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CONTRACT
MANAGEMENT
HIGHLIGHTS PACKAGE
COPYRIGHT DEFENSE
PROCUREMENT UNIVERSITY INC:
COURSE
INTRODUCTION
GENERAL
Contract Management is an advanced-level
curriculum for anyone--whether in industry or government--whose responsibilities
include Federal contracting and contract management.
The curriculum presumes that participants have an understanding of
contracting procedures, have some experience in the field, and have completed
DPUI Contract Law video curriculum, or equivalent advanced training.
Contract Management provides an in-depth analysis
of the complex and changing areas in Federal contracting, and encourages
students to review their own contracting experience in terms of the material
presented in the video modules. The
curriculum addresses will greatly enhance students' knowledge of the forces that
drive Federal procurement, and will broaden their perspective and potential in
the international market.
COURSE STRUCTURE
This course consists of twelve instructional
modules and one examination module and is designed to be completed in fourteen
weeks [i].
Plan to complete one module each week, setting aside approximately the
same time each week to complete the work. The
twelve instructional modules lead the participant through the logical evolution
of the contracting process. The
post-course examination is an open-book test of the student's learning power
over the twelve-week curriculum, and is designed to be completed in
approximately two hours.
COURSE MATERIALS
The core knowledge of this course is presented in
the written student materials and the videotapes. Each of the student digests contains an introduction to the
module topic, a discussion of key points, and tips and references.
The videotape presentations are the focal point for learning, with
discussions guided by an in-house facilitator and guest speakers.
References are made throughout the course to
such sources as the Federal Acquisition Regulation (FAR), Department of Defense
Federal Acquisition Regulation Supplement (DFARS), and the Armed Services
Pricing Manual (ASPM), but only the FAR is actually needed to perform the course
work. Students should plan to have
a copy available for each session.
Students should read the student materials for
each module (that is, the introduction and learning objectives, and the module
digest). Then they should view the
videotape for the module and 4
refer to the written materials or to the facilitator if they have questions.
Although the student materials and the video presentation overlap, the
video is not simply an oral summary of what's in the digest, nor is the digest
simply a transcript of the video. They
are meant to be complementary.
Videotape Presentation. The videotape for each module brings information to you via a
professional skilled in video communication.
The materials presented were researched and written by contracting and
procurement experts with extensive Federal and private industry experience.
Each videotape ranges in length from 25 to 50
minutes, and requires standard VHS playback equipment.
(U-Matic 3/4" tapes are available upon request.)
Each module is presented in three or four segments, and allows the
viewers the opportunity to pause the presentation for discussion or written
exercises between segments.
Because procurement policies and techniques
change so rapidly, an attempt has been made to avoid including perishable
material in the videotapes, so as to extend their relevance as long as possible.
In spite of this, procedural, regulatory, and legislative changes will
occur that will make occasional parts of the videotape presentation out of date.
Student Materials. The heart of the written materials, and probably of an entire
course, is the module digest. Each
module digest includes an introduction, an abstract, a list of learning
objectives, a discussion of the major points, tips and references, and a
self-test. The reference materials
are for the most part source citations from regulatory documents, but pertinent
articles or cases may also be included. Each
module digest is separately-bound, for easy reference when watching the
videotape presentation or participating in a classroom session.
The Facilitator's Guide.
The role of the facilitator in the Contract Law curriculum is to provide
students with significant information that is specific to your organization.
He or she is generally an in-house expert in government procurement, and
is probably a member of upper management.
In a unique formatting strategy, the Facilitator's
Guide follows the videotape, point by point, in outline form.
The Facilitator's Guide offers suggestions for class discussion, and
includes guidelines for course administration, supplemental reading materials,
guest speakers, and more.
The facilitator may arrange for guest
speakers to join the class from time to time to enhance the learning
environment. Students are
encouraged to take advantage of the facilitator's and guests' knowledge and
experience, which will be instrumental when it is time for students to apply the
information they have gained to their own jobs.
The Viewer's Guide. The Viewer's Guide follows the same formatting strategy as
the Facilitator's Guide, and is for use by students working at home or in their
office without the benefit of a classroom setting or facilitator.
The Viewer's Guide includes written exercises at the end of each video
segments, which encourage students to apply the information they have learned to
their own contracting environment and experiences.
The Course Examination.
The twelve instructional modules are followed by a
two-hour, open-book course examination. You may use any of your study materials
while taking the exam, but will only need the student materials and the FAR.
After they have completed the course examination, the facilitator should
review the correct answers with the facilitator's answer key, and point out page
references in the student materials.
MODULES
1-1
ABSTRACTS AND LEARNING OBJECTIVES
MODULE 1
COMPLEX ISSUES BY CONTRACT
TYPE
Abstract
Performance and delivery incentives are
structured as bonuses and/or penalties depending on the needs of the procuring
agency, and such incentives inevitably inject additional complexity into normal
incentive contracts (including incentives only on costs).
When performance and delivery are used, the contract language must be
carefully tailored.
Performance and delivery incentives are
inevitably related to cost incentives in providing a basis for trade-off
decisions. Contract language is
frequently used to limit the application of these incentives when they lead to
"undesirable" trade-off decisions.
The cost-plus-award-fee contract has been widely
used in support service and research and development contracts.
It has led to good communication between parties, but is administratively
expensive and questionable if it subjects the contractor to too much agency
control. A thorough understanding
of the elements of this type of contract is necessary to ensure the contractor
the opportunity to earn a fair profit.
Occasionally contract types are mixed in a single
contract to obtain the best results. This
is an effective technique but can lead to problems in the segregation of costs
and the proper structuring of contract clauses.
Learning Objectives
After completing this module, students
should be able to--
1.
Decide
when performance and delivery incentives should be used;
2.
Structure
performance and delivery incentives to accomplish the goals of the procurement;
3.
Identify
the need for special contract language that states the relationship between the
incentive clauses and other contract clauses and requirements that can impact or
override the incentive provisions;
4.
Decide
when the cost-plus-award-fee contract will be advantageous to the contracting
parties;
5.
Structure
the cost-plus-award-fee formula to serve the needs of the contracting parties;
6.
Decide
when it is appropriate to use different contract types in a single contract; and
7.
Specify
special contract language and standard provisions that are necessary when mixing
contract types.
MODULE 2
THE INTERNATIONALIZATION OF THE U.S. AEROSPACE INDUSTRY
Abstract
The high volume of U.S. aerospace exports
and imports is evidence of internationalization and is indicative of the growing
challenges facing the U.S. aerospace industry.
The economic and political factors that affect international trade--such
as offsets, export promotions, and non-tariff barriers--have increased in
importance and usability over the past ten years.
Foreign investment has not been a key
element in most aerospace companies' strategies for gaining access to foreign
markets. The tendency has been to
depend on exports, technology licensing, and joint ventures.
However, industry overcapacity and the increasing importance of
international production and sales are likely to encourage direct investment in
the future.
Governments play a major role in defense
aerospace production because defense procurement decisions have significant
political and economic implications. Cooperation,
or shared production of defense aerospace systems, has become an attractive
option in reducing investment risks, limiting costs, and encouraging foreign
domestic development while supporting the U.S. industry.
Americans and Europeans perceive the
disadvantages in collaborative arrangements differently.
However, the impetus to collaborate in the defense sector is strong--from
pan-European collaboration to U.S./European cooperation in production and
emerging technologies.
The internationalization of the aerospace
industry will continue as the number and variety of business alliances increase.
National self-interest has already fostered the trend toward
internationalization and will continue to shape the direction it takes.
Learning Objectives
After completing this module, students should be
able to--
1.
Explain
the concept of internationalization and the reasons behind its recent increase;
2.
Describe
the impact of the aerospace industry on international economic, political, and
security concerns;
3.
Define
the major issues involved in establishing an international joint venture; and
4.
Trace
the development of cooperative defense production efforts and their impact on
today's collaborative arrangements.
MODULE 3
FOREIGN MILITARY SALES CONTRACTING
Abstract
Since World War II, the U.S. government has
played an increasingly active role in the international transfer of U.S. arms.
Foreign military sales (FMS) has become, and will continue to be, an
important tool used to implement U.S. foreign and national security policies.
Approximately 80 percent of foreign military sales are
government-to-government transactions. The
remaining 20 percent of sales are conducted as direct commercial military sales
by U.S. defense contractors to foreign governments.
FMS is one of several U.S. security
assistance components governed by U.S. statutes.
The legislative cornerstones of FMS are the Foreign Assistance Act of
1961, as amended, and the Arms Export Control Act of 1976, as amended.
The development and management of the U.S.
security assistance programs involves the active participation of several U.S.
government departments and agencies. The
Department of Defense however, is most directly involved in the implementation
of FMS programs.
The process of FMS management begins with a
foreign government's request for Planning and Review or Price and Availability
data. It culminates in the
signature of a Letter of Offer and Acceptance, which serves as a contractual
document between the foreign purchaser and the U.S. government.
Under the FMS credit financing program,
foreign countries are given the opportunity to purchase defense items that might
otherwise be impossible for them to acquire due to economic constraints.
Learning Objectives
After completing this module, students
should be able to--
1.
Name
the U.S. government branches, departments and agencies involved in the
development, implementation, and management of FMS programs, and briefly
describe their roles;
2.
Describe
the categories of items and services that can be sole under FMS;
3.
Define
the basic types of foreign military sales; and
4.
Explain
the different methods of FMS financing.
MODULE 4
FOREIGN MILITARY SALES FINANCING
Abstract
Several U.S. government agencies are
involved in the FMS funding process. The
State Department, which represents the executive branch's position, provides an
estimate for the dollar value and quantity of defense articles/services for
individual foreign countries for the upcoming fiscal year.
Upon review, Congress authorizes and appropriates dollar ceilings for the
FMS credit program. The State
Department, with input from the Department of Defense and the Treasury,
determines the individual country loan amounts.
The Defense Security Assistance Agency (DSAA) is responsible for
administering the FMS financing program.
A number of factors determine a foreign
country's eligibility for FMS financing, including the availability of
alternative financing methods, the current level of U.S. military and economic
assistance received, and the amount of indigenous private financing available.
FMS financing is used to assist countries in purchasing major defense items
manufactured in the United States and classified as either "investment
items" or "major attrition items."
FMS financing of commercial sales of defense
articles and services with U.S. contractors requires DSAA approval, which is
offered on a case-by-case basis. DSAA
approval criteria are similar to that of FMS financing for a
government-to-government transaction. However,
there are specific policies and procedures outlined in the FAR and the Security
Assistance Manual that govern the use of FMS loans for direct commercial
contracts between U.S. industry and foreign countries.
Learning Objectives
After completing this module, students
should be able to--
1.
Describe the FMS funding process from a Congressional
appropriations point of view and define the roles that the U.S.
government agencies play;
2.
Define
and differentiate the types of FMS financing;
3.
Describe
the role of DSAA in the implementation and management of FMS financing; and
4.
Enumerate
the country and defense item eligibility criteria employed by DSAA to determine
who and what will receive FMS financing.
MODULE 5
CONTRACTING STRATEGIES I
Abstract
The government has encountered continuing
problems in using competition in procuring developmental items.
Yet there is a considerable body of data indicating that the effective
use of competition at all stages in the acquisition of such items can reduce
costs and improve quality.
The "traditional" strategy for acquisition of
developmental items has consisted of three phases--concept formulation,
full-scale engineering development, and production.
Under this three-step strategy, competition was used only during the
first phase.
In the 1960s and '70s, government procuring
agencies experimented with a number of different ways to introduce competition
into the production phase of the acquisition process. These second sourcing procedures occurred through
leader-follower procurements, licensing, and furnishing technical data packages.
In the 1970s, competitive prototyping was
introduced as a means of carrying competitive procedures into the developmental
process. This deferred the
selection of the full-scale engineering development contractor until test
results were obtained on the competitive prototypes.
In the 1980s, there have been several
experiments introducing competition into the development process by awarding
dual development contracts and continuing competition through the production
process. There are no conclusive
results on the success of these new techniques.
Learning Objectives
After completing this module, students
should be able to--
1.
Describe
the phases of the acquisition process for developmental items;
2.
Understand
the various techniques available to bring second sources into the production
phase of a developmental item;
3.
Evaluate
the techniques available to create nonproprietary technical data packages;
4.
Devise
the best strategy for maintaining competition after a second source has been
established;
5.
Understand
how competitive prototyping is used in the acquisition of developmental items;
and
6.
Evaluate
the new techniques that are being used to introduce competition into all phases
of the acquisition process.
MODULE 6
CONTRACTING STRATEGIES II
Abstract
The make-or-buy program institutionalizes a
contractor's basic business decision in supplying parts as part of a government
contract. Because a make-or-buy
decision is part of the contractor's internal management plan, the government
will generally only questions a decision that appears to be contrary to its
interests.
A multiyear contracting strategy is
initiated by the government and has investment implications for all parties
concerned. Multiyear contract
candidates must meet several minimal criteria in order to ensure an acceptable
balance of benefits and risk.
Options are also government-initiated but
pose a business risk to the contractor alone.
The FAR offers some protection for the contractor and limits the use of
options in situations that warrant further competition.
Acquisition streamlining addresses changes
to the administrative framework and organization structure of the acquisition
process, and has met with strong resistance.
Contractors are invited to participate in acquisition streamlining
through individual acquisition programs.
One critical aspect of acquisition
streamlining is the adoption of commercial purchasing methods and the use of
commercial products in government purchasing.
These methods require preaward and postaward considerations including
total quality management (TQM) to ensure acceptable end products and services.
TQM is applicable to individual acquisitions, and is an appropriate tool
for managing the federal acquisition process itself.
Learning Objectives
After completing this module, students should be
able to--
1.
Describe the solicitation submission requirements for a make-or-buy
program;
2.
Explain
why multiyear contracting has an investment impact on both the government and
the contractor;
3.
Discuss
the criteria that are stipulated by law as necessary for DoD multiyear contract
candidates;
4.
Evaluate
option terms and conditions to determine the degree of contractual risk, and
negotiate, if possible, a reduction in the risk;
5.
Understand
why worthwhile management and acquisition strategies such as acquisition
streamlining and commercialization of the federal procurement system have been
slow to materialize; and
6.
Use
the brief discussion on total quality management as a springboard for further
study.
MODULE 7
TEAMING AGREEMENTS
Abstract
The use of teaming agreements in government
defense contracting is basically a marketing technique that combines
complementary capabilities of two or more companies. Teaming agreements can be written or oral, exclusive
(binding) or non-exclusive (optional). They
can be formed between companies that are prime contractors to the government, or
between a company that is usually a prime and one or several companies that
normally act as subs.
A variety of regulatory and statutory
limitations can hinder the formation of a particular agreement. Certain certification requirements apply to all government
contracts and can pose technical compliance problems for contractors submitting
a proposal within the framework of a teaming agreement.
The application of antitrust laws to teaming agreements of defense
contractors is confusing, with little case law available from which to draw
practical legal conclusions. It is certain however, that where antitrust laws do apply,
they impose stiff civil and criminal penalties for both individual and corporate
violators.
For these reasons, and because the structure
of the teaming agreement itself may have far-reaching legal consequences
affected by federal procurement, antitrust, and even state laws, it is essential
to have a company lawyer review all aspects of proposed teaming agreements.
Learning
Objectives
After completing this module, students
should be able to--
1.
Identify
the various classifications of teaming agreements;
2.
Describe
why teaming agreements are formed;
3.
Discuss
limitations and disadvantages of teaming agreements;
4.
Recognize the value of some typical terms used in structuring teaming
agreements within the federal procurement community;
5.
Explain
the necessity of working closely with your company's lawyer when structuring teaming agreements; and
6.
Describe
some general guidelines in the application of
federal antitrust laws to government contractor teaming
agreements.
MODULE 8
COMPLEX PRICING ISSUES
Abstract
The growing complexity of government
requirements and the increasing price tags that accompany them have dictated
close scrutiny of contractors' accounting methods, and the submission of cost
and pricing data to the government. FAR
Parts 30 and 31 offer essential guidelines in developing these data and address
the allocability and allowability of costs.
In 1970 Congress established the Cost Accounting
Standards Board and directed it to develop uniform cost accounting standards
applicable to government contracts. Before
it folded in 1980 (to be eventually reinstated in 1999), the CASB developed a
requirement for disclosure statements that describe a contractor's accounting
methods. The CASB's role continues
to expand in spike of the expensive public and private industry criticism that
has surrounded it and the policies it has developed.
A variety of generally accepted accounting
principles can be applied to government contracts, including accounting and cost
systems, cost estimating systems, and material management and accounting
systems. The FAR, DFARS, and
Defense Contract Audit Agency Contract Audit Manual offer extensive guidance on
developing and implementing these systems.
In an effort to encourage the government to
decrease its surveillance of contractor auditing procedures, DoD and members of
the defense contracting community developed the Contractor Risk Assessments
Guide (CRAG) Program. CRAG outlines
several risk areas that contractors need to pay special attention to, and offers
suggestions for control procedures in these areas. CRAG was introduced in 1999 and has several obstacles to
clear before it is fully accepted by both the government and the private defense
contracting industry.
Advance agreements negotiated
between contractors and the government provides an annual spending ceiling for
independent research and development (IR&D) and bid and proposal (B&P)
costs. These agreements protect the
government from cost mischarging, and assure the contractor that it will recover
its IR&D/B&P costs on government contracts.
Allowability of precontract costs continues to
present problems for the government, contractors and boards of contract appeals.
Contracts that require the development of
special test equipment (STE) and special tooling (ST) have presented problems to
government and contractors in the areas of cost recovery and acquiring title to
these items. Recent revisions to
the FAR offer more extensive coverage on these areas than in the past, and
further address questions of government-furnished ST and STE and equitable
adjustments; DFARS offers coverage for DoD-specific ST and STE.
Learning Objectives
After completing this module, students
should be able to--
1.
Explain
the difference between "allocable" and "allowable" as these
terms pertain to cost elements;
2.
Understand
the cost principles and procedures of FAR Part 31;
3.
Understand
the purpose and extent of the Cost Accounting Standards and the Cost Accounting
Standards Board;
4.
Explain
cost accounting systems, cost estimating systems, and material management
accounting systems;
5.
Describe
the objectives of the CRAG program and outline the five risk areas the CRAG
Guide defines, and the major controls for each area;
6.
Identify
the complex pricing issues associated with IR&D and B&P costs, and know
when it is advisable to enter into an
advance
agreement with the government and how to negotiate such agreements.
7.
Understand
the effects of recent revisions to the FAR clauses relating to special tooling
and special test equipment; and
8.
Outline
the FAR considerations that address the government's option to acquire title to
ST or STE.
MODULE 9
ETHICS IN FEDERAL CONTRACTING
Abstract
As a result of media attention to
"horror stories" of misconduct within the government and private
sector, there has been a recent avalanche of new legislation and administrative
rules added to the long-standing rules on ethical conduct in government
contracting practices.
These mandates address conflicts of
interest, use of insider information, unethical business practices, employment
practices of government contractors, the use of improper influences in
connection with government contracts, avoiding discriminatory conduct, and
upholding environmental responsibilities, to name a few.
One new legislative idea is the
self-governance program, which enlists government contractors to voluntarily
police themselves in return for favorable consideration by government
enforcement agencies.
Some specific ethical violations occur more
frequently than others in government contracts. Product substitutions, false statements and certifications,
labor and material cost mischarging, and progress payment fraud continue to head
the list of ethical violations year after year.
Learning Objectives
After completing this module, students
should be able to--
1.
Explain how ethical standards affect government customers and commercial
customers differently;
2.
Relate
the more common violations of ethical standards in government contract
practices;
3.
Describe
the self-governance program, including some of the problem areas inherent to its
administration;
4.
Recognize
some of the remedies for violation of ethical standards; and
5.
Discuss
recent legislation enacted regarding procurement integrity.
MODULE 10
SPARE PARTS PROCUREMENT
Abstract
Spare parts procurement has two distinct
phases--initial spares (provisioning), and replenishment spares to maintain
stock levels. A prime contractor will participate in the planning stages of
provisioning a major system by attending provisioning conferences and submitting
a recommended parts list; a subcontractor will provide input for a recommended
parts list and will possibly attend provisioning conferences with the prime
contractor.
Spares Acquisition Integrated with Production (SAIP)
uses the economics of scale in the production process by confining spares
procurement with the procurement of identical items used in the production of
the end-item. Several factors must
be considered before SAIP is used.
"Breakout" of spare parts from the
prime contractor for competitive procurement is a consideration in both
provisioning and the replenishment spares acquisition process, although it is
more significant in the latter.
The quality problem in spares has
historically been a result of the magnitude of the number of parts.
A new DoD quality concept,
"total quality management," underscores
early identification and control, rather than hunting down and correcting
defects. DoD sees the main obstacle
to this concept as the mindset of contractor and government personnel in the
current acquisition process.
A fair and reasonable price for a spare part
is one that is close to what it is likely to cost the seller to make or
otherwise acquire the part, or a price that approximates the value of the part.
Price analysis for spares relies heavily on statistical sampling and
formula pricing methods.
Learning Objectives
After completing this module, students
should be able to--
1.
Discuss the effects of the spare parts scandals on the spare parts
procurement process;
2.
Define
the distinct phases and factors in spare parts
3.
Explain
the difference in procedures for breaking out initial spares versus
replenishment spares from the prime contractor of the major system;
4.
Describe
the quality problem in spares contracting and what DoD is doing about it; and
5.
Enumerate
some of the unique methods contractors may use to price spare parts and
negotiate them with the government.
MODULE 11
EXPORT CONTROL OF EQUIPMENT AND TECHNOLOGY
Abstract
The Export Administration Act--implemented
by the Department of Commerce--and the Arms Export Control Act--administrated by
the State Department (Offices of Munitions Controls)--serve as the primary basis
for the U.S. Export Controls. The
Export Administration Regulations and the International Traffic in Arms
Regulation (ITAR) are the respective implementing mechanisms.
The Department of Defense and other government agencies maintain an
interest in export control administration and implementation.
The first step in complying with export
licensing regulations is to determine whether a product, technical data, or
software is controlled, and to identify the ultimate end-use and end-user of the
goods or data. The Commodities
Control List, U.S. Munitions List, and Military Control Technology List classify
the commodities, defense items, and strategic technology respectively, that
require special licenses.
Technical data presents particular problems
according to how it is defined and "exported," and how licensing
requirements are determined. Technical
data may be tangible or intangible. It
may be "exported" via actual shipment or transmission outside of the
United States, or through visual inspection, oral communication, or its
application to situations abroad.
The United States also imposes controls on
the re-export of U.S.-origin goods and technical data from foreign countries.
These controls cover finished end-products and, under certain
circumstances, U.S.-origin parts and components incorporated into end-products
that are manufactured abroad.
Export controls are dynamic in nature and
can neither be perfect nor permanent. However,
in spite of their essential role in maintaining security controls on strategic
technology, they have also been responsible for lost sales and business deals
rejected.
Learning Objectives
After completing this module, students
should be able to--
1.
Describe the legal structure of the executive branch's export control
authority;
2.
Describe
differences between general and validated licenses;
3.
Define
the following:
a.
Commodity
Control List
b.
U.S.
Munitions List
c.
Military
Control Technology List
4.
Identify
and use ITAR terminology; and
5.
Explain
the role of multilateral national security export controls.
MODULE 12
THE EUROPEAN COMMUNITY--2002
Abstract
Two diverse points of view have emerged in the
examination and analysis of the anticipated economic reforms of 2001 in the
European Community, namely--
1.
The economic unification of the European countries is fundamentally the
greatest market opportunity to develop in the last 60 years.
2.
This
unification spells the termination of market opportunity for non-community
members.
Independent of either of these points of view, it
is clear that the global market will change, and it is prudent to examine the
anticipated legal and commercial rationalizations that will be required in order
to participate and succeed in the new marketplace.
When we realize that, as a trading block, the
Community's share of world trade is greater than that of the United States, it
becomes clear that international trade is the foundation--real or perceived--of
the Community's world-policy for international relations.
Learning Objectives
After completing this module, students should be
able to--
1.
Recognize
the member nations of the 2001 European Community, and the institutions that
bind them;
2.
Cite
and discuss the more important implications of the European Community on the
world market;
3.
Discuss
the strategies needed to prepare a market plan for operating in the EC.
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