march 14, 2012 ncma boston education workshop policy update copyright. unpublished work. raytheon...

March 14, 2012

NCMA Boston Education Workshop

Policy Update

Copyright. Unpublished Work. Raytheon Company.

Customer Success Is Our Mission is a registered trademark of Raytheon Company.

04/20/23

Talking Points Washington Environment

DoD Efficiency Initiative - Impacts, Key Rules

New FAR/DFARS Requirements– Business Systems

– CAS Harmonization

2012 NDAA Update – Rules on the Horizon

Just my thoughts, but…

04/20/23

Current Washington Environment Budget Pressures – Less wiggle room and shrinking

DoD Key target for cuts- Proactive approach– $487B/ 10 years

Efficiency Initiative remains DoD’s priority– Frees up funds needed in budget constrained environment

– More programs at risk of termination—performance counts!

Short term focus - Election year!– More campaigning, less action

Sequestration- The big ax over DoD’s head– If no relief, even more painful budget cuts loom ahead– Automatic $492B in cuts Jan 2013

Better Buying Power Initiative –Incentivize Productivity and Innovation in Industry Reward contractors for successful supply chain and indirect

expense management– Part of incentive strategy and aligned to profit

Increase the use of FPIF with 50/50 Cost share-120% ceiling as starting point

Adjust progress payments to incentivize performance– Develop cash flow model and guidance of preferred financing hierarchy– Flow down to subcontractors

Reinvigorate IRAD program—more defense related R&D

Promote Real Competition

Competitive Acquisition strategy at each program milestone– Focus on single bid contracts- directed 2% reduction starting in 2011

Negotiations on single bid offers – PCOs use certified or non-certified cost or pricing data

Develop plan to improve competition rate by 10% annually

Increase small business awards– Past performance factor, profit/fee consideration

Target Affordability and Controlling Cost Growth Mandate Affordability as a requirement for ACAT programs

– Affordability as a key performance parameter

– Support engineering, cost and schedule tradeoffs

Drive productivity growth through Will Cost/Should Cost management– Should Cost targets as management tools

– Used as basis for contract negotiations and incentives

Eliminate redundancy within warfighter portfolio

Make Production rates economical and hold them stable– Define production rates change limits based on affordability assessments

“Incentivize Productivity and Innovation in Industry” – Contract Financing Secretary Carter’s direction to OSD/DPAP - November 2010

– “I expect that the basis of negotiations shall be the use of customary progress payments. After agreement on price on the basis of customary progress payments, the contractor shall have the flexibility to propose an alternate payment arrangement for the Government’s consideration”, such as PBPs.

New OSD Performance Based Payments Analysis Tool at:

www.acq.osd.mil/dpap/cpf/Performance_based_payments.htm

DFARS Proposed Rule- Performance Based Payments (PBP)- Overview Provides requirements for the use of the PBP tool to evaluate

alternate financing arrangements

To be used by contracting officers contemplating PBPs from new fixed price contracting awards resulting from solicitations issued after July 1, 2011.

Proposed rule states “PBPs should never exceed the total costs incurred at any point during the contract”

04/20/23

RecommendedPerformance Based Payment Process

Advocates two step negotiations to achieve PBPs from Customary Progress Payments– Conclude price negotiations using Customary Progress Payments

– If PBPs are desired, submit PBP milestones schedules and events with expenditure profile

– Government evaluates milestone schedule using cash flow model

– Negotiate consideration (expectation: lower profit in return for improved cash flow) – non-profit consideration is acceptable

– Obtain business clearance approval

– Document adequate consideration for PBPs

04/20/23

Cash Flow Model - Experiences to Date This new DoD model of Contract Financing is here to stay

– Part of the Carter Better Buying Power initiative

– DFARS Rule in public comments phase

Uneven execution – Lack of experience using model potentially hampers negotiations

– Slower definitization of UCAs – Result: more actuals, reduces negotiations to profit/fee discussions

Culture of excessive oversight – ignoring/modifying directive– Blind adherence to model reduces second guessing later

Don’t forget about non-profit consideration– What’s else is important to your program? Extended warranties, tech data, etc

– Document! Document! Document! decisions

04/20/23

DFARS Business Systems RuleBackground Goal: Improve the effectiveness of the oversight of contractor business

systems– Systems will “provide timely, reliable information for the management of DoD programs”

Allows for Contracting Officers to withhold payments for business systems deficiencies– 5% for systems deficiencies

Cumulative maximum is 10% for multiple systems deficiencies– Reduced to 2% when an acceptable corrective action plan is submitted

Defines six contractors business systems– Purchasing Systems (DCMA)– Property Systems (DCMA)– Earned Value Management Systems (EVMS) (DCMA)– Accounting Systems (DCAA)– Estimating Systems (DCAA)– Materiel Management and Accounting Systems (MMAS) (DCAA)

Applies to all CAS Covered Contracts

Exempts small business contracts

DFARS Business Systems RuleKey Changes DCMA/DCAA

– Contracting Officers have the sole authority to determine if system deficiencies warrant withholds DCAA reports deficiency in accordance with GAGAS Contracting Officer consults with auditor, makes determination to withhold or

discontinue withholds

Due Process– Contracting officer initial determination of system deficiency

– Contractor afforded 30 days to respond in writing

– Contracting officer evaluates and makes final determination

– Contractor allowed an additional 45 days to correct deficiency

– DCMA/DCAA “Business Systems Review Panel” assesses all CO determinations before implementing Final Determination for withholds

04/20/23

IR&D REPORTING TO DTIC – Final Rule Allowability: The ACO or Corporate ACO shall determine whether

IR&D or B&P projects are of potential interest to DoD. DFARS 231.205-18 (c) (iii)(B)

Requires major contractors to report independent research and development projects

Applies only to major contractors who allocated $11M IR&D/Bid and Proposal costs to covered contracts the preceding fiscal year

Limited to unclassified IR&D project summaries– FOIA Exemption (b) (4) applies (trade secrets, financial information that is

privileged or confidential)

Inputs must be updated at least annually and when project is completed

CAS Harmonization – What’s the Big Deal? Pension Protection Act of 2006 (PPA) amended pension trust

funding requirements– Effective in 2008 for most contractors

Requires DoD to reimburse a larger portion of employee pension costs – recognized allowable costs– Significant contributions into pension trusts required by PPA

– Significant negative cash flow to government contractors Decades before PPA funding recognized as cost under existing CAS Total industry amount of funding not recognized as cost in the billions

PPA mandates harmonization of Cost Accounting Standards (CAS) with PPA funding requirements– Expect accelerated recognition of pension costs when harmonized

BOTTOM LINE: Required change in regulation entitles contractors to equitable adjustments for pension contributions– May impact overhead rates in outyears

March 2012

Contracts Policy Update

FY 12 NDAA Key Bills Summary

Copyright. Unpublished Work. Raytheon Company.Customer Success Is Our Mission is a registered trademark of Raytheon Company.

04/20/23

“Where this new FAR rule come from?” Plenty of sources:

– Congress– Secretary Carter’s Better Buying Power Initiatives– DoD IG

UCA’s a big concern…more to follow

Deliberative process – Most changes allow the public an opportunity to comment before implementation

Industry associations play an important role in shaping policies on key issues– Aerospace Industries Association– National Defense Industry Association– TechAmerica, etc.

DoD/IG Report- Undefinitized Contract Actions Required by law to review UCAs

– Provide annual report to Congress

– Latest report Issued Jan 2012

Results:

– 251 UCAs reviewed, 216 had discrepancies Did not meet 180 day definitization requirement Did not adequately support profit determination Obligate funds within allowable limits Did not properly justify the use of a UCA

DoD/IG Recommendations include:– OSD/DPAP revise DFARS 217.74 with additional guidance on the use of UCAs

Template for adequate authorization requests� Why performance needs to begin immediately

Instructions on how to address incurred costs in profit/fee determinations� Reduced risk with substantial incurred costs

04/20/23

Summary of the Key Bills in FY 12 NDAA Section 803 – Extension of Applicability of Senior Executive Benchmark

Compensation Amount for Purposes of Allowable Cost Limitations under Defense Contracts– Expands coverage of allowable costs for executive compensation beyond the top 5

executives of a federal contractor to all employees of the contractor.

– Allowable cost cap is $400K

Section 804- Supplier Risk Management– Requires DoD to manage supplier risk by directing contracting personnel to use a

“credit card type bureau” to evaluate supplier risk on all DoD contract actions

Section 805 - DCAA Annual Report– Requires DCAA to submit an annual report summarizing its audit activities the previous

fiscal year.

– Includes significant problems, abuses and deficiencies, number of audit reports and pending, length of time taken for each audit, questioned dollar value, etc.

– Also requires a summary of recommendations to improve the audit process

04/20/23

Summary of the Key Bills in FY 12 NDAA Section 806 – Inclusion of Data on Contractor Performance in Past

Performance Databases for Source Selection Decisions– Requires DoD to develop a strategy to ensure timely, accurate and complete information is

included in past performance databases used for source selection decisions

– Requires contractors be afforded up to 14 days to provide comments before information is posted.

Section 813 – Extension of GAO Protest Authority over Task and Delivery Orders– Extends to September 20, 2016 the sunset date for GAO to hear protests of task

and delivery orders under civilian agency contracts over $10M.

Section 815 – Rights in Technical Data and Validation of Proprietary Data Restrictions– Clarifies treatment of IR&D/B&P under which the governmen receives Government

Purpose License Rights in technical data

– Grants DoD the right to require delivery of tech data of which the Government has rights, even if not required in the contract

04/20/23

Summary of the Key Bills in FY 12 NDAA Section 816- Covered Contracts for Purposes of Requirements on

Contractor Business Systems– Amends Section 893 of FY 11 NDAA to define “Covered Contract” to mean any contract

subject to cost accounting standards

– Includes firm fixed price contracts

– Exempts contracts for small businesses

Section 818 - Detection and Avoidance of Counterfeit Electronic Parts– Established contractor responsibilities for detecting and avoiding the use or inclusion of

counterfeit parts in goods or services intended for military or national security application

– Includes contractors’ liability, preventative and reporting actions

Section 823 – Prohibition on Collection of Political Information– Prohibits DoD from requiring a contractor to disclose political contributions in conjunction

with a solicitation, RFP or other communications in connection with the award of a federal contract

04/20/23

Summary of the Key Bills in FY 12 NDAA Section 841 - Prohibition on Contracting with the Enemy in the US

CENTCOM Theater of Operations– Allows HCA to void or restrict future contract awards to contractor determined by the

Commander, CENTCOM as actively opposing US forces in a theater of operations

Section 842 - Additional Access to Contractor and Subcontractor Records in US CENTCOM Theater of Operations– Allows SecDEF to examine records of contractor or subcontractor in CENTCOM Theater

of Operations to ensure funds are not subject to extortion and corruption

Section 852- Strategy for Securing the Defense Supply Chain and Industrial Base– Requires a sector by sector, tier by tier assessment of the defense industrial base that

must identify critical new and emerging sectors of the defense industrial base

– Requires a risk assessment of the Defense industrial base supply chain

04/20/23

Summary of the Key Bills in FY 12 NDAA Section 867- Five year extension of the Mentor Protégé Program

Reauthorization of SBIR and STTR Programs– Increases Phase I ceiling award from $100K to $150K

– Increases Phase II ceiling award from &750K to $1M

Section 822-Higher Procurement Thresholds in Contingency Ops– SAT is $1M, Micro-purchase threshold is $25K

04/20/23

Just my Thoughts… Don’t be overwhelmed by a “Culture of Fear”

– “Business Advisor”- make your decisions on stated guidance, experience

– Oversight, second guessing goes with the territory

Contracts – Expected to be at our best in times of turmoil– Team members depend on us to provide the BEST business advice for program

execution

Be proactive! Identify the business risks early

Communicate, Communicate, Communicate!– Collaborate on the thorny issues to ensure a better product

The Warfighter needs us to solve these challenges– You are not in this alone…successful program performance is a shared

responsibility04/20/23

Questions???

04/20/23

march 14, 2012 ncma boston education workshop policy update copyright. unpublished work. raytheon...

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