NCMA Boston
Education Workshop
Policy Update
Copyright. Unpublished Work. Raytheon Company.
Customer Success Is Our Mission is a registered trademark of Raytheon Company.
Talking Points
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Current Capitol Hill Environment
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DoD Efficiency Initiative/Impacts
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New FAR/DFARS Requirements
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On the Horizon
4/9/2015
Page 2
“Where this new FAR rule come from?”
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Plenty of sources:
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Congress
Washington Post Front Page
DoD IG
GAO
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.
4/9/2015
Page 3
Contract Policy Challenges
DoD Efficiency
Initiative
Congressional
Oversight and
Procurement Reform
Acquisition
Landscape
The Budget Crisis
New FAR and
DFARS Rules
4/9/2015
Page 4
Current Washington Environment
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Budget Pressures – Less wiggle room and shrinking
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DoD Key target for cuts- Proactive approach
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Efficiency Initiative is DoD’s first step
– Frees up funds needed in constrained budget environment
– Programs at risk of termination
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Continuing Resolution Frustrations
– Currently March 18th, no end in sight
4/9/2015
Page 5
DoD Efficiency Initiative
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Secretary Ashton Carter (USD/ATL) issued guidance to Services and
OSD September 14, 2010
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Identified 23 Initiatives in Five (5) areas:
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Targeting Affordability and Control Cost Growth
Incentivize Productivity and Innovation in Industry
Promote Real Competition
Improve Tradecraft in Services Acquisition
Reduce Non-Productive Processes and Bureaucracy
OSD’s goal for savings is two to three percent annually of the $400
billion DoD spends on contracted products and services.
– Projected savings of $8-12 Billion per year
– Frees up funds to maintain modernization efforts in constrained budget
Page 6
Target Affordability and Controlling Cost Growth
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Mandate Affordability as a requirement for ACAT programs
– Affordability as a key performance parameter
– Support engineering, cost and schedule tradeoffs
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Drive productivity growth through Will Cost/Should Cost
management
– Should Cost targets as management tools
– Used as basis for contract negotiations and incentives
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Eliminate redundancy within warfighter portfolio
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Make Production rates economical and hold them stable
– Define production rates change limits based on affordability assessments
Page 7
Incentivize Productivity and Innovation in Industry
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Reward contractors for successful supply chain and indirect
expense management
– Part of incentive strategy and aligned to profit
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Increase the use of FPIF with 50/50 Cost share-120% ceiling as
starting point*
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Adjust progress payments to incentivize performance*
– Identify pilot programs to use innovative financing methods
– Develop cash flow model and guidance of preferred financing hierarchy
– Flow down to subcontractors
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Establish Superior Supplier Incentive Program pilot
– Based on Navy’s “Preferred Supplier Program” concepts
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Promises better terms and conditions for qualified contractors
Reinvigorate IRAD program—more defense related R&D*
* New OSD Policy/DFARS proposed guidance issued
Page 8
“Incentivize Productivity and Innovation in
Industry” - Secretary Carter’s Directive
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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.
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New OSD Performance Based Payments Analysis Tool at:
www.acq.osd.mil/dpap/cpf/Performance_based_payments.htm
Page 9
Promote Real Competition
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Competitive Acquisition strategy at each program milestone
– Focus on single bid contracts- directed 2% reduction starting in 2011
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Negotiations on single bid offers ##
– PCOs use certified or non-certified cost or pricing data
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Develop plan to improve competition rate by 10% annually
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Increase small business awards
– Past performance factor, profit/fee consideration
## See OSD Memo dated November 24, 2010 “Improving
Competition in Defense Acquisitions”
Page 10
Improve Tradecraft in Services Acquisitions
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Create PEO for Services-benchmark Air Force’s example
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Uniform categories for types of Services
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Address causes of poor services contracts
– Standardize for Performance Work Statements
– Increase market research usage
– More frequent re-competes of knowledge based services
– 1 bid proposals open < 30 days require re-advertising additional 30 days*
– CPFF/CPIF contracts for limited competition or pricing history
– FFP type for “robust” competition
– Increase small business participation in Multiple award/IDIQ contracts
4/9/2015
Page 11
DoD Efficiency Initiative – Secretary Carter’s
7 Guiding Principles
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Seven (7) guiding principles for the 23 DoD Efficiency Initiatives
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Reliance on market forces to cause industry’s mergers and acquisitions
Will not support further consolidation of “principal weapon systems prime
contractors”
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Competition –“key driver of productivity and value”
Competition includes head to head competition and acquisition strategies.
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Sector reviews of defense sectors – Shipbuilding, services, space, etc.
“Right sized” to meet future needs
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Focus on the Supply Chain
Subcontracted goods and services account for 66 to 75% of defense dollars
and are the key drivers of program cost and delays
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Page 12
DoD Efficiency Initiative – Secretary Carter’s
7 Guiding Principles
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Services acquisitions – Consumes 60% of DoD spend
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Remove barriers to ensure DoD can benefit from new and
emerging technologies
Become easier to do business with
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Leverage the Global industrial base
Balance obtaining the best technology with security concerns
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Page 13
DFARS Final Rule –
Award Fee Contracts
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Effective date: February 14, 2011
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Key Provisions
– Eliminates “provisional award fee payments”
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No payment made within an evaluation period prior to a final evaluation
for that period.”
– No “rollover” of unearned award fee to another period
– Requires 40% of award fee pool set aside for final evaluation period
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Contracting officer can lower with HCA Approval
– Incorporation in existing contracts require a bi-lateral modification
Page 14
Federal Funding Accountability and
Transparency Act of 2006 (FFATA)
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The Federal Funding Accountability and Transparency Act of 2006
requires the Government establish a free, public, website containing
full disclosure of all Federal contract award information.
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The rule requires contractors to report executive compensation and
first tier subcontract awards on contracts expected to be $25,000 or
more.
– Applies to all modifications made to those subcontracts
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First tier subcontract ” a subcontract awarded directly by a
Contractor to furnish supplies or services for performance of a prime
contract”.
Key Exclusions:
– Classified contracts and contracts with individuals
– Less than 80 percent or more of its annual gross revenue in Federal contracts (and
subcontracts), loans, grants (and subgrants), and cooperative agreements
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4/9/2015
Page 15
FFATA - Classified Contracts Exemption
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FFATA Pilot test in 2007 recognized industry’s concerns about industrial,
national security information on a public, searchable website.
The Government responded that “Section 3 of FFATA does not require
disclosure of classified information and exempts “classified contracts that
may be applicable to industrial, national and other security issues”.
Per FAR 2.101 a classified contract “means any contract in which the
contractor or its employees must have access to classified information
during contract performance. A contract may be a classified contract even
though the contract document itself is unclassified.”
– If the prime contract requires access to classified information FAR 52.204-10 does not apply to
your contract. A DD Form 254 on your contract indicates the need for access to classified
information.
– Section 3 of the FFATA stipulates the Act exempts contracts that may be applicable to industrial,
national and other security issues.
4/9/2015
Page 16
Federal Awardee Performance
Information System (FAPIIS)
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Applies to vendors submitting proposals on Federal Contracts over
$500k and that have more than $10M in active contracts as of the
time of the proposal submission
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Goals:
– Assist the Contracting officer in making responsibility determinations.
– Improve Government’s ability to evaluate business ethics and
performance of prospective contractors.
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Requires contracting officers to review the FAPIIS before awarding a
contract over simplified acquisition threshhold
Must certify that the offeror has accurately and completely disclosed
in FAPIIS:
– Within the last 5 years
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Any criminal proceeding, conviction
Any finding of fault and liability that results in a payment of a fine of
$5,000 or more
Page 17
FAPIIS - Contractor Actions
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Update FAPIIS semiannually
– Centralized Corporate POC for all Raytheon business units
– Information entered in Central Contractor Registration (CCR)
– Failure to update could result in a range of penalties including suspension or
debarment or a determination of non-responsibility
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Contractor will receive updates when Government posts new
information
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Contractor will have opportunity to post comments regarding
Government posted information
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All contractor information viewed only on a need to know basis
– Information treated as source selection sensitive
– Information retained for six years
– However, determinations as to whether FAPIIS data is releasable or exempt
from disclosure under FOIA will be determined on a case-by-case basis.
Page 18
DFARS Proposed
Business Systems Rule
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Second Proposed DFARS Rule issued Dec 3, 2010
– Updates initial DFARS Business Systems rule issued Jan 15, 2010
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Allows for Contracting Officers to withhold payments for business
systems deficiencies
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Defines six contractors business systems
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Accounting Systems
Estimating Systems
Earned Value Management Systems (EVMS)
Materiel Management and Accounting Systems (MMAS)
Purchasing Systems
Property Systems
Applies to contracts over $50M
Excludes FAR Part 12 awards
Page 19
DFARS Business Systems Rule
Key Changes
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Withholds
– Deletes potential 100% withhold for deficiencies
– Reduced from 10% to 5% for systems deficiencies (2% for small
businesses)
– Reduced to 2% when an acceptable corrective action plan is
submitted
– Cumulative withholds on one or more systems is 20% (10% small
businesses)
– Applies to all contracts that contain the business systems clause
4/9/2015
Page 20
DFARS Business Systems Rule
Key Changes
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DCMA/DCAA
– Contracting Officers have the 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
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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
– Allows for Contractor to bill for withheld payments when
Contracting officer determines all deficiencies are corrected
4/9/2015
Page 21
DCMA/DCAA Roles and Responsibilities
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DCMA and DCAA’s involvement critical for successful contract
administration
– Pending DFARS “Business Systems” rule mandate clear roles, responsibilities and
expectations
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OSD/DPAP issued a Policy memorandum January 4, 2011 that clarifies
DCMA and DCAA’s roles and responsibilities. They include:
– Increased Thresholds for Cost/Price Proposal Audits – DCAA will no longer perform field
pricing audits on cost-type proposal less than $100M and fixed priced proposals less than $10M.
– Forward Pricing Rate Agreements (FPRAs/Forward Pricing Rate Recommendations (PFRRs)
- DCMA is the single agency responsible for issuing all FPRAs and FPRRs for contractors where
DCMA is the cognizant contract administration office.
– Financial Capability Reviews – DCAA is withdrawing from performing Financial Capability
Reviews and Audits. DCMA will conduct this requirement as part of the Pre-Award Survey process.
– Purchasing System Reviews – DCMA will lead and conduct Contractor Purchasing Systems
Reviews. DCAA will withdraw from Purchasing Systems Audits.
4/9/2015
Page 22
Cyber-Terrorism and DoD
“Safeguarding Unclassified Information”
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The threat of cyber terrorism is real and pervasive
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Need to protect data internally and also on contractors’ systems
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ANPR addressed potential DFARS changes to safeguard
unclassified information. Information includes:
Any unclassified DoD information not cleared for public release
Enhanced safeguarding requirements, including cyber incident
reporting, that apply to information subject to the following:
a. Critical Program Information protection.
b. Export control under ITAR and EAR
Initial Concerns
Definitions too broad for effective implementation e.g.,
“Adequate security”
Reporting concerns- how is information treated in Past
Performance
Flow-down to subcontractors- are primes liable for
subcontractors’ implementation?
Page 23
Interim FAR Rule - Text Messaging Ban
(Sept 2010)
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New FAR part 23 and an associated clause to encourage Federal
contractors and subcontractors to adopt and enforce policies that
ban:
– Text messaging while driving company-owned, rented or government-owned vehicles; or
– Text messaging while driving privately owned vehicles when performing official government
business, or when performing any work for or on behalf of the government
– The interim rule also encourages federal contractors to:
– Establish new rules and programs, or re-evaluate existing programs, to prohibit text
messaging while driving; and
– Develop and implement educational and outreach programs to inform employees about
safety risks associated with texting while driving.
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The clause at 52.223-18, titled “Contractor Policy To Ban Text
Messaging While Driving,” must be included in all covered
solicitations, contracts, grants and cooperative agreements awarded
or entered into on or after September 29, 2010.
Page 24
On the Horizon
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New Supply Chain Challenges
– Counterfeit Parts
– Rare Earths and Conflict Minerals
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Weighted Guidelines
– Goal is “Profit for a purpose”, not reduced profit
– Will be open for public comment
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Data Rights – Acquire no more than needed
– Huge industry concern, may be more public meetings to clarify
Page 25
Recent Developments
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Source Selection Guide – Just released!
– Effective date: July 1, 2011
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Proposed DFARS Rule “Independent Research and
Development Technical Descriptions”
– Require contractors to report independent research and
development (IR&D) projects generating annual costs in excess of
$50,000.
– Goal: Increased visibility into gov’t sponsored DoD projects
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DFARS Proposed Rule “Increase the Use of Fixed-Price
Incentive (Firm Target) Contracts”
– Increased use transitioning from development to production
– Use 50/50 cost share line 120% ceiling as default
4/9/2015
Page 26
“Report to Congress on Contracting
Fraud”
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Congress directed Secretary of Defense and DoD
Inspector General report on Contracting Fraud
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Requested total value of DoD contractswith
contractors “been convicted of fraud”
– Indicted for, settled charges, or fined by any Department or
agency
– Limited to last three years
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Report: $285B taxpayer dollars paid to contractors
“criminally convicted of fraud”
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Anticipate some legislation in FY2012 NDAA
Page 27
OFPP- “Myth Busters”-Improve Communications
with Industry during the Acquisition Process
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OMB issued memo Addressing top 10 Misconceptions
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“We can’t meet one on one with a potential offeror”
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“Since communications with contractors is like
communications with registered lobbyists, and since
contact with lobbyists must be disclosed, additional
communications with contractors will involve a substantial
additional disclosure burden, so we should avoid these
meetings.”
“A protest is something to be avoided at all costs—even if
it means the government limits conversation with
industry.”
Page 28
“Myth Busters”-Improve Communications
with Industry during the Acquisition Process - Misconceptions
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“Conducting discussions/negotiations after receipt of
proposals will add too much time to the schedule”
“If the government meets with vendors, that may cause
them to submit an unsolicited proposal and that will
delay the procurement process.”
When the government award a task/delivery order using
FSS, debriefing the offerors is not required, so it
shouldn’t be done.”
Page 29
“Myth Busters”-Improve Communications
with Industry during the Acquisition Process - Misconceptions
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“Industry days and similar events attended by multiple vendors are
of low value to industry and the government because industry won’t
provide useful information in front of competitors, and the
government doesn’t release new information.”
“The program manager already talked to industry to develop the
technical requirements, so the contracting officer doesn’t need to do
anything else before issuing the RFP.”
“Giving industry only a few days to respond to an RFP is OK since
the government has been talking to industry about this procurement
for over a year.”
“Getting broad participation by many different vendors is too
difficult; we’re better off dealing with the established companies we
know.”
Page 30
Some Final Thoughts
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Contracts – Expected to be our best in times of turmoil
– Team members depend on us to provide the BEST business advice
for program execution
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Be proactive! Identify the business risks early
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Communicate, Communicate, Communicate!
– Collaborate on the thorny issues to ensure a better product
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The Warfighter needs us to solve these challenges
– You are not in this alone…successful program performance is a
shared responsibility
4/9/2015
Page 31
Questions???
4/9/2015
Page 32