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

2013 NPMA Fall ConferenceValue Through Professional Asset Management

Subcontract Control Liability and Best Practices

Wayne Norman, CPPM CF

November 2013


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


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 loss of Government property).


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)


–About Certificate of Current Cost and PricingData from Subcontractor• FAR 52.215-12• Why a Cert of Cost and Pricing Data?• To Ensure allowability of Costs charged, or in this caseunallowability, e.g.,– Insurance on Government Property• Cost Principle of 31.205-19– Follows Government Application of Risk of Loss


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

Property Liability Flowdown to SubcontractorPrime Contractor and Flowdown to Subcontractor

Prime Contractor

Contract Type

Subcontractor

P.O. Type

USG

Cost Type / T&M /

Labor Hr

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 Negotiated <$700K

Firm Fixed Price Negotiated @ $700K+





(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) (1)

(1) (1) (4)

(4)(1)

Ltd

Risk

of Loss

Ltd

Risk

of Loss

_____________________

Full Risk

of Loss

(3)

(3)

(2)(5)

(2)(5) (1) (2)(5) (1)(3) (1)(4)





Full Risk

of Loss

Ltd

Risk

of Loss

_____________________(1) (2)(5) (1) (3) (1)(4)

(3)

(3) (3)

(3)

____________________


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


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?


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


• 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


Assess Supplier’s Risk

Risk Rating

Supplier Numeric

Risk Factor

Question 1 Question 2Question

3 Question 4 Question 5 Question 6 Question 7

3 - 7 Low Risk8 - 10 Med Risk11+ 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 $500,000 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/No

(0)

No

unknown

(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/No

(3) No/N

o


Determine Type of Audit

Risk Rating

Supplier

Numeric Risk Factor

Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7

3 - 7 Low Risk8 - 10 Med Risk11+ 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 government

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?

Owning Div

Type/ Proposed Auditors

Del

PAPO/ PO VCN State

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/Ye

s

(3)Yes/No

(0)

No

unknown

(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/Ye

s

(1)Yes/No

(3) No/N

oBMES-B limited 2734382 459448KY 2 $12,015 3 4 3 1 0 0 0 0 0

BMES-B limited 869942NY 21 $11,930 3 4 3 1 0 0 0 0 SSD limited 7600002798 90008074NY 651 $330,739 0 4 1 1 2 0 0 0 0

SSSD (MX) limited D7000061106, 7000061121 90009972CA 14995 $240,938,181 0 8 del 1 1 2 1 3

N/A 0

SSSD (MX) limited D7000061182, 7999961119 90010388MA 249 $8,450,609 0 5 del 1 2 2 0 0

N/A 0

SSSD Limited 726552 90011295CA 55 $1,197,445 0 6 2010 2 1 2 1 0 0

BMES-B, SSSD BMES 477035 90011316FL 79 $681,418 0 5 2010 1 1 2 1 0 0

SSSD (MX) limited D

7000061130, 7000127954, 7000061187, 7000061146, 7000061132 90011426UT 14816 $64,137,990 0 8 del 1 1 2 1 3

N/A 0

SSSD (MX) limited D 7000061180 90011443MA 122 $2,904,522 0 4 1 1 2 0 0N/A 0

SSSD (MX) limited D 7000061114 90011472CO 6029 $53,981,233 0 4 del 1 1 2 0 0N/A 0


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?


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


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?


Take aways:1. Protect yourself on ROL flow down2. Let’s move to common practices

Thank you for participating

Documents

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