2 Breakout Session # 207 Steven W. Barclay, Sr. Manager Contracts Training - The Boeing Company Javier E. Porras, Contracts Instructor - The Boeing Company James M. Unland, Contracts Management - The Boeing Company Date: Date: April 24, 2007 Time: Time: 4:30 PM - 5:30 PM Awareness of Constructive Changes in a Contractual Environment
3 The nature of constructive changes Scope Creep Implementation Creep Recognizing and managing the “creeps” Question & Answer Agenda
4 Let’s answer this question by looking at a few recent examples… You decide: You decide: Change or No Change? Why is awareness of constructive change necessary?
5 50 Hour Rule50 Hour Rule Verbal agreement with the Customer to perform change activity up to 50 hours without requesting additional funding. Trade StudiesTrade Studies E-mail request to continue work on trade studies even though the authority had expired, but pending final approval by management. Recent Examples
6 Control PanelControl Panel Requirement is for control panel with 36 switches Contractor proposed legacy panel with 36 hardwired switches – awarded contract In execution, Government wants 36 pushbutton switches with two levels Other examples… Recent Examples
7 Aircraft fuel tanksAircraft fuel tanks Requirement is for fuel tanks that hold “X” quantity of fuel Contractor proposed heritage design of welded tanks with seams Inspector believes they will leak and is requiring tanks with smooth welds Recent Examples Other examples…
8 Contract changes come in two flavors Formal changes: Unilateral Changes Bilateral Changes Informal changes:* Scope Creep Implementation Creep Contract Changes Focus of this briefing * Aka: * Aka: Constructive Changes
9 Customer’s technical representative requesting work that’s beyond the scope of the contract what Changes to what a contractor does… Changes to the contract’s baseline requirements Statement of Work, Schedule, Specs, Clauses Made informally Initially appear as minor and insignificant Generally does not seem necessary to document at that time Scope Creep
10 Responsibility… Responsibility*… fiduciary responsibility contract modification “Contracts has a fiduciary responsibility when attending program reviews, configuration management, or control change board meetings, etc. to assist the programs with identifying scope creep, managing changes to contractual requirements, and translating those changes into contract modification.” * Typical contractor training manual Who is responsible for identifying scope creep? Scope Creep
11 Why Does Scope Creep Occur? Disagreement over contractual requirements… or Over-inspection or unreasonable rejection of work Discounting reasonable contractor interpretation of requirements Defective or late Customer-furnished data or property Delay or disruption of work Acceleration of delivery and/or test schedules Requesting or expecting tougher specification Directing the use of different processes or materials Goal:constructive changes Goal: Identify constructive changes and address them immediately! Scope Creep
12 50 Hour Rule50 Hour Rule Verbal agreement to perform change activity Analysis:= Analysis: Constructive Change = performing work without adequate compensation Trade StudiesTrade Studies Request to continue work with expired authority Analysis:= Analysis: Constructive Change = performing work without proper authority Analysis of recent examples presented earlier Scope Creep Performing work without equitable adjustment to the contract
13 “how”Changes to “how” a contractor will implement requirements No change in contract requirements Implementation Creep
14 Changes during contract implementation can be a constructive change For Example: Customer demanding a more costly implementation than bid Customer’s unreasonable interpretations result in more costly implementation than bid Customer hindering performance by demanding unreasonable tasks Active interference Implementation Creep
15 Control PanelControl Panel Difference in types of switches Analysis:= Analysis: Constructive Change = changing negotiated requirements during contract implementation Aircraft Fuel TanksAircraft Fuel Tanks Smooth vs. welded seams Analysis:= Analysis: Constructive Change = negotiated requirements should prevail; unless the contractor is not meeting contractual requirements Analysis of recent examples presented earlier Implementation Creep
16 Effect of Constructive Changes “Changes that Bite”They are known as “Changes that Bite” because... They destroy a contract’s baseline They are time consuming to prove They result in overruns They result in negative past performance
17 Due to… Due to… Failure to recognize them when they are happening Not understand the impact they’ll have on the program’s budget and/or overall schedule requirements Justify performing the additional work in order to keep the customer satisfied/happy and Obtain higher award fees, and Why Do Constructive Changes Occur? Con’t.
18 Avoid negative past performance evaluationsAvoid negative past performance evaluations BEST However, the BEST way to obtain positive past performance evaluations is to do… Guess What? Guess What? Satisfy all contractual requirements ON TIME and WITHIN BUDGET! Why Do Constructive Changes Occur?
19 What Does The Contract Say? Preventative Maintenance Scope Creep…Scope Creep… Understand the contractual requirements pursuant to the Statement of Work or Statement of Objectives Clarify assumptions and/or expectations that may exceed the scope of the contract Establish a baseline of the requirements How the program was bid is part of the baseline Above all, we must always know …
20 Implementation Creep…Implementation Creep… Focus on implementation issues during the business development phase of the program Rough Order of Magnitude – Rough Order of Magnitude (ROM) – identify ground rules and assumptions Basis of Estimate – Basis of Estimate (BOE) – focus not only on tasks and hours but on implementation approach Fact-finding entrance briefings Integrated Baseline Review – Integrated Baseline Review (IBR) – gain mutual understanding of the baseline, including implementation approach Program Change Control Board – Program Change Control Board (PCCB) – visibility of every contract change Program Execution Plan – Program Execution Plan (PEP) – establish how the contract will be executed Preventative Maintenance
21 Change is inevitable–Change is inevitable – be prepared to deal with unexpected events Encourage creativity–Encourage creativity – Government and contractor integrated process team (IPT) members have good ideas - manage them Be aware of contract baseline–Be aware of contract baseline – recognize when the baseline is perceived to be lost Establish a change process–Establish a change process – instill discipline for stakeholders to follow the formal change process Managing Contract Changes
22 Summary Clearly understand all contractual requirements ONLY authorizedImplement changes ONLY upon receipt of a written work authorization from an authorized Contracts representative Notify Contracts for interpretations and/or clarification of the contractual requirements Above all, remember the GOLDEN RULE…Above all, remember the GOLDEN RULE… What Does the Contract Say?