1. LESSON 4 Nonconforming Material
Lesson 4: Safety Stock

2. Lesson Introduction
Given the Defense Contract Management Agency (DCMA) Nonconforming Material (NCM) policy, students will be able to effectively perform surveillance and manage nonconforming material.

3. Lesson Objectives
Upon completion of this lesson, you should be able to:
Interpret Federal Acquisition Regulation (FAR) guidelines pertaining to NCM as they apply to the DCMA.
Distinguish the difference between nonconforming material and nonconforming products/services.
Distinguish the difference between a Variance, pre-production (Deviation) and a Variance, post-production (Waiver).
Distinguish the difference between a critical, major, and minor nonconformance.
Lesson 4: Safety Stock

4. Lesson Objectives (cont.)
Upon completion of this lesson, you should be able to:
Outline the DCMA NCM process.
Identify the responsibilities of DCMA pertaining to NCM.
Identify the responsibilities of the Material Review Board (MRB) in the disposition of nonconformances.
Distinguish the difference between scrap, rework, repair, and use-as-is.
Identify reasons why performing data trend analysis is part of an NCM surveillance plan.
Lesson 4: Safety Stock

5. Lesson Topics This lesson covers the following topics:
Definitions and Authority
Nonconforming Supplies and Services Policy
Documents Frame Our Approach to NCM
DCMA NCM Process
Material Review Board Basics
Surveillance of NCM

6. WIIFM? This lesson is important because:
NCM should be the exception, not the norm.
A Quality Assurance Specialist (QAS) must know how to handle NCM
NCM can occur with any contracted product or service!
More common in complicated and highly detailed endeavors
The QAS’s involvement in NCM situations varies depending on the facility and the nature of the NCM.
As Government agents, QASs have an obligation to drive down nonconformities!

7. Definitions and Authority
Lesson Topics:
Definitions and Authority
Nonconforming Supplies and Services Policy
Documents Frame Our Approach to NCM
DCMA NCM Process
Material Review Board Basics
Surveillance of NCM

8. Topic 1: Definitions and Authority
Key terms
Nonconformance
Nonconforming materials
Nonconforming supplies/services
Deviations/Waivers
Engineering change proposal (ECP)
Material review board (MRB)
Authority
FAR through -9
FAR Part 46: Quality Assurance
FAR Part 52: Solicitation Provisions and Contract Clauses
FAR Part 12: Acquisition of Commercial Items
FAR Part 32: Contract Financing

9. Definitions: Nonconformance
Nonconformance The nonfulfillment of a requirement.
Nonconforming Material Any item, part, supplies, or product containing one or more nonconformances.
Nonconforming Supplies and Services Any supplies or services which do not conform in all aspects to the contract requirements.

10. Definition: Deviation/Waiver
Deviation/Deviation Permit Authorization to depart from a particular requirement.
Requested prior to manufacture/pre-production (product realization)
Waiver/Concession Authorization to use or release a
nonconforming product
Requested after manufacture/post-production
Variance
Refers to all (MRB) nonconformance requests for Waiver or Deviation ……Request for Variance (RFV)

11. Definitions: Engineering Change Proposal
Engineering Change Proposal (ECP) Documentation by which a proposed engineering modification is described, justified, and submitted for approval to:
Current document change authority
Procuring activity

12. Definitions: Material Review Board
Material Review Board (MRB) Supplier’s board consisting of representatives of supplier’s departments necessary to review, evaluate, and determine or recommend disposition of NCM referred to it.

13. Definitions: Types of Nonconformance
Types of nonconformance Nonconformances are categorized as one of three types:
Critical Involves safety and can result in catastrophic failure or loss of life
Major Affects performance, reliability, health,
use, weight/size, or appearance
Minor Does not adversely affect or involve
any factors listed for critical or major
nonconformance

14. Definition: Types and Differences in NCM Disposition
Types and differences in NCM disposition The Government can approve specific actions for NCMs:
Rework Action taken to eliminate a nonconformance
Repair One-time action to make a NCM acceptable for intended use
Standard Repair Documented repair technique that is more cost effective than a rework
Scrap NCM cannot be reworked or repaired
Use-As-Is Material with minor nonconformance(s)
usable for intended purpose

15. Question and Answer
Which of these definitions describes a nonconforming product or service?
The nonfulfillment of a requirement
A product/service realization departure from a contract requirement
Any supply/service that does not conform in all aspects to contract requirements
Any item, part, supplies, or product that fulfills the contractual quality standard

16. Authority (1 of 5)
FAR THROUGH THE END OF PART 52
… f) The Government has the right either to reject or to require correction of nonconforming supplies. Supplies are nonconforming when they are defective in material or workmanship or …
This section defines what constitutes nonconformance.

17. Authority (2 of 5)
FAR PART 46: QUALITY ASSURANCE
… – Subcontracts
– Foreign Governments
– Nonconforming Supplies or Services
– Single-Agency Assignments of Government Contract Quality Assurance …
These sections address nonconformance with regard to QA and special circumstances.

18. Authority (3 of 5)
FAR PART 52: SOLICITATION PROVISIONS AND CONTRACT CLAUSES
... that have been tendered for acceptance. The Government may require repair or replacement of nonconforming supplies or performance of nonconforming services at no increase in contract price.
When repair or replacement is necessary, the supplier must absorb associated costs.

19. Authority (4 of 5)
FAR PART 12: ACQUISITION OF COMMERCIAL ITEMS
... the issue of rejection, the Government always has the right to refuse acceptance of nonconforming items. This paragraph is generally appropriate when the Government is acquiring noncomplex commercial ...
This section extends the Government’s rights of refusal to commercially available items.

20. Authority (5 of 5)
FAR PART 32: CONTRACT FINANCING
… (6) … noncompliances or changes in cost accounting practice. (7) Reinspection costs for nonconforming supplies or services. (8) Duplicate or erroneous payments.…
Keep accurate records when reinspection is needed; work with ACO to recoup costs.

21. Nonconforming Supplies and Services Policy
Lesson Topics:
Definitions and Authority
Nonconforming Supplies and Services Policy
Documents Frame Our Approach to NCM
DCMA NCM Process
Material Review Board Basics
Surveillance of NCM

22. Topic 2: Nonconforming Supplies and Services Policy
FAR : Nonconforming supplies or services
This regulation serves as the basis for DCMA’s disposition and procedures regarding nonconforming goods and services.
The complete regulation is available online:
The bottom line is…
The Government is a customer, and as such:
Expects to receive what it paid for
Is entitled to consideration when it does not receive what it paid for

23. FAR 46.407(a) NCMs are unacceptable!!! However,
The contracting officer should reject supplies or services not conforming in all respects to contract requirements …
However,
“In those instances where deviation from this policy is found to be in the Government’s best interest, such supplies or services may be accepted …”

24. FAR 46.407(b) The supplier is on the hook!!!
The contracting officer must give the contractor the opportunity to correct or replace nonconforming supplies or services … within the required delivery schedule.
The Government reserves the right to:
Charge the supplier for additional costs
Reject NCM
Terminate the contract

25. FAR 46.407(c)(1) When nonconformance is major or critical…
… the contracting officer ordinarily must reject supplies or services … there may be circumstances … when … acceptance … is in the best interest of the Government.
CO makes this determination based on:
Technical advice
Information about the nonconformance
Supplier’s request for acceptance
Recommendation for acceptance, conditional acceptance, or rejection
Contract adjustments

26. FAR 46.407(c)(2) Document everything!!! Communication is key
The cognizant contract administration office … must furnish this data to the contracting officer in writing …
Communication is key
Contract administration office
All involved Government activities
Technical experts
Health officials
Support personnel

27. FAR 46.407(d) QAS can decide to accept/reject minor NCM
If the nonconformance is minor, the cognizant contract administration office may make the determination to accept or reject, except where this authority is withheld …
Better safe than sorry!!!
Don’t make arbitrary (“gut”) decisions
Establish a joint review group for minor NCMs
Base all decisions on rationale and risk
How will the NCM affect form, fit, and function?

28. FAR (e)
Fix the problem!!!
The contracting officer must discourage the repeated tender of nonconforming supplies or services … by appropriate action …
If the problem persists, track it down!
Repeated nonconformances (even minor ones) indicate a problem with the process
Reject and/or document each instance
Maintain performance records
Verify root cause analysis

29. FAR 46.407(f) Paying the price for accepted NCMs
When supplies or services are accepted with critical or major nonconformances … the contracting officer must modify the contract to provide for an equitable price reduction or other consideration …
Can be monetary consideration or additional product/items
Withholdings should cover estimated cost and profit to correct nonconforming materials or services.
For minor NCMs, modify the contract only if supplier’s savings exceed Government’s cost of modifying the contract.

30. FAR 46.407(g) How to handle rejection
Notices of rejection must include the reasons for rejection and be furnished promptly to the contractor … because … acceptance may in certain cases be implied as a matter of law …
The notice must be in writing if:
Rejection occurs at a place other than the supplier’s plant
Supplier persists in providing NCM
Delivery was late without excusable cause

31. Question and Answer FAR 46.407(d) allows the DCMA QAS to do what?
Charge the supplier for additional costs related to NCM.
Adjust the contract to allow minor NCM acceptance.
Cancel the contract if NCM is discovered.
Decide to accept/reject minor NCM.

32. Documents Frame Our Approach to NCM
Lesson Topics:
Definitions and Authority
Nonconforming Supplies and Services Policy
Documents Frame Our Approach to NCM
DCMA NCM Process
Material Review Board Basics
Surveillance of NCM

33. Topic 3: Documents Frame Our Approach to NCM
DCMA’s NCM approach
ISO 9001
MIL-HDBK -61A ANSI/EIA Stnd 649
FAR
DCMA NCM policy
These documents frame DCMA’s approach to NCM.

34. ISO 9001: Quality Management Systems Requirements
DCMA’s NCM approach
ISO 9001
MIL-HDBK-61A
FAR
DCMA NCM policy
Requires:
Quality System
Control of NCM, including identification
Elimination of defect or authorizing its use
NCM records

35. MIL-HDBK-61A, ANSI/EIA 649: Configuration Management
DCMA’s NCM approach
ISO 9001
MIL-HDBK A
ANSI/EIA Stnd 649
FAR
DCMA NCM policy
Configuration Management Standards
Managing Requests for “Variance” or Requests for Deviation

36. FAR 52.246-2: Inspection of Supplies – Fixed Price
DCMA’s NCM approach
ISO 9001
MIL-HDBK-61A
FAR
DCMA NCM policy
Requires system acceptable to the Government
Primary basis of DCMA’s authority to conduct surveillance
Establishes the right to reject NCM or require correction

37. DCMA Nonconforming Material Instruction
DCMA’s NCM approach
ISO 9001
MIL-HDBK-61A
FAR
DCMA NCM policy
Describes integrated DCMA approach for managing the NCM process
Provides multifunctional instructions and protocols for QAS, Engineers, and Contracts

38. DCMA Nonconforming Material Instruction
DCMA NCM policy
NCM MULTIFUNCTION WORKING GROUP
QA, Engineering, Contracting, & Supply Chain
Each functional element must incorporate this approach into their respective surveillance plans

39. DCMA NCM Process OVERVIEW
Lesson Topics:
Definitions and Authority
Nonconforming Supplies and Services Policy
Documents Frame Our Approach to NCM
DCMA NCM Process
Material Review Board Basics
Surveillance of NCM

40. Topic 4: DCMA NCM Process
Develop NCM Plan 1
Review Requests 2
Document NCMs 3
Analyze Trends 4
Update Plans 5
Establish NCM Team & Develop Surv Plan
Conduct NCM Surveillance
Document NCM Surv Results
Analyze NCM trends Reassess Risk
Update NCM Surv Plan
These steps are based on the Nonconforming Materials DCMA Policy Instruction

41. Step 1: Develop NCM Plan
Develop NCM Plan 1
Review Requests 2
Document NCMs 3
Analyze Trends 4
Update Plans 5
NCM plan may be separate or included in the overall surveillance plan.
When developing NCM plan, the QAS should involve:
Administrative Contracting Officer (ACO) [interfaces with Procuring Contracting Officer (PCO)]
Engineers (technical experts)
Multifunctional NCM Working Group approach
Plan should define:
NCM reduction goals
High/Moderate/Low NCM risk surveillance actions
Reporting process (QAS → ACO)
Data to support cost consideration decisions

42. Step 2: Review NCM Requests
Develop NCM Plan 1
Review Requests 2
Document NCMs 3
Analyze Trends 4
Update Plans 5
QAS must review all (100%) NCM Requests for Variance (RFV):
Completeness & Accuracy
Classification: Minor/Major/Critical
Disposition: Use-as-is/Repair
Root cause and corrective action/preventative action plan
Other special circumstances

43. Step 3: Document NCM Submittals and Decisions
Develop NCM Plan 1
Review Requests 2
Document NCMs 3
Analyze Trends 4
Update Plans 5
Review of each MRB RFV considered a Product Exam Document per DCMA Product Examination Policy
ECP/MRB RFV Tracking Log Minimum required data fields - per Policy Instruction
When delegated, summary of submittals/decisions at subcontractor level must be reported from the sub-tier CMO
Delegation eTool contains an area for providing monthly reporting

44. Document NCM Submittals and Decisions
* Sample ECP/RFV Tracking Log with Required Data Fields

45. Step 4: Perform NCM Trend Analysis
Develop NCM Plan 1
Review Requests 2
Document NCMs 3
Analyze Trends 4
Update Plans 5
Analyzes the NCM process as it is being implemented
Identifies recurring issues
Included as part of Data Collection and Analysis (DC&A) plan
Reassess risk based on DC&A results
Must be performed at least Quarterly
(Recommended Monthly)

46. Step 5: Update NCM Surveillance Plans
Develop NCM Plan 1
Review Requests 2
Document NCMs 3
Analyze Trends 4
Update Plans 5
CMO must review NCM Surveillance Plans and Memorandums of Agreement (MOAs)
Compare current NCM Surveillance Plans and MOAs against issues identified in the DC&A trend analysis
Establish NCM reduction goals
Update NCM Surveillance Plans accordingly
QA personnel are not responsible for updating MOA
MOA is an agency requirement on major programs
Program Integrator (PI) updates MOA

47. Question and Answer
The DCMA NCM process specifies that the QAS does what step after developing an NCM Surveillance Plan?
Review 100% of NCM requests.
Document NCMs monthly.
Analyze NCM trends.
Develop NCM reduction goals.

48. NCM Process Responsibilities
Quality Assurance (QA)
Responsibilities for performing the NCM process
Quality Assurance Engineer (QAE)

49. Quality Assurance’s Responsibilities
Responsible for day-to-day NCM and MRB tasks:
DCMA’s primary representative at a facility
Maintain records and provide appropriate reporting
Monitor QA systems
Escalate issues, as warranted
Work with QAE whenever:
Technical evidence is required to support a decision
Repair of an item is considered
Systems are audited

50. Quality Assurance Engineering’s Responsibilities
More commonly involved at major suppliers where:
Product or system being developed is complex
Evaluate and approve new supplier-proposed standard repair procedures (SRPs)
Provide NCM technical assistance:
Formal engineering analysis included with submittal
Fatigue or fracture, ballistic properties, base material properties, or critical characteristics are involved
Classify NCM as minor, major, or critical

51. Dealing With Counterfeit Parts
Counterfeit items are NCM
DCMA’s Contract Integrity Center (CIC) pursues counterfeiting at criminal and civil levels
QAS is obligated to alert CIC of suspected counterfeit
Full details are provided in DCMA Counterfeit Mitigation Policy Instruction
See Counterfeit Checklist policy resource page

52. NCM Disposition: CO Decision Rationale
Contracting Officer (CO) considers:
Advice of the technical activity
Nature and extent of the nonconformance
Request from the supplier
Recommendation for acceptance or disapproval
Appropriate contract adjustment 1 2 3 4 5

53. NCM Disposition: Minor Nonconformance
Contract Administration Office (CAO) can make the determination for minor nonconformances, except where authority is withheld.
CAO can establish a collaborative DCMA/Contractor NCM/MRB RFV review group.

54. Question and Answer
Part of the QA responsibilities to NCM require the QAS to act as DCMA's primary representative at a facility. Of these responsibilities listed, for what two is the QAS responsible? (Select all that apply.)
Evaluating supplier-proposed SRPs
Maintaining records and providing appropriate reporting
Escalating issues, as warranted
Major vice minor

55. Material Review Board Basics
Lesson Topics:
Definitions and Authority
Nonconforming Supplies and Services Policy
Documents Frame Our Approach to NCM
DCMA NCM Process
Material Review Board Basics
Surveillance of NCM

56. Topic 5: Material Review Board Basics
A Material Review Board (MRB) consists of representatives of Supplier’s departments necessary to review, evaluate, and determine or recommend disposition of NCM referred to it.

57. MRB Establishment
MRB membership should balance skills and expertise, normally composed of Supplier representatives from:
Quality Assurance
Engineering
DCMA retains full authority
Photo by Jo Adail Stephenson, DCMA Public Affairs

58. Government Rights DCMA may approve or disapprove:
Procedures, activities, or organization
Standards for control limits
Repair procedures
Quality records and analysis
Standard Repair Procedures (SRPs)
MRB membership
Final dispositions of the MRB

59. Concerning Major or Critical Nonconformances
Review and approval of major or critical nonconformances is outside the scope of MRB.
FAR (d) limits the authority of MRB to minor nonconformances.
Only PCO can accept major or critical nonconformances.
Any action to accept major or critical NCM requires contract modification!

60. Surveillance of NCM Lesson Topics: Definitions and Authority
Nonconforming Supplies and Services Policy
Documents Frame Our Approach to NCM
DCMA NCM Process
Material Review Board Basics
Surveillance of NCM

61. Topic 6: Surveillance of NCM
Product examination
Process review
System audits
Data analysis
Product examination
Process review
System audit
Data analysis

62. NCM Surveillance Product examination Process review
Often required to validate corrective actions
Quality System Audits focus on:
Control of Records
Competency/Training
Internal audits
Control of nonconforming material
Data Analysis

63. NCM Surveillance (cont.)
Data analysis
Useful for adjusting surveillance / redirecting resources
Identification of source(s) of NCM
Drives reduction of NCM
Establish NCM Reduction Goals
Use 3-12 month rolling average as baseline

64. Summary Having completed this lesson, you should now be able to:
Interpret FAR guidelines pertaining to NCM as applicable to DCMA.
Distinguish the difference between:
Nonconforming material and nonconforming products/services.
Variance, pre-production (Deviation) and a Variance, post-production (Waiver).
Critical, major, and minor nonconformances.
Scrap, rework, repair, and use-as-is.
Outline the DCMA NCM process.
Lesson 4: Safety Stock

65. Summary (cont.)
Having completed this lesson, you should now be able to:
Identify the responsibilities of DCMA to NCM.
Identify the responsibilities of the MRB in the disposition of nonconformances.
Identify why part of a NCM surveillance plan is performing data trend analysis.
Lesson 4: Safety Stock

66. NCM Guidance DCMA Policy: Effective Control of Nonconforming Material
DCMA-INST 1207
DCMA Policy Resource Page:
MRB RFV Submittal Process Flowchart
NCM Data Collection & analysis flowchart
NCM/MRB RFV Reduction program process flowchart

67. Exercise: NCM Concurrence
Students work in pairs to determine concurrence with MRB RFV dispositions.
One student open CMQ101_M6_L4_E1_NCMDisposition.pdf.
One student go to next screen for tube drawing.
Review the five MRB submittals by Tubes “R” Us and concur or non-concur with each disposition.
Time: 15 minutes

68. Tube Drawing for Exercise

69. Questions
Before we go on to a few review questions, do you have any questions about what you just learned?

70. Review Question 1
Which term refers to "the authorization to use or release a nonconforming product?"
Variance
Rework
Nonconformance
Engineering Change Proposal

71. Review Question 2
What type of nonconformance "affects performance, reliability, health, use, weight/size, or appearance" but does not involve safety issues or loss of life?
Minor
Major
Critical
Extreme

72. Review Question 3
Which of the following is NOT a responsibility of the MRB in the disposition of a nonconformance?
Reject
Review
Evaluate
Determine

73. Review Question 4
If a one-time action is taken to make an NCM acceptable for intended use, which designation would it receive?
Scrap
Repair
Rework
Use-as-is

74. Review Question 5
Why is performing data trend analysis an integral part of an NCM surveillance plan?
It is required by the MRB
It helps identify the source of the NCM
It helps to forecast future levels of production
It is required to validate the supplier's corrective action