Trending Topics in Contract Auditing Presenters: Allen Devine, Senior Manager Dan Smith, Manager Government Contracts

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Objectives Our objective today: Provide trending insights into contract auditing topics Discuss your questions and comments through out the presentation

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Outline We’ll discuss the following topics: Internal policies and procedures Contract Set Up Subcontract Management Terms and Conditions

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Internal Policies and Procedures High level contracting cycle: Each phase requires policies and procedures. – What phase have you seen? Be mindful of each phase during the audit process. NegotiationExecutionClose-Out

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Internal Policies and Procedures Items within the NEGOTIATION phase: Who are some of the key players in the phase? – Sales teams (Customer contracts) – Purchasing teams (Vendor contracts) – Reviewers (Legal/Insurance, Risk, Political) How much authority are these individuals given? – Sales/Purchasing limits – Ability to change or accept terms Who can bind the entity?

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Internal Policies and Procedures Do you have defined roles and responsibilities? Who does what? And how? Sales/Purchasing teams – Understand how much authority is delegated to the teams – Test executed contracts for compliance with that authority Reviewers – Understand policies for required reviews. Legal Review – What can we live with? Risk Management Review – Should we live with it? Political Review Organizational Conflict of Interest checks (gov’t contracts)

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Internal Policies and Procedures Items within the EXECUTION and CLOSE OUT phases: Who are some of the key players in the phases? – Delivery team – Contracts team What are some important considerations – Complying with contract provisions – Finalizing delivery and acceptance

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Contract Set up: Key Elements Entities should maintain sufficient documentation to support requirements of the contract Contract Brief – Should list all those elements that are critical for execution and compliance of the contract – Typically one or two pages – Key elements are clearly stated – Unique requirements are listed out Executed contract Internal approvals documents Key contacts and personnel

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Contract Set up: Key Elements Entities should maintain sufficient documentation to support requirements of the contract, continued Budget Distribution Document – For contracts that contain complex funding or operating requirements – Lists out key sources of funding and expectation of use – Resource commitments at various phases Timeline/Schedule Document – Key milestones and deliverables Electronic or paper storage controls Change management Retention policies

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Subcontract Management Subcontracts have been an area of risk Subcontracts should have the same management process as the prime contracts – Negotiation, Execution, Close-out – Approval of terms and conditions Key issues with subcontracts – Flow down provisions from prime contract – Guarantee of delivery – Ability to terminate Close out of Subcontracts – Necessary to close out prime contract

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Terms and Conditions Terms, Conditions, and Certifications Terms should be reviewed by Legal counsel – Binding agreements Conditions to performance must be maintained during execution of the contract – Is the delivery team complying? Certifications of the entity – Words have meaning!

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Terms and Conditions Terms and Conditions that can have big impacts: Pricing – Providing “most favored” or “lowest rate” Liquidated Damages – Hidden cost to deliverables Invoicing Milestones – Payment dependencies Limitation of Liability and Indemnification – Does the risk of the contract match the reward

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS Terms and Conditions Some terms that have caused issues, continued: Schedules and Milestones – Reasonable deadlines – Dependencies Termination – Ability to cure IP rights – What do we own? – What will they own? Contract Type: T&M, Cost Reimbursable, Fixed Price

Questions and Concluding Remarks Questions?

Questions and Concluding Remarks Thank you for coming!

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. NDPPS The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International