaired 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 Information Johnson Controls World Services, Inc., B , Feb 13, 2001 (sustained)

52 Organizational Conflicts of Interest
Reasons for Increasing OCI’s The consolidation within the industries serving the U.S. Government, particularly in the information technology and defense industries The 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’s 3. 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 low When 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’s 4. 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 2 Project 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 done WBS Levels Graphic Display 1.0 System 1.1 Hardware 1.2 Software 1.1.1 Design 1.1.2 Mfg. Indented List 1.0 System Hardware Design Mfg. 1.2 Software 1 2 3 The WBS can be written functionally oriented or task oriented Adapted from Reference Text, pg. 171

61 WBS – Best Practices The 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 deliverables Work Breakdown Structure (WBS) Scope of Work Statement of Work When it should be done and what is the current status. Gantt Chart Milestone Chart Critical Path Method (CPM) Program Evaluation Review Technique (PERT) Who is responsible for doing it. Point of contact lists Organizational Breakdown Structure (OBS) Responsibility Assignment Matrix (RAM) How much is it going to cost. Business Case Cost Breakdown Structure (CBS) Earned Value Concept

63 Tennis Tournament Activities
ID Activity Description Network Immediate Duration Node Predecessor (days) 1 Negotiate for Location A 2 Contact Seeded Players B 3 Plan Promotion C 4 Locate Officials D 5 Send RSVP Invitations E 6 Sign Player Contracts F , 7 Purchase Balls and Trophies G 8 Negotiate Catering H , 9 Prepare Location I , 10 Tournament J ,

64 Scheduling Tool – Gantt Chart
Shows Start/finish and duration of various activities Easiest schedule to make Uses target dates – “Most Likely Time” Progress displayed by indicating actuals with symbol Tells least amount of information

65 Early Start Gantt Chart for Tennis Tournament
ID Activity Days Day of Project Schedule A Negotiate for Location B Contact Seeded Players C Plan Promotion D Locate Officials E Send RSVP Invitations F Sign Player Contracts G Purchase Balls and Trophies H Negotiate Catering I Prepare Location 3 J Tournament Personnel Required Critical Path Activities Activities with Slack

66 Resource Leveled Schedule for Tennis Tournament
ID Activity Days Day of Project Schedule A Negotiate for Location B Contact Seeded Players C Plan Promotion D Locate Officials E Send RSVP Invitations F Sign Player Contracts G Purchase Balls and Trophies H Negotiate Catering I Prepare Location 3 J Tournament Personnel Required Critical Path Activities Activities with Slack

67 Scheduling Tool – Milestone Chart
Determine Requirements Design Hardware Develop Hardware Customer Acceptance Time Months Condensed graphic display Shows Milestones Planned Target dates Revised dates Actual dates Used on contracts of longer duration Does 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 project Shows the path with zero slack time (Critical Path) Critical Path – is the shortest time to complete a project Shows explicit relationships Coordinates the big picture To reduce the schedule you must reduce the time it takes to complete activities on the critical path – Called Crashing the Critical Path Lays out work flow

69 Network Schedules Network Schedule
Scheduling Tool – Network Schedules CPM or PERT Network Schedules Network Schedule 4 2 Developed from WBS Shows time to finish Shows activity interdependencies More difficult to make Provides more info than Gantt or Milestone charts May 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) 6 8 9 1 7 3 5 O = Event (Start/Finish)  = Activity

70 Tennis Tournament Activity on Node Diagram
TS ES EF LS LF A2 C3 D2 G4 START E10 I3 J2 B8 F4 H1

71 Notation for Critical Path Analysis
Item Symbol Definition Activity duration t The expected duration of an activity Early start ES The earliest time an activity can begin if all previous activities are begun at their earliest times Early finish EF The earliest time an activity can be completed if it is started at its early start time Late start LS The latest time an activity can begin without delaying the completion of the project Late finish LF The latest time an activity can be completed if it is started at its latest start time Total slack TS The amount of time an activity can be delayed without delaying the completion of the project

72 Completion Time Distribution for Tennis Tournament
Critical Path Activities D V A /36 C /36 E /36 I /36 J = /36 = 5.2 =

73 Costs for Hypothetical Project
Total Cost Indirect Cost Cost Opportunity Cost Direct Cost (0,0) Duration of Project Schedule with Minimum Total Cost

74 Activity Cost-time Tradeoff
Crash C* Slope is cost to expedite per day Normal C D* D Activity Duration (Days)

75 Cost-Time Estimates for Tennis Tournament
Time Estimate Direct Cost Expedite Cost Activity Normal Crash Normal Crash Slope A B C D E F G H I J Total

76 Progressive Crashing Project Activity Direct Indirect Opportunity Total Duration Crashed Cost Cost Cost Cost Normal Normal Duration After Crashing Activity Project Paths Duration A-C-D-G-I-J A-C-E-I-J A-C-E-H-J A-C-F-H-J B-F-H-J

77 Sources of Unexpected Problems

78 Earned Value Chart Figure 16.17 Earned Value Chart Actual Cost
Dollars Today AC Actual Cost Budgeted Cost Cost Variance PV (Baseline) Schedule Variance EV STWP ATWP Days Value Time Completed Variance Figure Earned Value Chart

79 Risk Management in Service Contracting
Chapter 3 Risk 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 Risk Risk 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 Risk Risk 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
Planning Identification Assessment Handling Monitoring Closure -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 framework Identify key participants and stakeholders Define roles and responsibilities Define the processes and methodologies Establish 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 Assessments Program Team Members Defined communication streams Identify risk attributes Risk Definition Risk Elements Potential Impacts How 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 identification Sources 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 Analysis Collect 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 power The 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 likelihood Highly 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 impact Minor = 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 Bias Impact Probability Days Delayed beyond Baseline Schedule Impact 100% 180 80% 120 60% Module Adjustment Algorithm Redesign 40% 60 Antennae 20% (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” model The 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 Factors Pessimistic and Optimistic Factors Risk Impact Probabilities Pictorial Representation of Risks 0% 30 50 100 150 200 Days 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 Champion SME’s Collect relevant supporting documentation Determine metrics to monitor Mitigation Actions Develop Risk Closure Criteria TIP: 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 consequences Transfer the risk Control the cause likelihood and /or consequence Assume the risk level and continue on current plan also: -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 champions Monitor key plan metrics Maintain current supporting documentation Update the Risk Management Database Monitor mitigation efforts Generate and distribute summary and detail reports to relevant Program Team members and Management TIP: 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 Closure Collect, verify, and analyze all requisite information pertaining to a potential risk closure Coordinate and agree risk closure with all relevant parties including Risk Champion Record the criteria supporting each risk close out including all supporting documentation Prepare 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, and Written 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 4 Financial Issues of Service Contracts

96 Financial Aspects of Service Contracts
Chapter Overview Budgeting and Appropriations Service Contract Types Cost Allowability and Allocability Cost Accounting Standards Truth-in-Negotiations Act Financing and Payment Arrangements

97 Financial Aspects of Service Contracts
Budgeting and Appropriation Process - Statutory requirements 31 U.S.C. 1301(a); Appropriated funds used only for the intended purposes 31 U.S.C. 1301(d); Reprogramming of funds cannot violate the intended use provision 31 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 Characteristics Firm Fixed-Price Cost Reimbursable Time-and-Materials Labor Hour Indefinite Delivery / Indefinite Quantity GSA Schedule Key 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 Allocability Pertinent when actual cost data is used for estimating and billing purposes. Relevant contract clauses; FAR – Audit and Records FAR /11 – Price Reduction for Defective Cost or Pricing Data FAR – Allowable Cost and Payment FAR – Payments under Time-and-Materials and Labor Hour Contracts FAR – Limitation of Cost FAR – Limitation of Funds Contract type and characteristics govern the inclusion of contract clauses and resultant business infrastructure requirements Key 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 Allocability Fundamental accounting concepts Actual costs are determined based on full absorption accounting Actual costs are computed based on allowable costs Fundamental business system capabilities Accounting system Consistent definition of cost as direct or indirect Identification and segregation of unallowable costs Accumulation and reporting of costs at job or project level and under general ledger control Timekeeping and labor charging system – adequate timekeeping practices and distribution of labor costs Key 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; Definitions Actual cost Allocable costs Allowable costs Direct cost Final cost objective Full absorption accounting Indirect cost Reasonable costs Unallowable costs Key Points: Learning Objectives: Understanding of definitions and application within basic concepts.

102 Financial Aspects of Service Contracts
Cost Allowability and Allocability Attributes of an adequate accounting system Consistency with GAAP Segregation direct & indirect costs Direct costs by contract, project, task order, etc. Allocation of indirect costs Job costs under general ledger control Adequate timekeeping system Key Points: Identification of key system attributes Learning Objectives: Awareness of system attributes/requirements.

103 Financial Aspects of Service Contracts
Cost Allowability and Allocability Attributes of an adequate accounting system Routine posting of books of account Segregation of unallowable costs Segregation of pre-production costs Financial information for compliance with notification and billing requirements Provide reliable data for estimating Key Points: Identification of key system attributes Learning Objectives: Awareness of system attributes/requirements.

104 Financial Aspects of Service Contracts
Cost Allowability and Allocability Indirect cost collection & distribution examples Overhead Direct labor dollars Direct labor hours Direct labor dollars and fringe benefits Fringe Benefits Total salaries Key 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 Allocability Indirect cost collection & distribution examples Business Unit G&A Expense Total cost input Direct labor dollars Home Office Expense Total segment cost Total segment sales Three factor formula Key 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 Allocability Accounting practices for direct and indirect costs must be consistently applied for US Government contracts Application of accounting practices is independent of the ability to bill or recover recorded costs under a US Government contract E.G, overtime cost normally accounted for and treated as a direct costs Specific clause does not allow reimbursable under a given US government contract as a direct cost The cost is still accounted for as direct The cost may not be reclassified and reimbursed as an overall element of indirect expense Key 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 Standards Purpose is to ensure consistent and equitable accounting practices for cost Measurement Assignment Allocation Administrative remedies provided for accounting practice changes or non-compliance Key Points: Awareness of existence of CAS and what is its purpose. Learning Objectives: Same.

108 Financial Aspects of Service Contracts
Cost Accounting Standards Application to negotiated contracts in excess of $500,000 unless otherwise exempt Coverage Modified CAS coverage requires compliance with CAS 401, 402, 405 and 406 Full CAS coverage includes applicability of all 19 standards Disclosure statement may be required for larger contracts or contractors Key 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 Standards CAS Consistency in Estimating, Accumulating, and Reporting Costs CAS Consistency in Allocating Costs Incurred for the Same Purpose CAS Allocation of Home Office Expenses to Segments CAS Capitalization of Tangible Assets CAS Accounting for Unallowable Costs CAS Cost Accounting Period CAS Use of Standard Costs for Direct Material and Direct Labor Key Points: Identification of standards. Learning Objectives: Same.

110 Financial Aspects of Service Contracts
Cost Accounting Standards CAS Accounting for Costs of Compensated Personal Absence CAS Depreciation of Tangible Capital Assets CAS Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives CAS Accounting for Acquisition Costs of Material CAS Composition and Measurement of Pension Cost CAS Adjustment and Allocation of Pension Cost Key Points: Identification of standards. Learning Objectives: Same.

111 Financial Aspects of Service Contracts
Cost Accounting Standards CAS Cost of Money as an Element of the Cost of Facilities Capital CAS Accounting for the Cost of Deferred Compensation CAS Accounting for Insurance Costs CAS Cost of Money as an Element of the Cost of Capital Assets Under construction CAS Allocation of Direct and Indirect Costs CAS Accounting for Independent Research and Development Costs and Bid and Proposal Costs Key Points: Identification of standards. Learning Objectives: Same.

112 Financial Aspects of Service Contracts
Taxes – Department of Energy Contracts DEAR 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 Contracts Applicability 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 Contracts Payment in Lieu of Taxes Under the Atomic Energy Action of 1954 (DOE O 143.1) Discretionary financial assistance to state and local governments DOE 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 applicable Key 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 competition Price is set by law or regulation Contract or subcontract is for a commercial item Requirement waived by the head of the contracting activity Key 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 price Price reduced if significant overpricing occurred because the government relied on defective cost or pricing data Key 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 pricing FAR , , and provides remedies Government is entitled to Price reduction Interest on any overpayment Penalty equal to the amount of any overpayment, if the contractor knowingly submitted cost or pricing data which were incomplete, inaccurate, or noncurrent Offsets are allowed Key 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 include Award 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 data Modification of any sealed bid or negotiated contract (whether or not cost or pricing data were initially required) or subcontract Key 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 data All facts As of the date of price agreement That prudent buyers and sellers would reasonably expect to affect price negotiations significantly Certified as accurate complete, and current in accordance with FAR Factual, not judgmental, and are therefore verifiable Includes the data that form the basis for the prospective offeror’s judgment about future cost projections Key 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 obligations Provide the government a parity of position with respect to all the factual data supporting price proposals Update cost or pricing data, but not necessarily the proposal Cooperate during the conduct of a postaward audit Obtain 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 protection The preparation and consistent use of an Estimating System Manual The development of a sound pricing strategy Constant updating of the cost or pricing data Clear understanding of disclosure requirements Documentation of the information that is disclosed A well executed negotiation strategy Careful planning for post-award audits Key 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 data Data existed and were reasonably available Data were not properly submitted or disclosed Government relied on the defective data Government reliance on the data caused an increase in price Key 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 Payment General US Government paying offices usually have 30 days to pay Specific agency may prescribe shorter period (but no shorter than 7 days) Audit or other review may delay payment Payment request must be proper Late payments may require US government interest payment Key Points: Identification of basic elements of the payment process. Learning Objectives: Awareness of above.

124 Financial Aspects of Service Contracts
Financing and Payment Department of Energy Management and Operating Contracts It 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 Payment Payments under Time-and-Materials and Labor-Hour Contract Hourly rates multiplied by the number of direct labor hours performed Vouchers normally Submitted monthly To the contracting officer’s representative Timecards or other documentation to support incurred hours Contracting officer may withhold of 5 % per task order, with total amount withheld not to exceed $50,000 Allowable direct materials per FAR 31.2 Normal indirect rates may be applied to materials 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.

126 Financial Aspects of Service Contracts
Financing and Payment Payments under Time-and-Materials and Labor-Hour Contracts Ceiling price established for contract or each order Notification required of any expected overrun Contractor not obligated to exceed the ceiling price Government not obligated to pay in excess of ceiling price Interim 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 Payment Cost-reimbursable contracts; FAR , Allowable Cost and Payment Government shall pay when requested as work progresses No more than every two weeks (except small business) Allowable costs in accordance with FAR 31.2 Small business can bill more often than two weeks Key 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 Payment Cost-reimbursable contracts; FAR , Allowable Cost and Payment Reimbursable costs; “Costs” include: Recorded costs that have been paid for items and services purchased directly for the contract Incurred costs if the contractor is not delinquent in paying costs in the ordinary course of business Supplies and services and subcontractor financing payments if payments will be made In accordance with terms and conditions of subcontract or invoice Ordinarily within 30 days Key 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 Payment Cost-reimbursable contracts; FAR , Allowable Cost and Payment Reimbursable costs; “Costs” include: Materials issued from inventory and placed into production Direct travel Other direct in-house costs Financing payments made to subcontractors Allocable and allowable indirect costs Pension, post-retirement, profit sharing, etc. includable in indirect billing rate if funded timely Key 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 Payment Cost-reimbursable contracts; FAR , Allowable Cost and Payment Billing rates Reimbursement at provisional billing rates Anticipated final rates Revised by mutual agreement Audit Invoices to be audited any time Payments reduced for unallowable costs Payments adjusted for over/under billings Key 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 Payment Cost-reimbursable contracts; FAR , Allowable Cost and Payment Final indirect rates established in accordance with FAR 42.7 Final payment; contractor to submit Completion invoice within 120 days of final rate establishment Assignment of refunds, rebates, credits, or other amounts A release discharging government liabilities Key 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 Payment Fixed price contracts; FAR 32.5, Progress Payments Based on Costs Applies to fixed price contracts Represents financing (loans) against undelivered work Customary; 80% of total costs (85% for small business) Higher rates considered "unusual" and require approval by agency head Key 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 Payment Fixed price contracts; FAR 32.5, Progress Payments Based on Costs Progress payments approved as matter of course if contractor Is reliable, competent, and capable Has an adequate accounting system Is in sound financial condition All others require advance determination that Contractor will liquidate Government is protected against loss Accounting system is adequate Key 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 Payment Fixed price contracts; FAR 32.5, Progress Payments Based on Costs Eligible costs Total costs incurred under the contract Subcontractor financing payments under similar terms Supplies and services and subcontractor financing payments if payments will be made In accordance with terms and conditions of subcontract or invoice Ordinarily in 30 days Pension, post-retirement, profit sharing, etc. includable in indirect billing rate if funded timely Key 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 Payment Fixed-Price Contracts - Progress payments based on a percentage of completion Payments to be commensurate with work accomplished Percentage or stage of completion must be measurable Typically used for contracts with tangible deliverables Key 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 Payment Fixed-Price Contracts; FAR 32.10, Performance-Based Payments (FAR (P) and FAR (C)) May be made against whole contract price May be made against a deliverable (line item) price Performance bases Specifically described events Some measurable criterion of performance Each event or performance criterion triggers a payment Events that do not qualify Signing of contract Exercise of options Execution of modifications Key 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 Payment Fixed-Price Contracts; FAR 32.10, Performance-Based Payments Performance Bases Events or criteria may be severable or cumulative No payment for cumulative items until dependent is accomplished Severable items specifically identified in contract Contract shall identify preconditions for successful achievement of cumulative items If 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 item Key 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 Payment Fixed-Price Contracts; FAR 32.10, Performance-Based Payments Payment amounts Payments not to exceed 90 % of contract price if on whole contract basis Payments not to exceed 90 % of deliverable item price if on CLIN basis Amount of each payment to be specifically stated as dollar amount or percentage of specific price Payment amounts may be established on any rational basis Payment schedule to be adjusted to reflect actions required by modifications Key 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 Payment Prompt Payment and Electronic Funds Transfer If payment is not made by the specified due date Government will automatically pay an interest penalty Without request from the contractor Provision does not apply to contract financing payments. Due date is usually later of 30th day after paying office receives a proper invoice 30th 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 Payment Prompt Payment and Electronic Funds Transfer Proper invoice includes: Contractor name and address Invoice date and number Contract number Description, quantity, unit of measure, unit price, and extended price of services performed Name and address of contractor official person to notify if defective invoice Taxpayer Identification Number (TIN) Any other information or documentation required by the contract Key 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 Payment Prompt Payment and Electronic Funds Transfer EFT to be used to make contract payments Government will protect contractors' EFT information from improper disclosure Key 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
Summary Review the solicitation and contract terms and conditions Ensure that appropriate infrastructure exists or will be implemented Establish appropriate internal controls Key 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 5 Current Legislation and Regulation Affecting Service Contracting

144 Overview of Regulatory Environment
Increased government procurement of support services in the past several years Surge 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 abuses This often leads Congress to go back and add requirements to the procurement process The 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 $100,000 Ordering agency must contact as many schedule holders as “practical”, and receive at least 3 responses from contactors capable of performing the requirements The Acquisition Advisory Panel (AAP) recently proposed making the Defense Department’s Section 803 rule for buying services apply to all agencies e-Buy established in response to increased competition requirements Online 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 training Business acquisition practices Commercial item acquisitions Other procurement flexibilities Section 1423 created Acquisition Advisory Panel (AAP) (http://www.acquisition.gov/comp/aap/index.html)

147 Performance-Based Acquisitions (FAR Subpart 37.6)
Define the work in measurable terms of results Define performance standards such as quality or timeliness Establish a QASP to measure performance against Contracts are awarded competitively on best-value evaluation criteria Contracts are fixed-price completion type contracts, with limited exceptions OMB goal: 40% of all service contracts will be performance-based by FY 2007 FAR 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 Recommendations OMB’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 Recommendations Publish 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 Recommendations OFPP 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 Recommendations OFPP 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 Reform Adopted from the Services Acquisition Reform Act (SARA) Stemmed from efforts of Congressman Tom Davis (R-VA), Chairman of the House Government Reform Committee Signed into law by the President

153 National Defense Authorization Act for Fiscal Year 2004
Acquisition Workforce and Training Section 1412 establishes a civilian acquisition workforce training fund within GSA Financed by 5% fee on the following non-DOD contracts Government-wide task and delivery-orders under Sections 303H and 303I of the Federal Property and Administrative Services Act Government-wide contracts for acquisition of IT under Section of Title 40, U.S.C. MAS contracts entered into by administrator of General Services Section 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 Practices Section 1421 calls for each executive agency to establish a chief acquisition officer and a senior procurement officer Section 1422 establishes a Chief Acquisition Officers Council Section 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 Items Section 1431 indicates a preference for PBSC by: Declaring maximum for PBSC contract to be $25 million Establishes a Center of Excellence in Service Contracting Section 1432 authorizes conditional use of time-and-materials contracts and labor-hour contracts Section 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’s This act clearly states a mandate for use of this tool Congress and the Bush Administration have also encouraged its widespread use Intent is to move away from heavily detailed specifications and move toward more streamlined methods associated with private industry Idea 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 6 Labor Laws Affecting Service Contracting

163 Ann Owed Two the Spelling Checker (unknown)
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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 pay Bans employers from hiring child laborers Requires that men and women be paid equal pay for work performed under similar working conditions requiring the same skills FLSA imposes certain recordkeeping requirements on employers covered by the Act.

166 FLSA Applicability Employers 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 FLSA All activities of public agencies are covered by the FLSA Numerous exceptions and exemptions for specific provisions Various 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 Applicability Every 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 Columbia Types of contracts covered by the DBA include highway construction, dredging, demolition, and cleaning and painting of public buildings Requires 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 Applicability Every 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 must Pay 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; and Ensure 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 Applicability Any 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 $10,000 Exceptions Contracts 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; and Contracts awarded to sales agents or publisher representatives, for the delivery of newspapers, magazines or periodicals by the publishers thereof Contracts 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 workweek Unless the worker is paid a wage of time-and-one-half for all hours worked in excess of 40.

174 CWHSSA Applicability Any contract which may require or involve the employment of laborers or mechanics Upon 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 period A “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 Applicability Employers 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. Exceptions Natural disaster Faltering company Unforeseen business circumstances

179 Contracts for Specialized Services
Chapter 7 Contracts for Specialized Services

180 Department of Energy Contracts
Agency has contracts with various organizations to manage and operate (M&O) numerous sites Predominantly cost-type contracts Extensive 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 Process In 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 Construction Disclosure of the magnitude of construction projects Modified sealed bidding procedures Statutory cost limitations Liquidated damages 2 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 agreements Major items to consider when negotiating licensing terms and conditions Self-termination provisions (conflicts with Contract Disputes Act) Entire agreement provisions (conflicts with other terms) Advance payments (see FAR Subparts 32.2 and 32.4) Indemnification Software 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 Services Utility 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 installations Connection 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 Contracts IDIQ is bound with a guaranteed minimum; the contract maximum cannot be exceeded Requirements 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, https://www.gsaadvantage.gov . 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 items Blanket Purchase Agreements (BPA’s) may be issued for recurring items They may also offer shorter lead-times and lower administrative costs.

198 Questions? Good Luck, and may your contracts be unambiguous!

199 References Library of Congress, (Track Legislation) Acquisition Advisory Panel, Risk Management Guide for Information Technology - NIST (Jul 2002) Acquisition Reform Journal Articles – Risk Mgmt Joint Aeronautical Commander’s Group (JACG) Performance Risk Assessment Group (PRAG) Desk Guide


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