CMC200 FEES, FINANCING, AND PAYMENTS CMQ101 - Course Introduction 9/15/2018 CMC200 FEES, FINANCING, AND PAYMENTS Module 1: Fixed-Price Payment and Financing Lesson 2: Fixed-Price-Incentive Contract Payment and Financing Requirements

Lesson 2 Introduction: TLO Given a Government Fixed-Price-Incentive contract and/or modification(s) to a Government contract, apply price revision requirements as needed. Graphic: circle stamp with text, ‘ESSENTIAL’.

What’s In It For Me (WIIFM) This lesson will provide you with basic information to perform contract administration on Fixed-Price-Incentive (FPI) contracts.

Lesson 2: ELO Given a Government Fixed-Price-Incentive contract and/or modification(s), correctly implement all DCMA required payment actions.

Lesson 2: Topics CLIN Price and Profit Verification Payment Submittal QLOPS Final Price Process Payment Submittal Verification

Topic 1: CLIN Price and Fee Verification CLIN Price and Profit Verification Payment Submittal QLOPS Final Price Process Payment Submittal Verification

CLIN Price and Profit Verification Every FPI contract includes a CLIN that contains an adjustment formula representing the allocation of cost risk between the Government and contractor. The adjustment formula is normally stated as a share ratio Government share + contractor share = 100% of cost risk The percentage will be used to calculate the incentive profit that will be paid to the contractor based on the actual cost of the contract Graphic: scale with text, ’50/50 share ratio’. 50/50 Share Ratio

CLIN Price and Profit Verification, Cont. CMQ101 - Course Introduction 9/15/2018 CLIN Price and Profit Verification, Cont. Graphic: excerpt from a contract. maximum price + incentive profit target cost + incentive profit (target) incentive profit percentage of cost overrun to be subtracted from the contractor’s target profit percentage of cost underrun to be added to the contractor’s target profit Type of Contract 60/40 60/40

Knowledge Review If the contractor underruns an FPI contract, which share ratios would provide the most profit? 30/70 70/30 60/40 40/60

Topic 2: Payment Submittal CLIN Price and Profit Verification Payment Submittal QLOPS Final Price Process Payment Submittal Verification

CMQ101 - Course Introduction 9/15/2018 Payment Submittal Contractor submits interim billings as authorized by the contract Submitted on combo or 2-in-1 invoices Contractor is paid costs that have been incurred to date and should not exceed the target cost Contractor also bills a portion of the fee as a percent of the cost incurred as per the contract and should not exceed the target fee. Quarterly Limitation of Payments Statement (QLOPS) are submitted quarterly

Topic 3: QLOPS CLIN Price and Profit Verification Payment Submittal Final Price Process Payment Submittal Verification

CMQ101 - Course Introduction 9/15/2018 QLOPS: Overview Per FAR 52,216-16 (g) The Contractor submits QLOPS to ACO and a copy to PCO/DCAA within 45 days of quarter’s end CA/ACO analyzes QLOPS ACO takes action to recover overpayments made to the contractor Graphic: hands exchanging documents.

QLOPS QLOPS shall be cumulative from the beginning of the contract and include the: Total contract price of all supplies delivered (or services performed) and accepted by the Government Total costs reasonably incurred (estimated to the extent necessary) Graphic: calculator with receipt tape.

QLOPS, Cont. QLOPS shall be cumulative from the beginning of the contract and include the: Portion of the total target profit that is in direct proportion to the supplies delivered (or services performed) and accepted by the Government Total amount of all invoices or vouchers for supplies delivered (or services performed) and accepted by the Government Graphic: stack of invoices.

QLOPS, Cont. During QLOPS review, note initial estimate of contract cost at completion: Reasons for variances from the initial estimate Potential underrun or overrun conditions Reasons for variances between the QLOPS and cost of items delivered and accepted in progress payments Major subcontracting effort Graphic: man sitting at desk looking at computer monitor.

QLOPS, Cont. ACO should maintain a control record for QLOPS (e.g., Microsoft Excel) Record should be stored in IWMS contract file and contain the following data Fixed-Price Incentive Contract - Quarterly Limitation and Payments Statement (QLOP) Record Contractor:   Contract Number: Date of Initial Acceptance: CLIN(s): Quarter Ending Date Statement Due Date Statement Received Date Technical Review Requested Contractor Overpaid (Y/N) Amount of Overpayment Refund or Credit Offset (R/C) Date of Refund or Credit Offset Other Comments Example only

Knowledge Review What is not part of QLOPS? Contractor’s name Date of initial Acceptance Final costs CLIN

Topic 4: Final Price Process CLIN Price and Profit Verification Payment Submittal QLOPS Final Price Process Payment Submittal Verification

Establishing Final Price Process CMQ101 - Course Introduction 9/15/2018 Establishing Final Price Process The process for computing final FPI contract price is: Contractor submits final statement of costs Audit performed by DCAA or DCMA pricing Government and contractor negotiate to determine final (actual) cost Profit is calculated based on share ratio Final contract price is calculated based on negotiated final costs and final profit When the final profit and final contract price have been established, the ACO/PCO issues a bilateral contract modification

Calculating Final Profit CMQ101 - Course Introduction 9/15/2018 Calculating Final Profit Graphic: text in cursive font: target cost – final cost = cost change x contractor’s share ratio = change in profit + target profit =final profit.

Establishing Final Price Incentive Profit CMQ101 - Course Introduction 9/15/2018 Establishing Final Price Incentive Profit The incentive profit is determined after contract performance. This incentive encourages the contractor to effectively manage the contract costs. Underrun: The contractor earns more profit when they have a cost underrun Overrun: The contractor earns less profit when they have a cost overrun When the final profit and final contract price have been established, the ACO/PCO issues a bilateral contract modification

Calculating Final FPI Contract Price CMQ101 - Course Introduction 9/15/2018 Calculating Final FPI Contract Price Graphic: text in cursive font: final profit + final cost = final price If final price < ceiling price: pay final price If final price > ceiling price: pay ceiling price

Topic 5: Payment Submittal Verification CLIN Price and Profit Verification Payment Submittal QLOPS Final Price Process Payment Submittal Verification

Payment Submittal Verification This example shows how an overrun incentive profit is calculated. Target cost $86,000 Target (incentive) profit $2,900 Target price $88,900 Ceiling price $100,000 Share ratio 60/40 Final cost $90,000 Target cost minus final cost = change in cost $86,000 - $90,000 = -$4,000 Change in cost times contractor’s share ratio = change in profit -$4,000 x 40% = -1,600 Change in profit plus target profit = final profit -$1,600 + $2,900 = $1,300 Final profit plus final cost = final price $1,300 + $90,000 = $91,300

Payment Submittal Verification, Cont. This example shows how an underrun incentive profit is calculated. Target cost $86,000 Target (incentive) profit $2,900 Target price $88,900 Ceiling price $100,000 Share ratio 60/40 1. Final cost $80,000 2. Target cost minus final cost = change in cost $86,000 - $80,000 = $ 6,000 3. Change in cost times contractor’s share ratio = change in profit $6,000 x 40% = $ 2,400 4. Change in profit plus target profit = final profit $2,400 + $2,900 = $ 5,300 5. Final profit plus final cost = final price $5,300 + $80,000 = $85,300

Knowledge Review What are the two parts that make up the final price? Target Cost – Actual Cost Seller’s sharing ratio + Target fee Actual Cost x Seller’s sharing ratio Final Profit + Final Cost

Price Revision Open: ‘Price Revision Group – Student’ from Blackboard. Complete the assignment in the time provided. Discuss with the class.

Price Revision Open: ‘Price Revision Individual – Student’ from Blackboard. Complete the assignment in the time provided. Discuss with the class.

CMQ101 - Course Introduction Questions? Graphic: two red dice, text, ‘Q & A’.

Lesson 2 Summary Fixed-Price Incentive Contract - Quarterly Limitation and Payments Statement (QLOP) Record Contractor:   Contract Number: Date of Initial Acceptance: CLIN(s): Quarter Ending Date Statement Due Date Statement Received Date Technical Review Requested Contractor Overpaid (Y/N) Amount of Overpayment Refund or Credit Offset (R/C) Date of Refund or Credit Offset Other Comments Graphic: Example QLOPS record, final price equation in cursive, stack of invoices.

CMQ101 - Course Introduction 9/15/2018 Up Next Graphic: contract cartoon character with text, ‘NEXT’. Cost-Reimbursement Contract Payments and Financing