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CONTRACT MANAGEMENT

HIGHLIGHTS PACKAGE

 

 COPYRIGHT DEFENSE PROCUREMENT UNIVERSITY INC:

2002 All rights reserved

 

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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