# Presentation: 115447

## Program/Project ManagementGovernment Specific Course II 

## Module 10 – Contract Management

## Topic 1- Introduction and Objectives 

## Introduction 

- The post-award phase of contracting encompasses all of the functions necessary to execute the contract.  This phase is divided into two areas:

- Contract Management
- Delivery and Contract Closeout

## Introduction (cont.) 

- The purpose of contract management is to:

- Protect the governments’ interests.
- Avoid or eliminate overlapping and duplication of government contract.
- Provide consistent treatment of contractors in the administration of government contracts.

## Introduction (cont.) 

- The purpose of contact delivery and closeout is to:

- Inspect and accept deliverables from the contractor.
- Make contract modifications, if necessary.

## Introduction (cont.) 

- It is the responsibility of the program/project manager to ensure that all appropriate contract management duties are accomplished by the Contract Administration Officer (CAO):

- Over eighty different CA functions must take place during the life of a contract.
- The CO usually will delegate CA functions to CAO.

## Question

- Why is it important to avoid overlapping and duplication of government contract management effort?

## Learning Objectives

- Discuss the contract management functions that must be tracked by the PM
- The different responsibilities of the CAO during the life of a contract
- Identify the significance of definitively “base-lining the contract”
- Describe the contract modification process
- How and why a contract is modified

## Topic 2 – Contract Management Functions 

## Contract Administration Office Duties 

- The project/program manager must delegate responsibility to the CO or the designated CAO.  For each contract assigned for administration, the CAO should:

- Perform the functions listed in FAR part 42.302 (a) as they apply to the contract.
- Perform the functions listed in FAR part 42.302 (b) only when specifically authorized by the CO.
- Request supporting contract management using FAR part 42.202.

## Question

- Why is it so important, in some situations, to delegate contract administrative duties to someone who isn’t the CO?

## Delegation of Responsibility 

- The delegation of responsibility should include:

- The name and address of the CAO designated to perform the administration
- Any special instructions to perform contract administrative functions
- Including withheld functions or specific authorization
- A copy of the contract to be administered
- Copies of all contracting agency regulations that are incorporated into the contract by reference

## Delegation of Responsibility (cont.) 

- If there are additional functions that must be accomplished and delegated for single contracts or groups of contracts, the CO can delegate them to the CAO.  However:

- Prior coordination with the CAO ensures the availability of required resources.
- In the case of authority to issue orders, and under basic ordering agreements, the head of the contracting activity approves the delegation.
- The delegation should not require the CAO to undertake new or follow-on acquisitions.

## Delegation of Responsibility (cont.) 

- The CO may rescind or recall a delegation to administer a contract or perform a contract management function, except for:

- Functions pertaining to cost accounting standards
- Negotiation of forward pricing rates and indirect cost rates

## The individual in charge of contract management may request supporting contract management.

- Request should be sent to the CAO cognizant of the contractor location where performance of specific functions is required
- The request should:
- Be in writing
- Clearly state the specific functions to be performed
- Be accompanied by a copy of pertinent contractual and other necessary document

- Contract Management Requests

## The prime contractor is responsible for managing its subcontracts.  

- CAO’s review of subcontracts is normally limited to evaluating the prime contractor’s management of subcontracts.
- Supporting contract management should not be used for subcontracts unless:
- The government otherwise would incur undue cost
- Successful completion of the prime contract is threatened
- It is authorized by the idea of special surveillance

- Contract Management Requests (cont.)

## Contract Management Requests (cont.) 

- To be done in a manner consistent with the policy of requesting that the cognizant CAO perform contract management functions at a contractor’s facility

- Contract Management Requests (cont.)

## Contract Management Requests (cont.) 

- An agency may decline a request for contract management services on a case-by-case basis if resources of the agency are inadequate to accomplish the task.  These refusals must be in writing.

## Contract Management Functions

- It is the program/project manager’s responsibility to track the different contract management functions.
- The contract management office should perform contract management functions in accordance with:
- 48 CFR chapter 1
- Contract terms
- The applicable regulations of the service agency, unless otherwise agreed to in an interagency agreement

## Contract Management Functions (cont.)  

- The CAO, if not directed otherwise by the CO, has the responsibility to:

- Support production, perform surveillance, and status reporting
- Notify the CO of potential delivery schedule dilemmas
- Assist contractors in their understanding of priorities and allocation responsibilities
- Processing requests for special assistance
- Priority ratings for privately owned capital equipment

## Contract Management Functions (cont.) 

- Perform engineering surveillance to assess compliance with contractual term for schedule, cost and technical performance
- In the areas of design, development and production
- Review and evaluate the contractor’s logistics support, maintenance, and modification programs for technical adequacy
- Perform engineering analyses of contractor cost proposals
- Ensure that required reports are handed in on time

## Contract Management Functions (cont.) 

- Perform surveillance of contractor engineering efforts and management systems that relate to:
- Design, development, and production
- Engineering changes and management of engineering resources
- Subcontractors
- Tests
- Reliability and maintainability
- Data control systems
- Configuration management
- Independent research and development

## Additional CAO Responsibilities 

- In addition to the aforementioned functions, it is the responsibility of the CAO to:

- Review the contractor’s compensation structure
- Review the contractor’s insurance plans
- Conduct post-award orientation conferences
- Review and evaluate contractor’s proposals using the requirements for contract pricing

## Additional CAO Responsibilities (cont.) 

- Negotiate forward pricing rate agreements
- Written agreement negotiated between a contractor and the government to ascertain rates and factors during a specified period of use
- Rates and factors represent reasonable projection of specific costs that are not easily estimated, identified, or generated by a specific contract, contract end item, or task
- Negotiate advance agreements that will change costs under contracts currently assigned for administration

## Additional CAO Responsibilities (cont.) 

- Determine whether cost should be suspended or disapproved, and direct the suspension or disapproval
- Issue Notices of Intent to disallow or recognize costs
- Establish final indirect cost rates and billing rates for those contractors meeting the criteria for contracting officer determination
- Manage conflict and controversy
- Review the contractor’s requests for payment

## Additional CAO Responsibilities (cont.) 

- Make payments on contracts when appropriate
- Manage special bank accounts affiliated with the contract
- Ensure that the contractor updates the government about changes in estimated costs
- Notify the CO if the contractor’s financial condition might jeopardize the success of a contract

## Additional CAO Responsibilities (cont.) 

- Analyze quarterly limitations on payment statements and recover overpayments from the contractor
- Issue tax exemption forms
- Issue work requests under maintenance, overhaul, and modification contracts
- Negotiate prices and execute supplemental agreements for spare parts prescribed by agency acquisition regulations

## Additional CAO Responsibilities (cont.) 

- Negotiate and execute contractual document for settlement of partial and complete contract terminations for convenience
- Manage property administration
- Screen, redistribute, and dispose of contractor inventory when appropriate

## Additional CAO Responsibilities (cont.) 

- Respond to a contractor request for government property by:
- Providing appropriate recommendations to the contracting officer by evaluating changes to existing government property
- Ensuring that the required screening of government property is done before it is given to the contractor
- Approving the use of government property on a noninterference basis
- Ensuring payment of any contractor rent
- Ensuring that items no longer needed for government production are reported

## Question

- Why is it so important for the CAO to handle Property Administration as part of his or her contract administrative duties?

## Question

- Does anyone have any examples, based upon personal experience, of the important responsibilities of contract management?  In your opinion, what are the most important duties?

## Topic 3 – The Contract Modification Process 

## Contract Management Process 

- The contract management process is a process required by the federal government to modify contracts when they are in use.  The steps of the process are:

- Provide input
- The contract and a request to modify that contract
- Determine whether there is a need for a contractor proposed modification

## Contract Management Process (cont.) 

- Determine whether there is a government proposed modification
- Determine whether the need can be met through a contract modification
- Determine whether to make the contract modification
- Determine whether to use a unilateral or bilateral modification
- Document the contract file

## Contractor Proposed Modification 

- Examples of contractor proposed contract modifications include:

- Request for an administrative change
- For example, a change in the contractor’s mailing address
- Request to recognize a successor to the contract when contractor assets are transferred
- Request for a name change
- Request for CO confirmation of a constructive change

## Contractor Modification 

- Request for an equitable adjustment in response to a unilateral contract modification by the CO
- A proposal to modify contract requirements based on a change in the acquisition situation
- For example, a required supply is no longer available
- A proposal to definitize a letter contract
- A value-engineering proposal

- Examples of contractor proposed contract modifications include:

## Contractor Modification (cont.) 

- When determining the need for a contractor proposed modification:

- Obtain any information from the contractor needed to evaluate the need for the requested modification
- For example, technical information or information other than cost or pricing data
- Forward the request for review, comment, and/or other action by interested parties when appropriate
- Make a determination based on available information

## Contract Modification 

- After determining whether a change is necessary, the CAO, or the CO, must decide whether the need can be met through a contract modification.

- Will changing the contract fix the problem?
- Normally, a need can be met using a contract modification if a contract will still remain within the scope of the existing contract after modification.
- Contact the government legal counsel if there is any question concerning the scope of the contract.

## Contract Modification (cont.) 

- Most of the time, a need cannot be met using a contract modification if the modification will result in a new contract outside the scope of the existing contract.  It is possible, however, when:

- The contractor is identified in a sole source justification and approval completed in accordance with FAR 6.3
- Synopsis requirements are met in accordance with FAR 5.2
- Other applicable requirements are met
- For example, a new Service Contract Act wage determination when service labor requirements are affected significantly

## Contract Modification (cont.) 

- The next step in the process is to determine whether to modify the contract or not.

- If the need can be met through a contract modification, determine whether the proposed modification is the right modification to make
- Consider the requirements of contract clauses related to the proposed modification
- A contract clause is a modification required by the contract under certain conditions

## Equitable Adjustment 

- The need for an equitable adjustment, as a result of the modification, should be considered.  This includes:

- Net increase or decrease in price expected as a result of a contract modification
- When using price analysis, calculate the difference between the current price of the deleted item(s) and the current price of the added item(s)
- When using cost analysis, calculate the difference between the estimated cost to complete the contract before and after the change

## Equitable Adjustment (cont.)

- The need for an equitable adjustment, as a result of the modification, should be considered.  This includes:

- The change in delivery time
- The delivery time may increase or decrease as a result of the modification
- The effect on technical requirements

## Government Operations 

- A modification to a contract may also affect government operations.  This includes:

- The availability of resources to accommodate the modification
- Any other benefits or costs to the government related to the modification
- Including the cost of temporary shortages related to a longer delivery schedule

## Unilateral and Bilateral Modification 

- The next step in the process is to decide upon unilateral or bilateral modification.

- The signatures of the CO and the COR on a bilateral modification indicate agreement by both parties.
- A unilateral modification can only be used to make administrative changes that do not materially affect the terms of the contract

## Unilateral and Bilateral (cont.) 

- A bilateral modification should be used unless the time required to reach an agreement on an equitable adjustment will cause a delay that will adversely affect the government’s interests.

## Unilateral and Bilateral (cont.) 

- A bilateral modification must be used to:

- Make a negotiated equitable adjustment resulting from the issuance of a change order
- Definitize a letter contract
- Reflect other party agreements on modifying the terms of contracts

## Unilateral and Bilateral (cont.) 

- A unilateral modification should be used to:

- Make administrative changes
- Issue change orders under the contract Changes clause
- Make changes authorized by clauses other than a Changes clause
- For example:  Property clause, Options clause, or Suspension of Work clause
- Issue a termination notice

## Bilateral Modification 

- When using a bilateral modification, one must:

- Obtain a proposal from the contractor
- Evaluate, with other members of the acquisition team, the proposal and establish a pre-negotiation position on any equitable price adjustment
- Including consideration due to the government for making a modification requested by the contractor
- Identify any requirements mandated by the government as a result of the modification
- Conduct any required communications with the contractor

## Bilateral Modification (cont.)

- When using a bilateral modification, one must:

- Develop negotiation objectives, strategies, and tactics
- Negotiate with the contractor to reach agreement on all contract elements affected by the modification
- Including any necessary equitable adjustment
- Assure that the modification meets FAR and agency requirements
- Assure that adequate funds are available for the equitable adjustment
- Prepare the contract modification

## Bilateral Modification (cont.)

- When using a bilateral modification, one must:

- Obtain necessary government approvals
- Obtain signature of the contractor’s authorized representative and the CO
- Distribute the modification.
- Should include the parties on the contract distribution list

## Unilateral Modification 

- When a unilateral contract modification is chosen, the individual responsible must use an acceptable form such as the Amendment of Solicitation/Modification of Contract (SF 30), or another agency-authorized form.

## Unilateral Modification (cont.) 

- Under unusual or urgent circumstances, a telegraphic message may be used if:

- Copies of the message are furnished promptly to the same addresses that received the existing contract
- Immediate action confirms the change by issuance of SF 30 or other agency-authorized form
- The message contains the information required by the SF 30
- Including the statement, “Signed by (Name), Contracting Officer”
- The CO manually signs the original copy of the message

## Unilateral Modification (cont.) 

- When a unilateral contract modification is chosen, the individual responsible must:

- Verify that the modification does not affect the substantive rights of the parties
- Assure that any modification that could result in a significant price increase includes a maximum price
- Assure that adequate funds are available for any anticipated equitable adjustment

## Unilateral Modification (cont.) 

- When a unilateral contract modification is chosen, the individual responsible must:

- Advise the contractor whether change order accounting will or will not be required if the contract includes the Change Order Accounting clause (FAR 52.243-6)
- Assure that the modification meets other applicable FAR and agency requirements
- Distribute the modification to the parties on the contract distribution list

## Documenting the Contract File 

- The final step in the contract modification process is to document to contract file.

- It is important to include all significant information related to the modification.
- The documentation must include the elements identified in FAR 15.406-3.

## Documenting the Contract File (cont.) 

- The documentation must include:

- The purpose of the negotiation
- A description of the acquisition, including appropriate identifying numbers
- The name, position, and organization of each person representing the contractor and the government in the negotiation
- The current status of any contractor systems that affected and/or were considered in the negotiation

## Documenting the Contract File (cont.) 

- The documentation must include:

- The basis for the profit or fee pre-negotiation objectives and the profit or fee negotiated
- Documentation of fair and reasonable pricing
- A description of the acquisition, including appropriate identifying numbers
- For example, RFP No.
- An explanation of the absence of cost or pricing data if they were not required in the case of any price negotiation exceeding the cost or pricing data threshold

## Documenting the Contract File (cont.) 

- The documentation must include:

- The contractor’s interpretation of cost or pricing data if it was required.  Include the extent to which the contracting officer:
- Relied on the cost or pricing data in negotiating the price
- Recognized cost or pricing date as inaccurate or incomplete and the effect of the defective data on the price negotiated
- Determined that an exception applied after the data was submitted and, therefore, considered it not to be cost or pricing data

## Documenting the Contract File (cont.) 

- The documentation must include:

- A summary of the contractor’s proposal, any field pricing recommendations, the government’s negotiation objective, and the negotiated position
- If the determination of price reasonableness is based on cost analysis, the cost summary should address each major cost element
- If the determination of price reasonableness is based on price analysis, the summary should include the source and  type of data used to support the determination

## Documenting the Contract File (cont.) 

- The documentation must include:

- The most significant fact or considerations controlling the establishment of the pre-negotiation objectives and the negotiated agreement
- Including an explanation of any significant differences between the two possibilities
- A discussion and quantification of the impact of direction given by Congress, other agencies, and higher-level officials
- To the extent such direction has a significant effect on the action

## Topic 4 – Other Contract Management Responsibilities 

## Contracting Situations 

- Contracting is used in the following situations:

- Base-lining the contract
- As in Research and Technology Protection (RTP)
- Supporting the outlining of the COR for administering contract requirements
- Contracting Financing Requirements
- Risk analysis and contract management

## Base-lining the Contract 

- Configuration management is a process of management that documents the changes, and the significant states of those changes, of a project’s configuration items (work products).
- A baseline is a single work product, or set of work products that can be used as a logical basis for comparison and/or the basis for subsequent select activities.

## Base-lining the Contract (cont.) 

- Base-lining a contract:

- Can signify the progress of work through the passage of time
- Can mark milestones of approval
- Is an activity that can identify specific types of baselines within a project:
- Functional baseline
- Allocated baseline
- Developmental baseline
- Product baseline

## Base-lining the Contract (cont.) 

- For RTP (Resource and Technology Protection) procedures, base-lining a contract is a primary post-awards procedure that serves to:

- Highlight specific items of interest that are pertinent to contract execution
- Track RTP requirements and accomplishments throughout a project, especially if there are modifications to the contract
- Be the prime contractor performance measurement tool

## Question

- How does the contract manager support the Contracting Officer Representative or the Contracting Officer’s Technical Representative with administering contract requirements?

## Question

- From your past experiences, what is your understanding of Contractor Financing Requirements?

## Risk Analysis 

- The topic of Risk Analysis is a vital aspect of contract management.

- (Placeholder Slide)

## Topic 5 - Review 

## Learning Objectives Review

- Discuss the contract administrative functions that must be tracked by the PM.
- The different responsibilities of the CAO
- Identify the significance of “base-lining” the contract
- Describe the contract modification process
- How and why a contract is modified throughout its life cycle

## Key Points 

- The purpose of contract management is to:

- Protect the governments’ interests
- Avoid or eliminate overlapping and duplication of government contract management effort
- Provide consistent treatment of contractors in the administration of government contracts

## Key Points (cont.) 

- It is the responsibility of the program/project manager to ensure that all appropriate contract administrative duties are accomplished by the Contract Administration Officer (CAO)

- There are over eighty different CA functions that must take place during the life of a contract
- The CO will delegate CA functions to the CAO

## Key Points (cont.) 

- The program/project manager must know how to delegate responsibility to ensure that CO functions are completed.

- For each contract assigned for administration, the Contracting Administration Officer should:
- Perform the functions listed in FAR part 42.302 (a) as they apply to the contract
- Perform the functions listed in FAR part 42.302 (b) only when specifically authorized by the CO
- Request supporting contract management using FAR part 42.202

## Key Points (cont.) 

- Contract modification is one of the most significant parts of the contract management.  The steps of this process are:

- Provide input
- Determine whether there is a need for a contractor proposed modification
- Determine whether there is a government proposed modification

## Key Points (cont.) 

- The steps of the contract modification process are:

- Determine whether the need can be met through a contract modification
- Determine whether to make the contract modification
- Determine whether to use a unilateral or bilateral modification
- Document to contract file