1 Program Management Systems Committee (PMSC) Contractual Requirements/Issues Sub-Team Update 7 August 2007

2 Sub-Team  Team Members Mike Martin - P&W Rocketdyne (Team Lead) Beverly Solomon - Northrop Grumman Gay Infanti - Northrop Grumman Eleanor Haupt - Consultant to the Institute for Defense Analyses Dave Muzio - MCR Peter Schwarz - MDA Jeff Poulson - Raytheon Linda Nobel - Raytheon Mike Pelkey – OSD Randy Steeno – Boeing Debbie Tomsic – OSD Larry Axtell – OSD Ivan Bembers – NGA Fred Meyer – DCMA EV Center  8 Meetings conducted to date / 1 Face to Face on 12 June  Reviewed all previously identified issues to focus efforts.  Selected highest payback issues.

3 Issues List Contracting IssueApplication Issue TitleIssue #*TitleIssue #* Contract versus EVM System Order of Precedence 2Flow down requirements5a & 5b Integrated and virtual team (badge less) subcontracting / teaming arrangements 5Clarifying thresholds for contracting/subcontracting for follow-on options 5b Subcontractor compliance, validation and surveillance 5Application of reporting requirements 5a & 5b Response time for final reports and system description reviews 5Ownership and control of Management Reserve 3 Communication between EVM and Contracting communities 6IBR Timing4 * See backup charts – pages 7 and 8  Currently working 4 issues.

4 Suppliers have been contractually-directed by customers to depart from their validated EVM Systems to manage their contracts via  Section H – Special Provisions  Section C – Statement of Work requirements  In addition to inclusion of FAR or DFARs EVMS clauses in Section I The central issue is whether and by what means and to what extent can a supplier be rightfully required to violate the requirements of its validated EVM System.  Issue could arise between Customer and Prime and may or may not be flowed down to the Subcontractors  Issue could also arise between Prime and Subcontractors IssueRecommendations Existing contracts:  Issues identified must be resolved, bilaterally, by the buyer and seller  PCO’s and ACO’s must agree with the resolution.  Resolution may involve adjustments to price and/or other changes to the T’s & C’s of the contract. New acquisitions:  Involve all stakeholders in decision-making early in the acquisition process  Suppliers seek clarification of issues identified in RFPs using prescribed process  Issues identified after ATP must be resolved, bilaterally, by the buyer and seller  Conduct communication and training  Conduct RFP reviews within DoD / Primes and engage the EV Center for clarification when necessary Impact  DCMA issuing corrective action request (CAR) to Supplier for failing to follow Supplier’s validated EVMS  This finding appears inconsistent with the Contract Order of Precedence  Supplier cannot unilaterally resolve conflict in the contract nor can Supplier fail to comply with contract requirements Order of Precedence

5 Part I – The Schedule Part II – Contract Clauses Part III – List of Documents, Exhibits, and Other Attachments Part IV – Representations and Instructions (Solicitations only, excluded from the Contract) I) Suppliers EVM System Description J) List of Documents, CDRLs/SDRLs IMS or CPR DIDs C) Description/specifications /statement of work H) Special Contract Requirements EVM SOW text (infrequent) H) Special Provision clauses Order of Precedence – T’s & C’s Contract Example

6  The use of a single EVMS by all program participants to manage large programs involving major subcontractors may be viewed as non-compliant to the DFARS EVMS clause by the new DCMA EV Center –This approach also referred to as badgeless, virtual, or gray badge –Characterized by adoption of a single validated system to manage the effort (typically the prime’s EVMS), use of a common tool set, integrated schedules and performance reporting Issue Impact  Potential of DCMA Corrective Action Request (CAR)  The risk to the Subcontractors’ EVM System validation is still unclear at this time. Recommendations  Contracts Working Group define valid options for EVMS flow down to subcontractors considering: –Different subcontract types –Roles and responsibilities –Validation requirements for prime and subcontractors –Reporting CDRLs (CPR and IMS)  Submit matrix for approval to the full PMSC  Submit for concurrence by OSD and DCMA EV Center  Conduct communication and training  Incorporate guidance into EVMIG  Incorporate modified guidance into NDIA Guides, as required Integrated Subcontract EVMS Implementations

7 Ownership and Control of Management Reserve  Direction has been given to prime contractors and subcontractors to use their Management Reserve (MR) for purposes other than the intent expressed in the ANSI/EIA-748 Standard. –MR is sometimes viewed as a contingency to eliminate in negotiations or to use for out-of- scope work.  Government involvement in MR approval process Issue Recommendations Discussion Impact  Use of MR for out-of-scope work violates accepted contracting procedures and is tantamount to constructive change to the contract.  Improper use of MR distorts the Performance Measurement Baseline (PMB) resulting in skewed data and indices.  Decisions for the use of MR have been the province of the contractor within the confines of its approved use in accordance with the ANSI Standard  Misuse of MR is on the DCMA EV Center “Watch List” as a serious concern.  Contractors should object to direction for the use of MR that deviates from accepted ANSI standard.  Contracting officers and prime should be alert to instances of improper contract direction.

8 Issue Recommendations Discussion Impact  Confusion between Prime and Subcontractors regarding oversight responsibilities.  Implementation responsibility gaps could cause significant compliance issues to go unnoticed.  May drive different implementation policies and procedures (e.g. DoD vs. Non DoD).  Current policy / guidance can be interpreted in a variety of ways.  DCMA’s position is that they are responsible.  Industries position is that they are responsible.  Represents a paradigm shift in the Prime / Subcontracting relationship. Subcontractor Compliance, Validation and Surveillance  There is confusion regarding the responsibility of subcontractor Compliance, Validation and Surveillance. Inconsistency between EVMIG, ANSI and DCMA Policy. DCMA? or Prime Contractor? < $20M > $20M - < $50M > $50M  Conduct a formal workshop with DCMA EV Center and Industry Reps  Results of workshop would require the development and / or modification of policy / guidance.

9 Path Forward  Understand stakeholders positions  Include DCMA EV Center, DoD and Industry Contracting SMEs to discuss our primary issues  Consider “Unintended Consequences”  Further Define and Prioritize Issues  Seek Corporate Guidance  Achieve consensus  Communicate, Communicate, Communicate Develop and publish articles Personal presentations Revise Requirements as needed