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2013 NPMA Fall Conference Value Through Professional Asset Management Subcontract Control Liability and Best Practices Wayne Norman, CPPM CF November 2013.

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Presentation on theme: "2013 NPMA Fall Conference Value Through Professional Asset Management Subcontract Control Liability and Best Practices Wayne Norman, CPPM CF November 2013."— Presentation transcript:

1 2013 NPMA Fall Conference Value Through Professional Asset Management Subcontract Control Liability and Best Practices Wayne Norman, CPPM CF November 2013

2 2013 NPMA Fall Conference Value Through Professional Asset Management We will be discussing hot topics in Subcontract Control including: risk of loss flow down, risk assessment of suppliers as a prime, oversight via onsite audits or limited surveys, Inventory practices, what we require our subs to do annually We will allow for open dialog and questions flowing from the audience

3 2013 NPMA Fall Conference Value Through Professional Asset Management Was does FAR 52.245-1 say  SUB-CONTRACTOR LIABILITY  (f) (v) Subcontractor control.  – (A) …………The Contractor shall ensure appropriate flow down of contract terms and conditions (e.g., extent of liability for lossof Government property).

4 2013 NPMA Fall Conference Value Through Professional Asset Management The Basic Scenarios – FP, FULL Risk of Loss yields the FULL Risk of Loss to the FP Sub – Cost Type, LIMITED Risk of Loss yields the LIMITED Risk of Loss to the CR Sub (Or Cost type Prime to FP(Neg with Cert Requirement)) – FP, LIMITED Risk of Loss (With Cert of C&P Data) yields the LIMITED Risk of Loss to the FP Sub (With Cert of C&P Data)

5 2013 NPMA Fall Conference Value Through Professional Asset Management –About Certificate of Current Cost and Pricing Data from Subcontractor FAR 52.215-12 Why a Cert of Cost and Pricing Data? To Ensure allowability of Costs charged, or in this case unallowability, e.g., – Insurance on Government Property Cost Principle of 31.205-19 – Follows Government Application of Risk of Loss

6 2013 NPMA Fall Conference Value Through Professional Asset Management Risk of loss flow down  DCMA -Callahan memo Sept ’12 still applies as internal guidance within DCMA  Current take- Primes should in most cases flow down limited risk of loss to suppliers in negotiated subcontracts, when it is in the prime contract*  What do you do?  Is this problematic?  Why would you not? * With exceptions- competitively awarded contracts, FR, risk etc..

7 2013 NPMA Fall Conference Value Through Professional Asset Management. 7 Property Liability Flowdown to Subcontractor Prime Contractor and Flowdown to Subcontractor Prime Contractor Contract Type Subcontractor P.O. Type USG Cost Type / T&M / Labor Hr Firm Fixed Price - Negotiated @ $700K+ Ltd Risk of Loss (1) FAR 52.245-1, Government Property (Apr. 2012) – Contractor has limited (Ltd) risk of loss for GOP per FAR 45.104 & 45.107 Contract clauses. (2) FAR 52.245-1, (Alternate I), Government Property (April 2012 )– Contractor has full risk of loss for GOP (3) FAR 52.215-12 Subcontractor Cost or Pricing Data (Oct 1997) – Contractor must require subcontractor to submit cost or pricing data for any subcontract expected to exceed the FAR 15.403-5 threshold ($700K+). Firm Fixed Price Competitively Bid Full Risk of Loss Firm Fixed Price Negotiated < $700K Ltd Risk of Loss Ltd Risk of Loss (1) Firm Fixed Price Competitively Bid Firm Fixed Price Negotiated <$700K Firm Fixed Price Negotiated @ $700K+ Cost Type / T&M / Labor Hr Firm Fixed Price Negotiated <$700K Firm Fixed Price Negotiated @ $700K+ Firm Fixed Price Competitively Bid (4) DFARS 245.107 (6) Contract clauses (Nov. 2011) – For negotiated FFP contracts awarded on a basis other than submission of certified cost or pricing data for which government property is provided, the USG will attach FAR 52.245-1 Government Property (Apr. 2012) - Contractor has Ltd risk of loss for GOP. (5) Class Deviation 2010-00003 (Feb 12, 2010) provided contracts awarded on the basis of adequate price competition with FAR 52.245-1, Government Property (April 2012 )– Contractor has Ltd risk of loss of GOP. This class deviation was rescinded on Nov 18, 2011. Ltd Risk of Loss Full Risk of Loss (1) (4) (1) Ltd Risk of Loss Ltd Risk of Loss _____________________ Full Risk of Loss (3) (2)(5) (2)(5) (1)(2)(5) (1)(3) (1)(4) Cost Type / T&M / Labor Hr Firm Fixed Price Competitively Bid Firm Fixed Price Negotiated @ $700K+ Firm Fixed Price Negotiated <$700K Full Risk of Loss Ltd Risk of Loss _____________________ (1) (2)(5) (1) (3) (1)(4) (3) ____________________

8 2013 NPMA Fall Conference Value Through Professional Asset Management Potential Choices  Standard Terms and Conditions- flown down to all Without without a liability statement Flow down liability separately  Unique standard terms for liability flow down based upon the three scenarios presented by the prime terms  Unique terms and conditions for each sub  Talk to your Procurement/ buyer group

9 2013 NPMA Fall Conference Value Through Professional Asset Management Risk assessment of suppliers, as a prime  What risk assessment do you perform on your subs  How do you do it?  What data do you have or obtain?  Do you use this to make decisions on oversight?

10 2013 NPMA Fall Conference Value Through Professional Asset Management 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

11 2013 NPMA Fall Conference Value Through Professional Asset Management 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

12 2013 NPMA Fall Conference Value Through Professional Asset Management Assess Supplier’s Risk Risk Rating Supplier Numeric Risk Factor Question 1Question 2 Question 3Question 4 Question 5Question 6Question 7 3 - 7 Low Risk 8 - 10 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

13 2013 NPMA Fall Conference Value Through Professional Asset Management Determine Type of Audit Risk Rating Supplie r Numeri c Risk Factor Question 1Question 2Question 3Question 4 Question 5Question 6Question 7 3 - 7 Low Risk 8 - 10 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 previou s years financia l 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 De l PAPO/ POVCN Stat e Total L/ITOTAL $ Suppli er Red Zone Points (1) Yes (2) Yes/C A (3) N o (1) Yes (2) Yes/C A (3) No (2) Yes (0) No (1) Yes/Ye s (3) Yes/N o (0) N o 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 2734382459448 KY2 $12,015 34 31 0 0 00 0 BMES-Blimited 869942 NY21 $11,930 34 31 0 0 00 SSDlimited 760000279890008074 NY651 $330,739 04 1 1 2 0 00 0 SSSD (MX)limitedD 7000061106, 700006112190009972 CA14995 $240,938,181 08del1 1 2 1 3 N/ A 0 SSSD (MX)limitedD 7000061182, 799996111990010388 MA249 $8,450,609 05del1 2 2 0 0 N/ A 0 SSSDLimited 72655290011295 CA55 $1,197,445 062010 2 1 2 1 00 BMES-B, SSSDBMES 47703590011316 FL79 $681,418 0520101 1 2 1 00 SSSD (MX)limitedD 7000061130, 7000127954, 7000061187, 7000061146, 700006113290011426 UT14816 $64,137,990 08del1 1 2 1 3 N/ A 0 SSSD (MX)limitedD 700006118090011443 MA122 $2,904,522 04 1 1 2 0 0 N/ A 0 SSSD (MX)limitedD 700006111490011472 CO6029 $53,981,233 04del1 1 2 0 0 N/ A 0

14 2013 NPMA Fall Conference Value Through Professional Asset Management Oversight via onsite audits or limited surveys  Do you do onsite surveys? High risk at minimum  Limited mailer type surveys?  How do you decide?  What data do you use?  Frequency?

15 2013 NPMA Fall Conference Value Through Professional Asset Management Inventory practices  Do you make your subs physically touch the property annually?  Why?  Do you let them follow their own procedures for frequency (if they have them biannual or triannual)? Please get on board as an industry and don’t mandate your subs cycles

16 2013 NPMA Fall Conference Value Through Professional Asset Management What we require our subs to do annually  What do you make them turn in annually and how do you word it. If you let them follow their own inventory cycle….. And you want annual data…. Why not ask them for a listing of all tagged property on hand ???  And a Summary report of material on hand???? Format- do you provide one?

17 2013 NPMA Fall Conference Value Through Professional Asset Management Take aways: 1. Protect yourself on ROL flow down 2. Let’s move to common practices Thank you for participating


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