Risk Management and the Contractor’s Property Management System IND 205 Risk Management Risk Management and the Contractor’s Property Management System

IND 205 Risk Management TLO #13: Given the requirement to manage Government Property under a contract, analyze risk management as it applies to Government Property.

IND 205 Risk Management ELOs: What is the RISK to the Government? ELOs: 1. Discuss a risk associated with the Contractor not complying with FAR 52.245-1. 2. Outline the Risk Management Process (Identification, Analysis, Mitigation Planning, Mitigation Implementation, & Tracking) with respect to Government Property. 3. Discuss the risk mitigation method for managing Government Property. 4. Define “avoid” within the context of risk mitigation. 5. Define “assume” within the context of risk mitigation 6. Define “transfer” within the context of risk mitigation. 7. Define “control” within the context of to risk mitigation.

IND 205 Risk Management ELOs: 8. Explain how the Contractor’s Property Management System serves as a Risk Mitigation System. 9. Discuss how doing an inadequate audit may affect risk to the Government. (Note: Audit case, General Dynamics). 10. Define each of the following terms: a. Low Risk; b. Medium Risk; and c. High Risk. 11. Provide at least one example of Low Risk; Medium Risk; and High Risk as it applies to the contractor’s Property Management System. Medium Risk

IND 205 Risk Management What is Risk? Risk is a negative, future event that may cause an execution failure in a program or system (Property Management System). It is possible to estimate the probability of the future event occurring as well as the consequence. The accuracy of the estimate will depend upon the quality and quantity of the information available. With respect to Contract Government Property, there is a negative future event that can cause an execution failure in a program. It is the loss of Government Property.

Government Property Losses IND 205 Risk Management FAR 52.245-1 “Loss of Government property” means unintended, unforseen or accidental loss, damage, or destruction of Government property that reduces the Government’s expected economic benefits of the property. Loss of Government property does not include occurrences such as purposeful destructive testing, obsolescence, normal wear and tear, or manufacturing defects. Loss of Government property includes, but is not limited to— (1) Items that cannot be found after a reasonable search; (2) Theft; (3) Damage resulting in unexpected harm to property requiring repair to restore the item to usable condition; or (4) Destruction resulting from incidents that render the item useless for its intended purpose or beyond economical repair. Government Property Losses

IND 205 Risk Management Risk vs Issue A risk is a negative future event. It is something that has not yet happened. When a risk occurs it becomes an “issue.” An “issue” is a risk that has already occurred and is something that you will now have to deal with.

Root Cause Analysis of the Risks identified IND 205 Risk Management The Risk Management Process Risk Identification Risk Tracking Risk Analysis Root Cause Analysis of the Risks identified Risk Mitigation Planning Risk Mitigation Implementation This is a Process and not an event

IND 205 Risk Management Risk Mitigation Approaches: Avoid Eliminate likelihood or consequence Assume Plan for expected consequences Transfer Transfer work to an organization better qualified to perform the work Control (Handle) Reduce likelihood or consequence

IND 205 Risk Management Risk Mitigation Approaches for Contract Government Property: Avoid: The Government will not provide property to Contractors. Assume the Risk: The Government assumes the liability (risk of loss) for Government Property and hopes that it will not happen but they plan for it in case it does. Transfer the Risk: The Government transfers the liability (risk of loss) to the Contractor. Let the Contractor worry about it. The risk is transferred to the Contractor when the CO disapproves the Contractor’s Property Management System. Control: This happens when the Government requires (via the contract and FAR 52.245-1) the Contractor to have a system to manage (control, use, preserve, protect, repair and maintain) Government property in its possession.

IND 205 Risk Management The Contractor’s Property Management System is really a Risk Mitigation System. It is a way to reduce the risk of loss of Government Property when it is in the contractor’s possession. The emphasis of this system is to have the Contractor “control” the Government property, which is to reduce likelihood or consequence that a loss will occur. The Government will accept the risks associated with the loss of Government Property as long as the contractor complies with the requirement (as specified in the contract). The Contractor shall have a system of internal controls to manage (control, use, preserve, protect, repair and maintain) Government property in its possession.

IND 205 Risk Management FAR 52.245-1(f) Contractors shall establish and implement property management plans, systems, and procedures at the program, site, or entity level to enable the following outcomes: Acquisition of Property Receipt of Government property (identify) Records of Government property Physical inventory Subcontractor control Reports Relief of stewardship responsibility Utilizing Government property (consume, move, store) Maintenance Property closeout (disposing of Government property)

Property Management System Procedures IND 205 Risk Management The Contractor’s Property Management System must satisfy the requirements of the contract and FAR 52.245-1. The Contractor shall initiate and maintain the processes, systems, procedures, records, and methodologies necessary for effective and efficient control of Government property. The system shall be consistent with customary commercial practices, voluntary consensus standards, or industry practices. Property Management System Procedures Contract Requirements

IND 205 Risk Management Assuring Control of a Contractor’s Property Management System FAR 52.245-1(b) The Contractor shall establish and maintain procedures necessary to assess its property management system effectiveness, and shall perform periodic internal reviews surveillances, self assessments, or audits. Significant findings or results of such reviews and audits pertaining to Government property shall be made available to the Property Administrator.

IND 205 Risk Management Assuring Control of a Contractor’s Property Management System FAR 52.245-1 (g) Systems analysis. (1) The Government shall have access to the contractor's premises and all Government property, at reasonable times, for the purposes of reviewing, inspecting and evaluating the Contractor's property management plan(s), systems, procedures, records, and supporting documentation that pertains to Government property. This access includes all site locations and, with the Contractor’s consent, all subcontractor premises.

IND 205 Risk Management Consequence of having a disapproved Property Management System: (iii) System disapproval, if the Contracting Officer determines that one or more significant deficiencies remain. (e) If the Contractor receives the Contracting Officer’s final determination of significant deficiencies, the Contractor shall, within 45 days of receipt of the final determination, either correct the significant deficiencies or submit an acceptable corrective action plan showing milestones and actions to eliminate the significant deficiencies.

IND 205 Risk Management Consequence of having a disapproved Property Management System: (f) Withholding payments. If the Contracting Officer makes a final determination to disapprove the Contractor’s property management system, and the contract includes the clause at 252.242-7005 <http://www.acq.osd.mil/dpap/dars/dfars/html/current/252242.htm> , Contractor Business Systems, the Contracting Officer will withhold payments in accordance with that clause. DFARS 252.245-7003 Contractor Property Management System Administration.

IND 205 Risk Management The Property Management System is a “Risk Mitigation” approach which reduces the probability of a risk becoming an “issue.”