Acquisition of
Property under
MMAS
Rich Culbertson
LMCO
Wayne Norman
NGC
Background
• Under DoD, contractors with large contracts must have a Material
Management and Accounting Systems (MMAS) systems deemed
adequate in order to minimize overall material inventory costs and
related expenditures
• The system must conform to the standards at 252.242-7004(f) and is
included in contracts when the contractor has cost-reimbursement or
fixed-price contracts exceeding the simplified acquisition threshold, with
progress or other contract financing provisions, except when all of the
contracts and subcontracts are awarded under the set-aside or Section
MMAS disclosure, demonstration, and maintenance requirements.
(a) A large business contractor is subject to MMAS disclosure,
demonstration, and maintenance if in its preceding fiscal year the
contractor received DoD prime contracts or subcontracts (including
modifications) totaling(1) $70 million or more; or
(2) $30 million or more (but less than $70 million), and the
contracting officer determines it to be in the best interests of the
Government (e.g., contractor disclosure, demonstration, or other activities
indicate significant MMAS problems exist).
The system may or may not cover the same cage codes as
the property system
Comment:
Many contractors have an automated system for determining requirements.
A material requirements planning (MRP) system is a system for identifying
requirements, initiating procurement, and maintaining current and future
materials necessary to support production operations. Hence, MRP is a
method of inventory control, not inventory costing. However, an MRP
system does initiate inventory transactions and provides information used for
costing those transactions. It takes into account the specific timing of material
requirements, with the objective of minimizing inventory investment
consistent with meeting a given production plan. An effective MRP system will
result in having the optimum amount of material available for planned
production. Consequently, a contractor’s investment in inventories is
minimized.
How does this differ and how is it the same as a Fixed Asset
System?
Acquisition:
Costing of Transferred Parts
a. The MMAS system should transfer parts and associated costs within the
same billing period. The billing period implied is a monthly accounting period.
Transfers from one contract to another should be based on a CAS 411
valuation method. (CAS 411 Cost Accounting Standard—Accounting for
Acquisition Costs of Material.)
Selected valuation procedures must be documented, disclosed, and
consistently applied to all subject transfers regardless of the nature of the
final cost (government or commercial) or type of contract (cost
reimbursable or fixed price).
Why consistently applied?
Does CAS 411 apply – why or why not?
(e) MMAS standards. The MMAS shall have adequate internal
controls to ensure system and data integrity, and shall-(1) Have an adequate system description including policies,
procedures, and operating instructions that comply with the FAR
and Defense FAR Supplement;
(2) Ensure that costs of purchased and fabricated material charged or
allocated to a contract are based on valid time-phased requirements
as impacted by minimum/economic order quantity restrictions.
What are internal controls?
(e) MMAS standards.
…
(i) A 98 percent bill of material accuracy and a 95 percent master production
schedule accuracy are desirable as a goal in order to ensure that requirements
are both valid and appropriately time-phased.
(ii) If systems have accuracy levels below these, the Contractor shall provide
adequate evidence that—
(A) There is no material harm to the Government due to lower accuracy levels;
and
(B) The cost to meet the accuracy goals is excessive in relation to the impact
on the Government ;
Cost vs. benefit considerations apply.
What Concept is being applied here?
Comment:
An MRP system consists of a set of logically related procedures,
decision rules, and records designed to translate a bill of material and
a master production schedule into time phased net requirements, and
the planned coverage of such requirements, for each component
inventory item needed to implement this schedule.
An MRPII system re-plans net requirements and coverage as a result
of changes in the master production schedule, inventory status, or
product composition.
Does the MMAS system include the production system?
Comment:
Today, according to DFARS 252.242.7004, MMAS is defined as “the
Contractor's system or systems for planning, controlling, and
accounting for the acquisition, use, issuing, and disposition of material.
Material management and accounting systems may be manual or
automated. They may be stand-alone systems or they may be
integrated with planning, engineering, estimating, purchasing,
inventory, accounting, or other systems”.
Any manual standalone systems?
MMAS Standards:
• 1 through 8 apply to commingled materials for which costs are
charged or allocated to fixed price, cost-reimbursement, and
commercial contracts
• 9 means commingling of inventories for fixed-price, costreimbursable, and commercial contract is permissible as long as
standards 1 through 8 are followed. Standard 9 is the only standard
that is dependent on all of the other standards
Why is commingling a good idea or a bad idea?
FAR 45.103(a) Agencies shall- (3) Ensure maximum practical reutilization
of contractor inventory for government purposes;
The system should transfer parts and associated costs within the same billing
period. In the few instances where this may not be appropriate, the Contractor
may accomplish the material transaction using a loan/pay-back technique. The
“loan/pay-back technique” means that the physical part is moved temporarily
from the contract, but the cost of the part remains on the contract.
(i) The Contractor shall maintain and disclose written policies describing the
transfer methodology and the loan/pay-back technique.
“Contractor inventory” means—
(1) Any property acquired by and in the possession of a contractor or
subcontractor under a contract for which title is vested in the
Government and which exceeds the amounts needed to complete full
performance under the entire contract; …
Acquiring material/ Parts for a new requirement
Step OneThe requirement (need) for the item is loaded in the Bill of Material
Step TwoThe MMAS/MRP system should see if the part number has any
available quantity available on hand
•Because another demand went away
•MIN/Max extra quantity on hand
•Lower than forecasted attrition on another demand
•If there is any, then the item should be redirected and transferred to
the new demand•At cost, using a disclosed/ consistent practice for moving the cost
•The item is then transferred at cost and remains CAM on the new
contract
Acquiring material/ Parts for a new requirement
Step threeIf excess stock is not on hand, it is then routed to a buyer for a new
procurement
When transferring property within an MMAS – do you need the
contracting officer’s signature? Why or why not?
Techniques for moving cost on material contract transfers (CAS 411)-
(b) One of the following inventory costing methods shall be used when
issuing material from a company-owned inventory:
(1) The first-in, first-out (FIFO) method.
(2) The moving average unit cost method (MAUC).
(3) The weighted average cost method.
(4) The standard cost method.
(5) The last-in, first-out (LIFO) method.
Your Company should have Disclosed one of these techniques and
should be consistent.
• GFP IS NOT INCLUDED IN THE MMAS's SPAN
OF CONTROL
Note- GFM should never be added into
the MMAS/MRP CAM
instance/partition, where the material
could be reutilized (treated like CAM)
Comment:
In the few circumstances where it may not be appropriate to transfer
parts and associated costs within the same billing period, use of a
"loan/payback" technique must be approved by the ACO. When the
technique is used, there must be controls to ensure that parts are paid
back expeditiously; procedures and controls are in place to correct any
overbilling that might occur; at a minimum, the borrowing contract and
the date the part was borrowed are identified monthly; and the cost of
the replacement part is charged to the borrowing contract.
Why avoid borrow/ payback
1- it needs ACO approval
2- more cumbersome
3- old school, the MMAS/MRPII transfer process a lot cleaner
Other issues
Title on available property– cost type vs. fixed price
Fixed price contract with progress payments - When the contract
deliverables have all been met, the residual material is then
contractor owned.
Fixed price contract- The customer has title to the residual/ excess
material?
Contract closeout issues –
When should excess determinations be made?
Moving items at no cost:
When to do:
•Contractor and Customer agree to move to another contract under a no
cost transfer, becomes GFM, and needs to be removed from the main
MMAS costing plant/partition
•From fixed price contracts with no MMAS clause
•From a fixed price contract to a new contract where pricing was revealed
to include no cost material
•Material is picked up via the plant clearance process --outside of the
MMAS
Why not to do:
•MMAS Clause- (b) (1)iii – Be careful
‘Maintains a consistent, equitable, and unbiased logic for costing of
material transactions’
DFARS 242.7203 Review procedures.
(c) (MMAS)System evaluation. Cognizant contract administration and
audit activities must jointly establish and manage programs for
evaluating the MMAS systems of contractors and must
annually establish a schedule of contractors to be reviewed. In
addition, they must -(1) Conduct reviews as a team effort .
(i) The ACO-(A) Appoints a team leader; and
(B) Ensures that the team includes appropriate functional specialists
(e.g., industrial specialist, engineer, property administrator, auditor ).
(c) System evaluation.
DCAA Audit Manual 5-705 Scope of Audit
c. …, the auditor should coordinate closely with other responsible
Government representatives such as Government property specialists
and engineering and other technical representatives. Team tasks must
be clearly defined to take advantage of the available Government
expertise and mission requirements of all members. Most important,
the team must make every effort to avoid duplication of effort.
QUESTIONS ???