Please use the following two slides as a template for your presentation at NES. Wayne Norman, CPPM CF, Northrop Grumman Loril Stephens, CPPM CF, ATK Tamra Zahn, CPPA, Boeing Subcontract Control Best Practices A discussion

Subcontract Control  Records  Risk Assessment  Oversight  Reporting

FAR (v) Subcontractor control. (A) The Contractor shall award subcontracts that clearly identify assets to be provided and shall ensure appropriate flow down of contract terms and conditions (e.g., extent of liability for loss, theft, damage or destruction of Government property). (B) The Contractor shall assure its subcontracts are properly administered and reviews are periodically performed to determine the adequacy of the subcontractor's property management system.

DoD Guidebook- PA RESPONSIBILITIES The PA must examine the prime contractor’s subcontract controls and procedures and perform sufficient testing to ensure that the contractor:  Includes the appropriate flow-down clauses and instructions in its subcontracts as required by FAR , paragraph (v).  Conducts periodic reviews to determine the adequacy of its subcontractors’ property management systems.  Properly administers the risk-of-loss and other provisions flowed down to its subcontractors.

Subcontract Control  Records –Sub Must keep custodial record –Prime ? Maintain Records or Rely on Supplier Record

Subcontract Control  Records –Let the supplier keep the record Yes, if –supplier acquires –Little movement back to Prime location No, if –high Furnished content –Significant volume of movement back to Prime

Rely on Sub Records Why –Reduce Duplication and less reconciliation Why not –Prime has limited controls in this case Reconcile Property list to supplier reports –Keep trail in Subcontractor folders 2012 Conference Series I

Risk Assessment  Why –Part of Self Assessment –Provides snap shot of risk areas –Helps determine oversight needs 2012 Conference Series I

Risk assessment form idea

Risk assessment form idea - #2

Assign Points to Risk Assessment Questions Does the subcontractor have documented evidence of an adequate Government Property System? If so, has the system received an adequate rating within the last 2 years? (1) Yes (2)Yes/CA (3) No Is the supplier responsive to requests for reports, and are the reports deemed accurate? (1) Yes (2)Yes/CA (3) No Is the value of government property reported on the previous years financial report in excess of $500,000 and 50 items? (2) Yes (0) No Has the subcontractor subcontracted with a lower tier supplier and provided assigned government-owned property? If so, is the subcontractor ensuring the lower tier subk is complying with contractual requirements? (1) Yes/Yes (3)Yes/No (0) No (2) unknown

During the previous year, has the subcontract reported ANY losses? Assign 0, or 1 point (non significant); 3 points fairly significant; 5 points alarming problem Did the subcontractor respond to a request for a limited desk survey? (0) Yes (1) Yes with "Go Backs" (3) No Is the supplier reporting excess property in a timely manner? Are the disposition instructions completed in a timely manner? (0) Yes/Yes (1)Yes/No (3) No/No Questions continued

Assess Supplier’s Risk Risk Rating Supplier Numeric Risk Factor Question 1Question 2 Question 3Question 4 Question 5Question 6Question Low Risk Med Risk 11+ High Risk year of last onsite visit Does the subcontractor have documented evidence of an adequate Government Property System? If so, has the system received an adequate rating within the last 2 years? Is the supplier responsive to requests for reports, and are the reports deemed accurate? Is the value of governm ent property reported on the previous years financial report in excess of $500,00 0 and 50 items? Has the subcontractor subcontracted with a lower tier supplier and provided assigned government- owned property? If so, is the subcontractor ensuring the lower tier subk is complying with contractual requirements? During the previous year, has the subcontract reported ANY LDD? Did the subcontractor respond to a request for a limited desk survey? Is the supplier reporting excess property in a timely manner? Are the disposition instructions completed in a timely manner? Total L/I TOTAL $ Supplier Red Zone Points (1) Yes (2) Yes/CA (3) No (1) Yes (2) Yes/CA (3) No (2) Yes (0) No (1) Yes/Yes (3) Yes/N o (0) No un kn ow n (2) Assign 0, or 1 point (non significant); 3 points fairly significant; 5 points alarming problem (0) Yes (1) Yes with "Go Backs" (3) No (0) Yes/Yes (1) Yes/N o (3) No/N o

Risk Rating Supplie r Numeri c Risk Factor Question 1Question 2Question 3Question 4 Question 5Question 6Question Low Risk Med Risk 11+ High Risk year of last onsite visit Does the subcontracto r have documented evidence of an adequate Government Property System? If so, has the system received an adequate rating within the last 2 years? Is the supplier responsive to requests for reports, and are the reports deemed accurate? Is the value of govern ment propert y reporte d on the previous years financial report in excess of $500,00 0 and 50 items? Has the subcontractor subcontracted with a lower tier supplier and provided assigned government- owned property? If so, is the subcontractor ensuring the lower tier subk is complying with contractual requirements? During the previous year, has the subcontract reported ANY LDD? Did the subcontractor respond to a request for a limited desk survey? Is the supplier reporting excess property in a timely manner? Are the disposition instructions completed in a timely manner? Owning Div Type/ Proposed Auditors Del PAPO/ POVCNState Total L/ITOTAL $ Suppli er Red Zone Points (1) Yes (2) Yes/C A (3) No (1) Yes (2) Yes/C A (3) No (2) Yes (0) No (1) Yes/Ye s (3) Yes/N o (0) No un kn ow n (2) Assign 0, or 1 point (non significant); 3 points fairly significant; 5 points alarming problem (0) Ye s (1) Yes with "Go Backs" (3) No (0) Yes/Ye s (1) Yes/N o (3) No/N o BMES-Blimited KY2 $12, BMES-Blimited NY21 $11, SSDlimited NY651 $330, SSSD (MX)limitedD , CA14995 $240,938,181 08del N/ A 0 SSSD (MX)limitedD , MA249 $8,450,609 05del N/ A 0 SSSDLimited CA55 $1,197, BMES-B, SSSDBMES FL79 $681, SSSD (MX)limitedD , , , , UT14816 $64,137,990 08del N/ A 0 SSSD (MX)limitedD MA122 $2,904, N/ A 0 SSSD (MX)limitedD CO6029 $53,981,233 04del N/ A 0 Determine Type of Audit

Oversight Options  Delegation to DCMA  When local DCMA oversight exists at sub  Meets criteria in FAR (e)  Onsite audit at sub  If low or moderate risk- waive every other year- even with significant property  Limited Mailer survey questionnaire 2012 Conference Series I

Oversight  Onsite versus Limited Mailer survey questionnaire  Base on risk assessment  Value of property items, $ value  50 items and $500k ??  Seems too low- what do you use? 2012 Conference Series I

Reporting  Don’t make your sub perform an annual inventory- let them follow their process  Every two years or triennial is common for tagged property (equipment/tooling)  They can inventory listing annually 2012 Conference Series I

Reporting concept 1  Don’t make them perform data entry into your system  Give them an excel file, column formatted  They can download their data  You can upload their reported data 2012 Conference Series I

Reporting concept 2- BENEFITS OF USING AN ONLINE SYSTEM – Middleware flowed to Subs  Provides: A secure encrypted web based application access System manages workflow for subcontractors and Prime The capability for Suppliers to view current inventory data on a weekly basis The capability to complete Surveillance compliance form online System integration between supplier inventory results as reported in VIP and Property accountability databases via interfaces that flow results between the two applications on a weekly basis The ability to view history for prior inventory or compliance form submittals Objective evidence and auditable trail to support USG, CSA and Corporate Audits  Facilitates two-way communication between Prime and Subcontractors: Both parties receive notifications for actions reported in the system Subcontractors can request changes to their contact information  Reduces paperwork - VIP system is based on exception reporting of changes to inventory when they occur vs. 100% line item reporting for yearly reconfirmations such as: Additions to inventory received which are not in the Prime inventory Assets that have not been received Assets that have been scrapped, transferred, are excess or Losses Allows online reconfirmation of the Subcontractor’s and Prime accountability records to be in agreement

Reporting Excess  Options  Pre-formatted Excel file  They can populate and  You can upload into PCARSS  Let them enter into PCARSS as sub  Use Middleware with supplier 2012 Conference Series I

More Questions for Dialog ?

Summary Thoughts –Minimize your labor and costs –Automate processes for you and your subs –Know where your risks are with your Subcontractor base LEAN PROCESSES

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