DFARS CASE 2003-D009 Payment and Billing Instructions Roseann Hurst Contract Pay Systems Branch Commercial Pay Business Line Defense Finance and Accounting Service March 2005

Integrity - Service - Innovation Presentation Outline Background Local Clause Review Oldest Funds First Example Local Clause Problems Purpose Major Changes Benefits Additional Information Today we’ll be discussing the... background behind DFARS Case 2003-D009 purpose of DFARS Case 2003-D009, major changes you’ll see as the result of this case, benefits that will be realized from the implementation of this case, and finally where you can obtain additional information about this case. Payment and Billing Instructions (DFARS Case 2003-D009) (Comments due August 24, 2004) Proposed change improves contract payment and billing instructions. The changes include: (1) addition of a clause addressing contract line item information needed in financing and interim payment requests; (2) amendment of Material Inspection and Receiving Report instructions to address electronic submissions; and (3) relocation of text addressing distribution of contracts and numbering of contract line items to the new DFARS companion resource, Procedures, Guidance, and Information (PGI). In addition, to eliminate the need for non-standard local payment clauses, PGI will contain a menu of standard payment instructions from which the contracting officer will make a selection for inclusion in Section G of the contract. A proposed rule describing the purpose and structure of PGI was published on February 23, 2004 (DFARS Change Notice 20040223). 03/18/2005 Integrity - Service - Innovation

Integrity - Service - Innovation Background Working group established Conducted review of local payment clauses Provided recommendations The contract payment process is complex with many types of payments (e.g. delivery payments and various types of contract financing payments). Payment clauses are required to reflect the negotiated agreement with the contractor and instruct DFAS how they should make payments. Many of these clauses are standardized within the FAR (Federal Acquisition Regulation and DFARS (Defense Federal Acquisition Regulation Supplement). Standard clauses permit DFAS to program their systems and avoid manual intervention. Many buying activities construct and negotiate unique payment provisions known as local payment clauses. These clauses are not programmed into the DFAS systems and therefore require manual intervention on the part of DFAS. In 2002 an interagency (DFAS, DCMA, USD(C), USD(AT&L)(DP)) working group was established to review the use of local payment clauses and make recommendations for reducing them. 03/18/2005 Integrity - Service - Innovation

Background: Local Clause Review No clear guidance on constructing payment instructions resulted in numerous non-standard clauses a. The paying office shall ensure that the voucher is disbursed for each ACRN in sequential order beginning with ACRN AA. The review found that agency-specific (local clauses) were in use primarily because there was no DoD “standard” for constructing such clauses. And the review also determined that although the instructions were unique depending on service and buying activity, the majority of the clauses were just variations of the same clause. DFARS 204.7107(e)(3) provided the only guidance on constructing payment instructions and it was vague. As you can see from these few examples some of these instructions appear to be saying the same thing they’re just doing it differently. 03/18/2005 Integrity - Service - Innovation

Background: Oldest Funds First Example Using the “oldest ACRN/oldest funds first” citation how would you pay this? AA 97X4930.5CK0 01 O.C. 26 S33150 AB 17 4 1810 A1GW 312 SA SWS 0 068342 2D 000000 GW038 000 0000 AC 57 43600 294 ETL7 675011 000000 59200 35910F 503000 F03000 AD 21 42020000046N6N7HP4230122516 S01021 Take a look at the 4 accounting lines on the screen and think for a minute how you would pay this if you were a payment technician at DFAS. Some things to consider would be; Does oldest ACRN mean the ACRN that was put on the contract first? If so, then ACRN AA should be used first. Does oldest funds mean the appropriation with the oldest fiscal year? If so, then how should ACRNs AB, AC, and AD be disbursed since they all have the same fiscal year? Where does ACRN AA fit in since it has an “X” for a fiscal year?” These are all things that need to be considered and when the instructions are not clear you’ll end up with a misapplied payment. In any case, if you’re goal is to prevent the funds from canceling then you’ll want to consider the type of funds as well as the fiscal year of the appropriation. [CLICK THE MOUSE ONCE TO MAKE EACH LINE APPEAR] 1st AD 21 42020 (O&M 1-year funds) 2nd AC 57 43600 (RDT&E 2-year funds) 3rd AB 17 4 1810 (Procurement 3-year funds) 4th AA 97X4930 (Revolving No-year funds) 03/18/2005 Integrity - Service - Innovation

Background: Local Clause Problems Use of numerous non-standard clauses results in… Manual handling of payment requests Increase in payment error rate Increase in payment processing time Increase in operating costs Increase in payment error rate Clerks must find, review, interpret, and implement Prone to errors of interpretation or application Increase in payment processing time - affects: DFAS Contracting Officers (DD Form 1716, Contract Data Package Recommendation/Deficiency Report) Contractors Increase in operating costs for: Services and agencies Since local payment clauses are non-standard the problems associated with them all have one thing in common, THEY COST YOU MONEY!!!!! 03/18/2005 Integrity - Service - Innovation

Integrity - Service - Innovation Purpose Modify DFARS to implement working group recommendations to include a standard set of payment instructions that… Will reduce the need for local clauses Can eventually be programmed into DFAS payment systems Incorporate several noncomplex DFARS transformation proposals DFARS Case 2003-D009 was developed as a result of the recommendations from the working group to add standardized payment and billing instructions in the DFARS to eliminate the problems encountered with the local payment clauses. In addition, several noncomplex DFARS transformation proposals were also included in this case. DFARS Transformation is a major DoD initiative to dramatically change the purpose and content of theDFARS. The transformed DFARS will contain requirements of law, DoD-wide policies, delegations of FAR authorities, deviations from FAR requirements, and policies/procedures that have a significant effect on the public. Our objective is to improve the efficiency and effectiveness of the acquisition process, while allowing the acquisition workforce the flexibility to innovate. Additional information on the DFARS Transformation initiative is available at http://www.acq.osd.mil/dpap/dfars/transf.htm . Anticipate DPAP submission by 2/15/2005. 03/18/2005 Integrity - Service - Innovation

Integrity - Service - Innovation Major Changes Requires that payment instructions be provided for all contracts that… Include contract line items funded by multiple accounting classification citations, Contain cost-reimbursement line items, or Authorize financing payments Improves contract payment instructions by providing a standard list the contracting officer can select from for inclusion in section G Relocates information to the new DFARS companion resource, Procedures, Guidance, and Information (PGI) Establishes a new billing instructions clause for contract financing and interim payments under cost-reimbursement service contracts Proposed change improves contract payment and billing instructions. The changes include: (1) addition of a clause addressing contract line item information needed in financing and interim payment requests; (2) amendment of Material Inspection and Receiving Report instructions to address electronic submissions; and (3) relocation of text addressing distribution of contracts and numbering of contract line items to the new DFARS companion resource, Procedures, Guidance, and Information (PGI). In addition, to eliminate the need for non-standard local payment clauses, PGI will contain a menu of standard payment instructions from which the contracting officer will make a selection for inclusion in Section G of the contract. A proposed rule describing the purpose and structure of PGI was published on February 23, 2004 (DFARS Change Notice 20040223). 03/18/2005 Integrity - Service - Innovation

Integrity - Service - Innovation Benefits Eliminate guesswork utilized today Reduce prevalidation delays/rejects Reduce reconciliation effort Reduce the dollars provided due to cancelled funds and interest Facilitate Electronic Processing Since the DFARS PGI will contain standard clauses the benefits associated with them all have one thing in common, THEY CAN SAVE YOU MONEY!!!!! 03/18/2005 Integrity - Service - Innovation

Additional Information Federal Register Notice and Rule Verbiage http://www.acq.osd.mil/dpap/dfars/changes.htm Procedures, Guidance and Information (PGI) http://www.acq.osd.mil/dpap/dars/pgi/ DFARS Transformation http://www.acq.osd.mil/dpap/dfars/transf.htm The most recent update for this case said that on 03/02/2005 the DAR editor requested DoD approval to publish draft final rule. 03/18/2005 Integrity - Service - Innovation

Your Financial Partner @ Work DFAS Your Financial Partner @ Work Thank you for your attention and now I’ll try to answer any questions you might have.