Property Parts 45 & 52 FAR Parts 45 and 52, 2007 Eric Saindon Deputy Director for Government Property Defense Contract Management Agency

Where we are Today  Final Rule Published May 2007  No “philosophical” disputes -- final language consistent with earlier drafts

Background  In the early 1990s, we initiated a complete rewrite of the FAR, Part 45 (Government Property), and its associated clauses.  Current FAR property language was over 50 years old.  Contained inconsistent, conflicting & obsolete guidance  Was at odds with modern materials management technology such as Enterprise Resource Planning, relational databases, unique item identification, radio frequency tags, bar-coding, and the general trend toward commercialization of components  Was not compatible with acquisition reform (i.e., did not allow an environment that fosters efficiency, creativity, and innovation)

…but did you know that:  Over 80% of current FAR (property) language has been eliminated, including fourteen clauses;  Twelve FAR sections (Parts) have been affected;  There are no more property control system approvals;  Part 45 is now strictly limited to requirements placed upon the Government;  That contractors will now be required to have self- assessment; programs for Government property under their control;  A host of definitional changes

FAR Parts Affected  FAR Parts 1, 2, 17, 31, 32, 35, 42, 45, 49, 51, 52 and 53

Things Learned Along the Way  Industry generally does a good job of managing Government-owned assets - Some do a better job than others, but…based on the data (# of unsatisfactory systems, loss, damage, destruction statistics), most contractors perform in a satisfactory manner  Where there is effective asset management, there is usually close collaboration between Government PA and the contractor  Industry embraces modern materials management Life-cycle approach to managing property Government or contractor owned Technology Quality Control (IS0)  Most firms have robust internal control/self-assessment program

Guiding Principles Philosophy of Regulation Writing  Minimize the amount of guidance and avoid issuing regulations unless there is a compelling need to do so; avoid unnecessary or duplicative guidance.  Do not impose non-value added steps to the procurement process such as: imposing unnecessary costs, inhibiting good business practices, or imposing unnecessary actions, reports, reviews, approval/review levels, clauses/provisions, thresholds, or signatures.  Avoid imposing requirements on contractors unless laws, sound business practices, or the protection of the Government's contractual interests require imposing such requirements.

Goals  Provide a framework within which performance outcomes allow for conformity when necessary — and flexibility when needed to achieve best value for the Government  Balance the use of prescriptive regulations that provide consistent outputs with principle-based standards that allow for lean approaches and greater flexibility, efficiency, best value and customer satisfaction  Create an oversight culture where empowered professionals can apply guiding principles, risk management and sound business judgment

Why this time it’s different  Changed the “default”—it accepts and assumes that:  Most contractors can and do adequately control Government Property  Most contractors are honest and want to perform their contractual responsibilities in a capable and efficient manner  Commercial sector/industry practices are adequate for control for Government property  Consistent with FAR Part

Why this time it’s different (Cont.)  The rule leverages proven practices, processes & technology developed by the market place (vs. developing “Government unique solutions”)  Commercial practices include:  Voluntary Consensus Standards (ISO/ASTM)  Contemporary management practices (Lean and Six Sigma)  Technology (ERP)  Modern materials management (life-cycle approach)  Stresses contractor performance* outcomes, e.g., “Here are the standards and practices we are using; here is the research supporting and documenting that process; here are the reasons it provides best value”

Before and After (what you can expect)  Old FAR , Government Property (Fixed-Price Contracts) , Government Property (Cost-Reimbursement, Time- and-Material, or Labor-Hour Contracts)  New FAR , Government Property , Government Property (Installation Operations for Services)

Providing Facilities Providing Material Providing Motor Vehicles Providing Special Tooling Providing Special Test Equipment Providing Government Production and Research Property Providing Agency Peculiar Property (“As Is”) NEW Contracting officers shall provide property to contractors only when it is clearly demonstrated: - To be in the Govt’s best interest; - That the overall benefit to the procurement significantly outweighs the increased cost of administration, including ultimate property disposal; - That providing the property does not substantially increasethe assumption of risk; and - That Govt requirements cannot otherwise be met. Example of How We Reengineered the Language

 Acquisition  Receipt  Records  Physical Inventory  Sub-contractor control  Reports  Utilization  Maintenance  Contract close-out  Acquisition  Receipt  Records  Physical Inventory  Sub-contractor control  Reports  Utilization  Maintenance  Contract close-out “Contractors shall develop property management plans and systems, at the contract, program, site or entity level that reflect their efforts to obtain best value” Contractor Responsibility In accordance with Voluntary Consensus Standards, or in the absence of such standards, Industry leading practices and standards

Voluntary Consensus Standards “Common and repeated use of rules, conditions, guidelines or characteristics for products or related processes and production methods, and related management systems” OMB Circular A-119 Standards used must be adequate for contract performance as determined by the Property Administrator What are They?

Why Voluntary Consensus Standards? The Federal Acquisition Regulations (FAR) Part 11 describes agency needs and addresses the use of Voluntary Consensus Standards in writing the Government's requirements. OMB Circular A-119 and FAR mandate the use of voluntary consensus standards in lieu of Government-unique standards. The use of existing standards provides substantial cost benefits for the Government.OMB Circular A-119FAR The National Technology Transfer and Advancement Act of 1995 (Public Law ), OMB Circular A-199, and FAR Part 12 all mandate the use of Voluntary Consensus Standards in lieu of Government-unique standards

Examples of Voluntary Consensus Standards  ISO an international consensus on good management practices with the aim of ensuring that the organization can time and time again deliver the product or services that: Meet the customer’s quality requirements, and Applicable regulatory requirements, while aiming to enhance customer satisfaction, and Continual improvement  ISO 9000 “Generic” -- applicable to any organization, large or small, product or service, Government or Industry Identification of Processes Written procedures, etc. Ability to audit  American Society for Testing and Materials— 13 standards specific to property management

“The Contractor shall have a system to manage (control, use, preserve, protect, repair and maintain) Government property in its possession. The system shall be adequate to satisfy the requirements of this clause. The contractor shall initiate and maintain the processes, systems, records, and methodologies necessary for effective control of Government property, consistent with voluntary consensus standards and/or industry- leading practices and standards for Government property management.” Contractor Responsibility (cont.)

Why “Industry Leading Practices”?  In cases where Voluntary Consensus Standards do not exist— Industry Leading Practice (ILP) will be used  Similar to current FAR “default” language: (Care, Maintenance and Use) -- “…in accordance with “sound industrial practice” (Records of Related Data and Information) -- “…IAW sound business practice” (ST clause) -- “… IAW sound industrial practice” (Inspection) -- “…IAW commercial practice”  In other words, the contractor’s normal operation; internal work processes—always changing, always improving, always leading

Systems Analysis Performed by DoD Property Administrator The Process  Acquisition  Receipt  Records  Physical Inventory  Sub-contractor control  Reports  Utilization  Maintenance  Contract close-out “ Contractors shall develop property management plans and systems, at the contract, program, site or entity level that reflect their efforts to obtain best value” Performance Outcomes Based on Voluntary Consensus Standards/Industry Leading Practices for Property Management Systems Analysis CONTRACT PERFORMANCE Contract Clause System Corrected, etc. See ASTM Standard See ASTM Standard E-2219 Data Elements

Requirements for Contractor Self-Assessment “ The contractor shall establish and maintain procedures necessary to assess its property management system effectiveness, and shall perform periodic internal reviews and audits. The findings and/or results of such reviews and audits shall be provided to the Property Administrator, upon request. ”

Summary: New Rule  Provides a meaningful regulatory framework-- with straightforward requirements for property management  Eliminates obsolete requirements; updates & clarifies Government policy; strikes the right balance between prescriptive regulations and principle-based standards to allow best value  Shifts the focus from process to results -- will go a long way toward improving quality, price, & performance

Any Questions?