1. Contractor Business System Rule Revision #, Date (of revision) Presented By: Kendrick Dickerson, PA, DCMA Property Group May 3, 2013

2. 2 TOPICS Basis for the Business System Rule Rule language Process Timelines Contractor Actions Q&A

3. 3 Why a Business System Rule? Commission on Wartime Contracting (August 11, 2009): Contractor business systems with deficiencies “…remain uncorrected, without consequence, for months or even years” Contractors not held accountable Clauses are inadequate Immediate remedies not available to Contracting Officers No authority to hold accountable with CAP in place

4. 4 Bottom Line “Defense agencies must improve their oversight of contractor business systems to reduce waste, fraud and abuse” Commission on Wartime Contracting

5. 5 Six Business Systems Accounting Property Purchasing MMAS Estimating EVMS

6. 6 The DFARS Clause DFARS 252.245-7003(b): “The Contractor shall establish and maintain an acceptable property management system. Failure to maintain an acceptable property management system, as defined in this clause, may result in disapproval of the system by the Contracting Officer and/or withholding of payments” Contractor property management systems must still meet FAR/DFARS requirements and any contract terms and conditions

7. 7 So..What’s Changed? Property Administrators will: No longer send PMSA results to contractors Send PMSA results to the ACO No longer determine systems as “adequate” or “inadequate” Continue to communicate findings to contractors during audits and at exit briefings Contracting Officers will: Approve the contractor’s system if there are no significant deficiencies Determine if contractor deficiencies (if any) are significant Request corrective action

8. 8 Old Process vs. BSR Property Administrator: Performs risk assessment Conducts Entrance Briefing Performs audit IAW risk plan Conducts Exit Briefing Property Administrator submits report of significant deficiencies to ACO CO signs letter to contractor disapproving system and requesting corrective actions Advises CO of successful corrective action or significant deficiencies CO advises contractor of continued disapproval and withdrawal of Limited Risk of Loss (if applicable) Old ProcessBSR Implementation Property Administrator: Performs risk assessment Conducts Entrance Briefing Performs audit IAW risk plan Conducts Exit Briefing Sends Summary letter to contractor system status and requests corrective actions Performs re-analysis after corrective actions implemented Recommends Withdrawal of Limited Risk of Loss to CO if corrective action not taken

9. 9 What is a Significant Deficiency? DFAR 252.242.7005(b) Significant deficiency “..in the case of a contractor business system, means a shortcoming in the system that materially affects the ability of officials of the Department of Defense to rely upon information produced by the system that is needed for management purposes”

10. 10 The Process If the contractor does not correct the deficiencies, the CO may follow FAR Part 45.105; i.e., withdraw assumption of risk, pursue other rights and remedies If DFARS clause 252.242-7005 is in the contract, the CO also pursues a financial withhold In addition, The CO will issue a Level III CAR If the contractor’s system was previously approved, the CO would disapprove

11. 11 Timelines

12. 12 Contractor Actions Produce sound, clear, detailed procedures Develop robust self-assessment programs (required by FAR 52-245-1) Enables contractors to track their system and identify deficiencies prior to the Property Administrator performing the audit Identifying the deficiencies and implementing corrective actions provides contractors more “time” to work through the issues. Implement adequate corrective action Perform “root cause” analysis Ensure corrective actions adequately address the root cause of the problem to prevent future findings

13. 13 Summary What does the business system rule mean to DCMA’s overall mission? Forces consistency of oversight; and Policy/people/tools What does the business system rule mean to DCMA’s property mission? Gives parity with respect to all other contractor business systems; all systems have equal status under the rule Enhances the importance of property system audits

14. 14 Corrective Action Requests

15. 15 Corrective Action Requests Level I Noncompliances that are minor, promptly corrected and require no root cause analysis PAs may issues a Level I at any time Level II Noncompliances not promptly correctable and warrant root cause analysis and preventive action PAs may also issue a Level II at any time Level III Noncompliances of a serious nature and constitute a significant deficiency Level III Issued by a Contracting Officer