Contractor Business Systems · 2019-05-15 · Level III – Issued by ACO •not promptly correctable, warrant root cause analysis, preventive action, & containment •Issued to management

Contractor Business Systems

Intro and Updates

(May 2019)

By Jason RathsackUpdated 5/8/19

NCMA Wisconsin Chapter

DISCLAIMER: The views expressed are not necessarily representative of DCMA. We are here to present on behalf of NCMA, Wisconsin Chapter. Although much of the information contained within is public knowledge, any opinions expressed are those of the presenter alone. If you have any questions, feel free to contact Jason Rathsack at [email protected]

mailto:[email protected]

Agenda

A. Pledge of AllegianceB. IntroductionC. Contractor Business Systems IntroD. GAO FindingsE. Q&A Session


The FAR-side of the Planet

4


DoDNon-Commercial

Commercial

ConstructionGSA

252.242-7005 Contractor Business Systems Procedures Withholds

(1) Accounting system: DFARS 252.242-7006

(2) Earned value management system: DFARS 252.234-7002

(3) Estimating system: DFARS 252.215-7002

(4) Material management and accounting system: DFARS 252.242-7004

(5) Property management system: DFARS 252.245-7003

(6) Purchasing system: DFARS 252.244-7001


What is a Contractor Business System?

252.242-7005Applicable to CAS Covered Contracts Only (242.7001)

Business System requirements can be both contract specific and based on Government sales:Contract typeCompetitive vs. Sole SourceContract valueEquipmentComplexity or criticality of requirementTotal qualified sales during an accounting period


CBS – Does this apply to me?

You don’t need the CBS Clause in your contractto be subject to the requirement

7


Contractor Business System UpdatesDFARS 252.242-7005

EVMS

MMAS

Estimating System

Purchasing System

Accounting System

Property Management System

Thre

shol

ds, R

isk

Applicability – DFARS 215.407-5; Estimating Systems – Disclosure


(b)(1) DoD policy is that all contractors have acceptable estimating systems that consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices.

(b)(2)A large business contractor is subject to estimating system disclosure, maintenance, and review requirements if;

> $50 M in CCOP or >10 M in CCOP with known issues or risks

Include 252.215-7002 Cost Estimating System Requirements in all contracts containing CCOP (>$2M, sole source, non-commercial)


CCOP• Large and Small Businesses are required to maintain

an acceptable Estimating System

$10M• Large business may be subject to 17 System

Requirements based on ACO/PCO concurrence

$50M• Large Business subject to 17 System Requirements• Withholds if contractor has a CAS Covered contract

Applicability – Estimating System

DCMA Policies - CBS

10



Confused? See Handout

System Description Factors for Including the Business System Criteria in Contracts

Accounting

System or systems for accounting methods, procedures, and controls established to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data for reporting in compliance with applicable laws, regulations, and management decisions. Systems may include subsystems for specific areas such as indirect and other direct costs, compensation, billing, labor, and general information technology.

Cost-reimbursement, incentive type, time-and-materials, or labor-hour contracts; or contracts that provide for progress payments based on costs or on a percentage or stage of completion.

Estimating

Policies, procedures, and practices for budgeting and planning controls, and generating estimates of costs and other data included in proposals submitted to the government in the expectation of receiving contract awards.

Contracts awarded on the basis of certified cost or pricing data. Additional requirements apply when the contractor is considered a large business and, in the preceding fiscal year, either received Department of Defense prime contracts or subcontracts, totaling:

• $50 million or more for which certified cost or pricing data were required; or• $10 million or more (but less than $50 million) for which certified cost or pricing data were required; and the procuring contracting officer, with concurrence or request of the administrative contracting officer, determines it to be in the best interests of the government.


Confused? See HandoutSystem Description Factors for Including the Business System Criteria

in Contracts

Purchasing

System or systems for purchasing and subcontracting, including make-or-buy decisions, the selection of vendors, analysis of quoted prices, negotiation of prices with vendors, placing and administering of orders, and expediting delivery of materials.

Contracts that include the standard FAR subcontracts clause.a The subcontracts clause generally is included in cost-type contracts and certain other types of contracts that exceed the simplified acquisition threshold.

Property Management

System or systems for managing and controlling government property.

Contracts that include the standard FAR government property clause.c The government property clause generally is included in cost-reimbursement, time-and-material/ labor hour, or fixed price contracts where property is expected to be furnished by the government or a contract for commercial items where government property exceeds the simplified acquisition threshold and the contractor is directed to use government property.

Earned Value Management

A system for project management that effectively integrates the project scope of work with cost, schedule and performance elements for optimum project planning and control.

Cost or incentive contracts valued at $20 million or more and certain other contracts for which earned value management is applied.


• Why?2018 NDAA: GAO to evaluate DOD implementation of Business System Review legislation. The review focused on:

1) the changes DOD made to its review process and;2) the extent to which DOD is ensuring timely business

system reviews.


CBS – GAO Report #GAO-19-212

Findings? Good!1) Clarify the roles and responsibilities of DCMA and DCAA in

conducting CBS reviews and consolidate the number of reviews to be performed;

2) Clarify how often DOD should conduct CBS reviews; 3) Establish what criteria are used to evaluate a contractor’s business

system; 4) Establish timeframes by which ACOs are to make a determination

on the adequacy of the contractors’ business systems; and 5) Implement the use of payment withholds for contractors that are

found to have significant deficiencies in their contractor business systems.




Overall - CBS Audit/Review Findings Full Audits or Reviews Completed 2015 - 2017

Agency Business system Reviews completed

Reviews where significant

deficiencies were found

% of reviews where significant deficiencies

were found

DCAA Accounting 3 0 0%Estimating 9 7 78%

Material Mgmt & Accounting 12 9 75%

DCMA Purchasing 330 260 79%Property Mgmt 2,934 26 1%

EVM 891 9 1%

Good but……• No mechanism to monitor frequency of CBS reviews• DCAA has performed few CBS audits since 2013 when

they focused resources on Incurred Costs• DCAA plans to increase CBS Audits but success will

depend on:– shift resources from other audits;– to use public accounting firms to conduct other, non-

business system audits; and – DCAA staff’s ability to execute new audit plans in a timely

manner.




What does this mean for you?

0

5

10

15

20

25

30

Accounting Property Purchasing Estimating MMAS EV

DCMA Milwaukee Biz Systems – 2019

Approved Disapproved Not Evaluated

Business System Approved Disapproved Not Evaluated

Accounting 27 1Estimating 1 1Property 25 1Purchasing 3MMAS 1EVGrand Total 56 3 1

30 of 60 Business Systems >3 Years Old21 Accounting, 9 Property


What does this mean for you?



Who are my POCs?

21


Oshkosh, WI: Michelle Houtman, 920-252-8400, [email protected]

Milwaukee, WI: Larry Kolb, 414-299-5659, [email protected]

South Bend, IN: Radames “Ray” Gandia, 574-334-4817, [email protected]

• Pay attention to applicability – Prime and SUB!• Understand the terminology

– What is a significant deficiency?

• Understand the requirements before you propose• Are you prepared? If not, are you showing good faith effort?

AskQuestions

Now!


Tips and Recommendations

Submit your Questions to WPI Staff or email to


Q&A Session

Corrective Action ProcessOverview

(May 2019)

By Jason RathsackUpdated 5/8/19


Agenda

A. RegulationsB. What is a CAR?C. ProcessD. Corrective Action PlansE. Examples


Regulations – Corrective Action Process

What FAR or DFARS clause outlines the Corrective Action Process?

None?

Many….



• DCMA INST 1201 Corrective Action Process: It is DCMA policy for corrective action to be requested from contractors when contractual noncompliances are independently identified by DCMA personnel performing Contract Administration duties outlined in paragraph (a) of FAR Part 42.302, “Contract Administration Functions

• Shared amongst all functional elements• Guidance covers entire process and is publicly available



• Contract Terms and Conditions – On Time Delivery• 15 CFR 700 Defense Priorities and Allocations System• FAR 52.246-11, Higher-Level Contract Quality

Requirement• Accounting system: DFARS 252.242-7006• Estimating system: DFARS 252.215-7002• Property management system: DFARS 252.245-7003• Purchasing system: DFARS 252.244-7001• DFARS 252-227-7038/9 – Patents


DCMA Policies – Corrective Action

29


DCMA FocusAdministration, Surveillance

30


Major Program SupportBusiness System

SurveillanceOn Time Delivery

Negotiation Intelligence

Process ReviewsBusiness System Reviews

Corrective Actions

Low Value Low Risk

DLA Contract Admin

Cost Contract Admin Support

“Kicking Boxes”


What is a CAR?• A Corrective action Request is

issued to a contractor in response to an identified noncompliance with a contract term or condition

• Must be issued against a valid contractual requirement and the cited noncompliance description must show a clear departure from the contractual requirement.

• Level II and higher CARs shall communicate the contractor response requirements


•Level III is ineffective or NC is of serious nature•mandatory review of available contractual remedies

Level IV – Issued by ACO

•Issued to KTR Company or Business Segment Mgmt•Serious Non-compliance, significant deficiency, or Level II CAR failure•Requires a written response (CAP for CBS)•May result in contractual remedies (CBS Disapproval + Withhold)

Level III – Issued by ACO

•not promptly correctable, warrant root cause analysis, preventive action, & containment•Issued to management & requires written response

Level II – Issued by Functional Specialists

•NC is minor in nature•promptly corrected by the contractor•no need for root cause determination or further preventive action•issued to the contractor management level responsible

Level I – Issued by Functional Specialist

Seve

rity

of N

C, C

orre

ctiv

e Ac

tion,

Con

trac

tor R

emed

ies

Commercial Contracts – NO CAP

FAR 52.212-4

CAR Initiation – 4 BucketsNCMA Wisconsin Chapter

Contractor Identified

Customer Identified

Contractor Business Systems

DCMA Identified

Customer Identified NoncomplianceWhen communicated to and verified by DCMA, the functional specialist should initiate a CAR and manage any corrective actions IAW this Instruction, except when:

1) It is already a reported via Product Quality Deficiency Report (PQDR)

2) A CAR has been initiated by the customer directly to the contractor

When the contractor’s response to the customer PQDR or CAR is inadequate, DCMA may issue a CAR at the appropriate level


Corrective Action Process

Contractor Identified NoncomplianceIf the noncompliance is contractor self-identified & they take a timely & appropriate action to correct it, a CAR should not be issued, unless:• Contractor takes ineffective corrective actions• Repetitive issues disclosed – cite a weakness in the supplier’s

corrective action process• DCMA led surveillance (i.e. EV, property)Concurrently Identified NoncomplianceDuring concurrent surveillance, a CAR will be issued only after the supplier has made a positive determination or when failure to conduct or document accurately


Corrective Action Process

Corrective Action – Who is involved?

36


CAR Level Pre-Release Coordination Approval For Release & CAP

Acceptance*Issued To Supplier Management Level

I N/a Functional Specialist Lowest Mgmt Responsible to Correct Defect

IIOther functions when impacted. Additional coordination prescribed locally

Functional Specialist Functional level responsible for corrective action

III

CMO Commander/ Director, Legal Counsel, Contract Integrity Center (CIC), applicable Centers (e.g., Property), etc., and applicable customer(s)

ACO/DACO/ CACO (EV has specific instructions)

Top-level manager at business segment or corporate

manager

IV

CMO Commander/ Director, Legal Counsel, CIC, applicable Centers (e.g,. Property), etc., and applicable Customer(s)

ACO/DACO/ CACO/Top level manager at business segment or corporate manager

CBS & CAR Process

37


Business System Review/Audit

Contractor Response to Initial Determination

ACO Receipt of Audit or Analysis Report

Approval – Board of ReviewDisapproval – HQ CBS Review Panel

Approval or Initial Determination of Disapproval

Final Determination and Level III CAR

ACO Develops Determination and Level III CAR Pkg

30/60 Days?

10 Days

30 Days

30 Days? 100

–13

0 Da

ys (a

ppro

x.)

CAR Communication Process

38


ACO notifies affected parties of intent to

issue level III/IV CAR.

DCMA Operational Component

Head/Deputy

Program Managers and Major

Sustainment Commands

Agency Director & Affected Component

Heads

Director responds within 24 hours with

concurrence or issues/concerns.

DCMA Milwaukee Commander

DCMA Chicago CMO Commander

DCMA Chicago Regional

Commander

Program Exec Officer and Senior

Acquisition Exec

CAR Approval

CAR Release

STOP

CBS & CAR Process – Post FD

39


ACO Acceptance of CAP

Approval – Board of ReviewDisapproval – HQ CBS Review Panel

Contractor Corrective Action Plan

Final Determination and Level III CAR

Reanalysis of System

45 Days

15 Days

60 Days to Years 12

0 Da

ys to

Yea

rs

Total Timeline from Audit to Approval:40 days to Years!!

Final Determination of Disapproval – who reviews it before its approved

Corrective Action ProcessNCMA Wisconsin Chapter

1. Functional Specialist (Auditor)

2. ACO3. Supervisor4. Contracts Director5. CMO General Counsel6. Tertiary Commander7. CMO Commander

8. Regional Commander9. Program Office Execs10. DCMA HQ SME11. DCMA Policy Advocates12. HQ Office of General

Counsel13. Business Operations

Director/DCAA HQ

14. DCMA Director

What’s HOT?


DCMA Inst 1201: Corrective Action Process 3.6. SUBCONTRACT LEVEL NONCOMPLIANCES• Primes have “wide latitude” for controlling supply chain

and are responsible for flowdowns and execution• If a Non-compliance is found at a subcontract level, a

Level I or II CAR shall be issued directly to the subcontractor with notification to the prime contractor via the prime CMO.

• Redact notification to protect proprietary info• Level III CARs at subk level should be issued to prime• Systemic subk issues should result in CAR to prime for

lack of control


DCMA Inst 1201: Corrective Action Process 3.6. SUBCONTRACT LEVEL NONCOMPLIANCES• Business Systems are normally only reviewed at

the Prime level with few exceptions (EVMS)• IF the business system is reviewed at subk level,

CARs will be issued directly to sub• When there is no US prime contract; there is no

ACO/DACO/CACO assigned, and; there is no contractor business system determination required to be made, the CMO Commander/Director may release the Level III CAR to the subcontractor


Corrective Action Process CAR Levels I & II transmitted directly to subk, with

notification to prime ktr via prime CMO• Redacted for subcontractor proprietary information• Applies to:

• Support contract delegation• Place of Performance (PoP)

CAR Levels III & IV shall be transmitted to prime ktr if:• Existence of systemic lack of prime control • Subcontractor unwilling or unable to implement effective

corrective action• Coordination, Approval, & Distribution IAW DCMA INST


Production & Manufacturing

• DPAS – Assure timely availability of industrial resources to meet national defense and emergency preparedness Authorized by The Defense Production Act of 1950

• Requires preferential treatment of national defense programs.

• Exec Order 12919 put Department of Commerce in charge of program.

• 15 CFR 700 provides rules for DPAS program. DoD 4400.1-M provides guidance for DoD activities.


Production & Manufacturing


Acqu

isitio

n In

sight

Detection to Prevention

Cont

ract

or A

dmin

istra

tive

Cost

s

GOV

Adm

inist

rativ

e Co

sts

Lega

l Cos

ts

Risk

Award

Solicitation

Performance Complete

Incurred Cost Audit

Voucher

COFD

CAR


Available Resources– DCAA CAM: http://www.dcaa.mil/– DCMA Pricing Guide:

• http://www.dcma.mil/policy/– Contract Pricing and Reference Guides

• https://acc.dau.mil/cprg– Defense Procurement & Acquisition Policy

• http://www.acq.osd.mil/dpap/cpf/– WIFCON

• http://www.wifcon.com/


http://www.dcaa.mil/

http://www.dcma.mil/policy/

https://acc.dau.mil/cprg

http://www.acq.osd.mil/dpap/cpf/

http://www.wifcon.com/

Q&A


Questions?NCMA WI Chapter

Jason [email protected]

50


mailto:[email protected]

Documents

Contractor Business Systems · 2019-05-15 · Level III – Issued by ACO •not promptly correctable, warrant root cause analysis, preventive action, & containment •Issued to management