GOVERNMENT PROPERTY SYSTEMS REVIEWS - San Diego

GOVERNMENT PROPERTY SYSTEMS REVIEWS

(c) 2013 GP Consultants LLC

Presented by:

Dr. Douglas N. Goetz, CPPM, CFPresident, GP Consultants LLC

San Diego Chapter

TOPICAL OUTLINE

• FOUR AREAS OF CONCERN RELATING TO GOVERNMENT PROPERTY IN THE POSSESSION OF CONTRACTORS and

• THE DOD BUSINESS SYSTEMS RULES

• TOPICS:– Acquisition of Government Property

– Records of Government Property

– Property Management System Analysis and Audit

– How all of this applies to the BUSINESS SYSTEMS RULE for Government Property


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WITH THAT SAID…ARE YOU READY???


ACQUISITION OF GOVERNMENT PROPERTY INCLUDING

TITLE TO GOVERNMENT PROPERTYUNDER GOVERNMENT CONTRACTS


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PRELUDE

• Think about your life – and your acquisitions

– Buying a Washer, Dryer, Refrigerator, etc….


This Presentation

• WHATmay a contractor acquire?

• To WHAT does the Government take title?

• When does the Government take title?

• Are there restrictions on what the Contractor may acquire – to which the Government takes title?

So, there are lots of questions – with lots of answers!!!


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THE PROCESS OF ACQUISITION

• It is a CONTRACTUAL requirement

that contractors have a PROCESSfor managing the ACQUISITION of PROPERTY that IS or BECOMESGOVERNMENT PROPERTY

– Government Property Clause

• FAR 52.245‐1(f)


THE PROCESS OF ACQUISITION

• IT IS EXPECTED THAT THE CONTRACTOR WILL ADDRESS THIS PROCESS/OUTCOME IN ITS PMS AND:– DESCRIBE THE PROCESS IN SUFFICIENT DEPTH AND DETAIL AS TO THESE REQUIREMENTS

– WHO, WHAT, WHERE, WHEN, and HOW!

• NOTE: THERE IS A VCS AVAILABLE FOR THIS PROCESS.– ASTM E‐2495‐07 (WWW.ASTM.ORG)– Standard Practice for Prioritizing Asset Resources in Acquisition, Utilization, and Disposition


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FOCUS ON TWO AREAS

• ACQUISITION OF GOVERNMENT FURNISHED PROPERTY (GFP) BY THE CONTRACTOR (Brief Overview)

• ACQUISITION OF CONTRACTOR ACQUIRED PROPERTY (CAP) BY THE CONTRACTOR (Greater Emphasis)


ACQUISITION OF GFP

• TITLE TO GFP ALWAYS VESTS IN THE

GOVERNMENT

– FAR 45.401

– FAR 52.245‐1


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ACQUISITION OF GFP

• GFP may come into the possession of the contractor three ways. It may be:

– PUSHED

– PULLED or

– TRANSFERRED

E.g., DD FORM 1348


ACQUISITION OF GFP

• “PUSHED” GFP– Government activities may DIRECT SHIP GFP to contractors with NO ACTIONS on the part of the Contractor.• GFP IS SPECIFIED IN THE CONTRACT

• GOVERNMENT SHIPS

• CONTRACTOR NEED TAKE NO ACTION TO ACQUIRE

• CONTRACTOR RECEIVES PROPERTY INTO THEIR PROPERTY MANAGEMENT SYSTEM

NOTE: TECHNICALLY THIS IS NOT AN ACQUISITION AS THE CONTRACTOR IS NOT RESPONSIBLE FOR THE ACT OF ACQUIRING THE GFP.


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ACQUISITION OF GFP

• “PULLED” GFP– WHERE THE CONTRACTOR

REQUISITIONSTHE GFP REQUIRED FOR CONTRACT PERFORMANCE– Requisition method specified in the contract

• Military Standard Requisitioning and Issuance Procedures (MILSTRIP)

– DoD 4000.25‐1‐M

• MILSTRIP MANUAL on the WEB http://www.dla.mil/j‐6/dlmso/eLibrary/Manuals/MILSTRIP/Default.asp

• Also FEDSTRIP


ACQUISITION OF GFP

• “PULLED” GFP

–Contractor must have the AUTHORITYto REQUISITION GFP through the MILSTRIP SYSTEM

• REFERENCES– FAR PART 51

– DFARS PART 251

– PLUS THE ASSOCIATED CLAUSES

Contracting Officers:It is YOUR Responsibility To Provide this

Authorization.(c) 2013 GP Consultants LLC

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ACQUISITION OF GFP

• “PULLED” GFP

– CONTRACTOR MAY BE LIMITED TO REQUISITIONING ONLY CERTAIN ITEMS OF GOVERNMENT PROPERTY THROUGH THE MILSTRIP SYSTEM

– Procurement activities establish a MANAGEMENT CONTROL ACTIVITIES (MCA) to SCREEN all MILSTRIP requisitions to ensure contractor requisitions ONLY that “stuff” that is AUTHORIZED

• DoD 4140.1‐R, May 23, 2003 (Chapter 5.11)

– http://www.dtic.mil/whs/directives/corres/html2/p41401r.htm


ACQUISITION OF GFP

• “PULLED” GFP– CONTRACTORS SHALL PROVIDE PROCEDURES TO ADDRESS THIS PROCESS IN THEIR PROPERTY MANAGEMENT SYSTEM WHERE MILSTRIP REQUISITIONS ARE AUTHORIZED.

• Critical aspects– Force Activities Designators (F/AD)– Urgency of Need Designators (UND)– Priority designators (PD) (F/AD + UND Gives you your PD)

» (See the MILSTRIP MANUAL Table 24.1)• http://www.af.mil/shared/media/epubs/PUBS/AF/23/23011001/010124/01012

4.pdf


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ACQUISITION OF GFP

• GFP BY TRANSFER

– GFP MAY COME INTO “EXISTENCE” BY TRANSFER OF PROPERTY FROM ONE CONTRACT TO ANOTHER

WARNING: THERE MUST BE MODS!FAR 45.106 – Transferring Accountability


ACQUISITION OF GFP

• WHERE CAP IS TRANSFERRED FROM CONTRACT #1 to CONTRACT #2 – with no costs transferred – it becomes GFP to Contract # 2.

• BOTH CONTRACTS MUST AUTHORIZE THE TRANSFER.

K # 1CAP

K # 2GFPCONTRACT MOD

TO TRANSFER


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TITLE TO GFP

In all of these aforementioned scenarios

TITLEALWAYS VESTS

IN THE GOVERNMENT FOR

GFP


NOW ON TO THE GOOD STUFF!!!CAP…

TITLE TO CAP


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TITLE TO CAP

• Hey, it’s simple – I have a cost reimbursement type contract – everything I buy is Government Property!

• The Government has title!!!

• Right???

• Uhhhhh, NOT SO FAST!!!– There are LOTS of Variables we have to

address! So let’s discuss this!


CONTRACTOR ACQUIRED PROPERTY (CAP)

• TITLE TO CAP IS DRIVEN BY MULTIPLE FACTORS:

– TYPE OF CONTRACT

– COST PRINCIPLES

– COST ACCOUNTING STANDARDS

– CONTRACTOR’S ACCOUNTING POLICIES AND PROCEDURES


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• TYPES OF CONTRACTS

• TWO BROAD PRICING ARRANGEMENT

FIXEDPRICE

COSTREIMB.

• PLUS LOTS OF VARIANTS



• TITLE TO PROPERTY UNDER FIXED PRICE CONTRACTS

• QUICK… Remember at the start of this presentation I asked you about Home Depot, Lowe’s, Sears and JC Penney!

• Under a FP Contract what do YOU the BUYER own?!?!?! THE

DELIVERABLE END

ITEM!!!(c) 2013 GP Consultants LLC

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• 45.402 ‐‐ Title to Contractor‐Acquired Property.– (a) Title vests in the Government for all property acquired or

fabricated by the contractor in accordance with the financing provisions or other specific requirements for passage of title in the contract. Under fixed‐price type contracts, in the absence of financing provisions or other specific requirements for passage of title in the contract, the contractor retains title to all property acquired by the contractor for use on the contract, except for property identified as a deliverable end item.



• 45.402 ‐‐ Title to CAP.– (a) …. If a deliverable item is to be retained by the contractor for use after inspection and acceptance by the Government, it shall be made accountable to the contract through a contract modification listing the item as Government‐furnished property.


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• 45.402 ‐‐ Title to CAP.– (b) Under cost type and time‐and material contracts, the Government acquires title to all property to which the contractor is entitled to reimbursement, in accordance with paragraph (e)(3) of clause 52.245‐1.



• FAR 52.245‐1(e)• TITLE TO PROPERTY UNDER COST REIMBURSEMENTCONTRACTS

– TITLE to ALL PROPERTY purchased by the contractor for which the contractor is • ENTITLED to be REIMBURSED as a • DIRECT ITEM OF COST shall pass to and • VEST IN THE GOVERNMENT upon

– VENDOR’S DELIVERY

»PLUS OTHER TIMES on the next slide


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• TITLE TO PROPERTY UNDER COST REIMBURSEMENT CONTRACTS

– TITLE to ALL OTHER PROPERTY– The cost of which is reimbursable to the contract, shall pass to and vest in the GOVERNMENT upon –

• Issuance of Material

• Commencement of Processing of Material or its use

• Reimbursement of the cost,

• Whichever comes first!



• What does ENTITLED to be REIMBURSED mean???

• Cost must be:

–REASONABLE

–ALLOCABLE and

–ALLOWABLE

FAR PART 31


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REASONABLE

• FAR 31.201‐3

– (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business.

REASONABLYPRUDENT PERSON

COMPETITIVE BUSINESS


REASONABLE

• Reasonableness can be determined by the Terms and conditions of the Contract– Items specifically called out to be acquired

• Reasonableness can be determined by reviewing drawings, blueprints, bills of material, or other documents showing:– Need of the item

– Quantity needed

• Contract requirements


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ALLOCABLE

• FAR 31.201‐4

– A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship.


ALLOWABLE

• FAR 31.201‐2– (a) A cost is allowable only when the cost complies with all of the following requirements:

• (1) Reasonableness.

• (2) Allocability.

• (3) Standards promulgated by the CAS Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the circumstances.

• (4) Terms of the contract.

• (5) Any limitations set forth in this subpart.

QUICK – are alcoholic beverages “allowable?”FAR 31.205-51. Costs of alcoholic beverages are unallowable.


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COST ACCOUNTING STANDARDS

• DEFINITION

– The set of RULES on cost accounting for Government contracts which were promulgated by the Cost Accounting standards Board

» Government Contracts Guidebook

» Arnavas and Ruberry

– http://www.whitehouse.gov/OMB/procurement/casb.html



• 30.101 Cost Accounting Standards. – (a) Public Law 100‐679 (41 U.S.C. 422) requires certain contractors and subcontractors to comply with Cost Accounting Standards (CAS) and to disclose in writing and follow consistently their cost accounting practices.

• 30.201‐4 Contract clauses. – (a) Cost accounting standards.

• (1) The contracting officer shall insert the clause at FAR 52.230‐2, Cost Accounting Standards, in negotiated contracts


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• COST ACCOUNTING STANDARDS AFFECT THE WAY CONTRACTORS CHARGE THE GOVERNMENT FOR PROPERTY – For example – whether or not contractors may direct charge us

for “GENERAL PURPOSE EQUIPMENT”

• CAS 402 – CONSISTENCY– Kitchen English…

• BUY Like Item,

• USE for Like Purpose,

• THEN KTR MUST CHARGE in Like FASHION

– http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/FARapndx1.htm#P1185_222409



• One needs to have ACCESS TO and READ and UNDERSTAND the contractor’s Disclosure Statement in order to deal PROPERLY with PROPERTY!– CASB‐DS‐1 FORM– http://www.whitehouse.gov/OMB/procurement/casb_ds‐1.pdf

– http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/FARapndx1.htm#P332_70916


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• ACQUISITION may take many different forms and may use many different processes:– Acquisition/Purchase items from a vendor/subcontractor

– Fabricating items in‐house

– Issuing items from contractor‐owned stores/stock and stockrooms

– Transfer

– Reutilization

– Lease (CAREFUL WITH THIS ONE – more later!)



• PURCHASE from Vendor

– Contractor issues a P.O. or Subcontract to a vendor or supplier

• ISSUANCE from Stock

– Contractor may already have an item in his/her stockroom and may issue it and use it on the contract.


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• FABRICATED PROPERTY

– Though not specifically called out as such the GOVERNMENT takes title to property that is FABRICATED under cost reimbursement type contracts

• E.g., parts machined from raw materials

• Special tooling fabricated in the contractor’s tool shop.



• TRANSFER of Property

– Contractor may use a system to move property, generally material of the CAP Variety, from one contract to another WITH ITS ASSOCIATED COSTS, i.e., generally crediting the losing contract and debiting the gaining contract.

• The Material Management Accounting System referred to as the MMAS

– DFARS 242.72 and

– DFARS 252.242‐7004


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• LEASING OF PROPERTY– If a contractor LEASES property (Even under a Cost

Reimbursement contract) it DOES NOT become Government Property.

• If the CONTRACTOR leases property, that property is bound by the terms and conditions of the Lease – and the “LESSOR” still retains title to it!

• If the GOVERNMENT leases the property, then the Government TASKS the Contractor to MANAGE that property as GFP – because the contractor has an obligation to return it to the Government, and the Government has an obligation to return it to the LESSOR.



• ALL ACQUISITIONS MUST BE SUPPORTED BY A VALID NEED OR REQUIREMENT. Some Examples:– Engineering Requirements in R&D

– Bill of Material (BOM), Material requirements list (MRL), Drawings or Blueprints in a Production setting

– Contractual Unit requirements in an O&M or Services setting

• When a contractor acquires an item or items there must be supporting documentation for that item/asset and its NEED/REQUIREMENT in and for performing the contractually required work.– See Records Requirements under:

• FAR 52.245‐1(f) and

• FAR 4.7 – Contractor Records Retention


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SIMPLE EXPLANATION OF TITLE

• FIXED PRICE

• GFP – GOVERNMENT ALWAYS HAS TITLE!

• CONTRACTOR has TITLE to ALL PROPERTY– Note: Yes, there are “Other”

forms of title, e.g., Progress Payments, etc., but in this presentation I am only dealing with GP under the GP clause.

• COST REIMBURSEMENT

• GFP ‐‐ GOVERNMENT ALWAYS HAS TITLE

• CAP ‐‐ GOVERNMENT has TITLE to ALL PROPERTY:– To which the contractor is

ENTITLED TO BE REIMBURSED:

• R, A & A

• CHARGED DIRECT

• Consistent with DISCLOSURE STATEMENT


APPROVALS

• DOES THE CONTRACTOR REQUIRE APPROVAL PRIOR TO ACQUIRING PROPERTY FOR THE GOVERNMENT?

– GENERALLY NO!

– BUT SOMETIMES MAYBE!


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APPROVALS

• FAR 52.244‐2 SUBCONTRACTS CLAUSE– If the contractor DOES NOT have an approved Purchasing System, consent to subcontractor is required for ANY SUBCONTRACT that

• Is Cost Reimbursement• Is FP and exceeds the Simplified Acquisition Threshold or 5% of the total cost of the contract.

– FAR 52.244‐2(c)

– Or any items specified in the contract– FAR 52.244‐(3)

– Some Government agencies require screening BEFORE the contractor may acquire equipment, i.e., NASA.


So What does all of this mean? A Quick Summary!

• OVERARCHING RULE:

– GFP is always TITLED to the GOVERNMENT!

• FP Contracts:

– Contractor has TITLE to all Property it acquires EXCEPT…

• GFP

• If listed as a Deliverable End Item/CLIN– PROPERTY OF THE GOVERNMENT


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So What does all of this mean? A Quick Summary!

• CR Type Contracts:

– GOVERNMENT has TITLE to all Property the contractor acquires IF:

• IT IS:– REASONABLE

– ALLOCABLE and

– ALLOWABLE and

• IT IS CHARGED as a DIRECT ITEM OF COST

• IN ACCORDANCE WITH THE CONTRACTOR’S DISCLOSURE STATEMENT.


LAGNIAPPE!


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Government Property Administrator’s ACTIONS

• If PA finds items that he/she believes are not allowable, the PA shall notify the ACO and request review by the ACO and the COGNIZANT DCAA Auditor for compliance with the contractor’s Disclosure statement and CAS applicability.

• PA may also recommend to the ACODISALLOWANCE of the REIMBURSEMENT OF THE COST for the item.



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RECORDS OF GOVERNMENT PROPERTY

Presented by:


San Diego Chapter

GOVERNMENT PROPERTY RECORDS

Record: vt. To set down for preservation in writing or other permanent form. v. An account, as of information, set down esp. in writing as a way of preserving knowledge. n. Information or data on a specific subject collected and preserved. Law: An account officially written and kept as evidence or testimony.

Webster’s II New Riverside University Dictionary

(c) 2013 GP Consultants

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• Is there a VOLUNTARY CONSENSUS STANDARD for this process???– ASTM VCS from the E-53 Committee:

• E2604-09

• Standard Practice for Data Characteristics of Equipment Records

– http://www.astm.org/index.shtml


Note: The citation of any VCS or ILP does NOT Imply endorsement. Each Entity must evaluate the

Item to ensure “FIT” in ITS PMS!


The Government Property Clause at 52.245‐1 requires the Contractor to develop property management plans, systems, and procedures at the contract, program, site or entity level to enable the ten outcomes/processes (listed in paragraph (f) of the clause, items i to x):


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These outcomes are often referred to as processes:

(i) Acquisition of Property

(ii) Receipt of Government Property

(iii) Records(iv) Physical Inventory

(v) Subcontractor Control



The Contractor must maintain accurate records of all the processes included in FAR 52.245‐1. The records permit verification that the Contractor is conforming to contract requirements with respect to the management of GP (audit‐system analysis).


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RECORDS, AND THE MAINTAINING OF RECORDS, ARE APPLICABLE TO EVERY PROCESS SET FORTH IN

THE GP CLAUSE!

Records are the Life’s BloodOf your Property Management

System


GOVERNMENT PROPERTY RECORDS: 52.245‐1

(f)(1)(iii) Records of GP

The Contractor SHALL create and maintain records of all Government property accountable to the contract, including GFP & CAP.


In the words of Phil Donahue, “Irregardless of $ Value!”

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(A) Property records shall enable a complete, current, auditable record of all transactions and shall, unless otherwise approved by the PA, contain the following:




(A)(1) The name,

part number,

description, and

NSN*

(*Note – NSN an option)

(if needed for additional item

identification tracking and/or disposition).


IF GFP – the GOVERNMENTIS REQUIRED TO PROVIDEThis Data!!!

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(A)(2) Quantity

received (or fabricated),

issued, and

balance‐on‐hand.

Bottom line –everything coming in, everything going out and what is in stock!



(A)(3) Unit Acquisition Cost • Check your DISCLOSURE (CASBDS‐1 Form) STATEMENT as to how this is computed!

• Generally Accepted Accounting Principles/Practices (GAAP)


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(A)(4) Unique‐item identifier or equivalent (if available and necessary for individual item tracking).

Do you have any type of a “Unique Number” assigned to you?

Does any Property you own have a unique number assigned to it?


Would have been nice to have seen this requirement

under Identification?


(A)(5) Unit of measure:

ex: inch, foot, yard

centimeter, meter

ounce, pound, ton

milligram, gram, kilogram etc.


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(A)(6) Accountable contract number or equivalent code designation.

If you use an Equivalent code it must be auditable or traceable back to the

contract #.

GOVERNMENT

CONTRACT

Contract Number: XXXXXXXXXXXXX

Equivalent Code: 2007A



(A)(7) Location

BUILDING 12

BUILDING 3

BUILDING 50

Note: OPINION…

This is the weakest Part of many Contractors’

Property ManagementSystems


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(A)(8) Disposition

Whether the Property is happy or sad…

Uhhhh, o.k., what happened to the property?

Transferred?

Sold?

Scrap?

Delivered?



(A)(9) Posting reference and date of transaction.

Analogous to your Bank Accounts and your ATM card.

For EVERY TRANSACTION you must have a SUPPORTING DOCUMENT


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(A)(10) Date placed in service.

[Applicable to ST, STE and Equipment]

Why is this needed?

For the Government to be able to apply ITS Depreciation to the item.




A MANAGEMENT OPTION –

(B) Use of Receipt and Issue System for Government Material.

When approved by the PA, the Contractor may maintain, in lieu of formal property records, a file of appropriately cross‐referenced documents evidencing receipt, issue, & use of material that is issued for immediate consumption.


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• Acquisition

• Receiving

• Identification

• Storage

• Movement

• Reports

• Physical Inventories


• Consumption• Utilization• Maintenance• Relief of Stewardship

[Really Liability]• Subcontractor Control• Disposition• Contract Closeout

VIRTUALLY EVERY PROCESS AND OUTCOMEREQUIRES RECORDS!


Other Records may be necessary to comply with the requirements of the contract and the Government Property Clause. Records may follow the requirements of voluntary consensus standards and or industry leading practices and standards – but the FAR GP Clause takes PRECEDENCE.


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(g) System Analysis

(1) The Gov’t shall have access to the Contractor’s premises and all GP, at reasonable times, for the purposes of reviewing, inspecting & evaluating the Contractor’s Property Management System.

…That means the RECORDS!!!



(g) System Analysis

(2)Records of GP shall be readily available to authorized Gov’t personnel and shall be safeguarded from tampering or destruction.


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CONTRACTOR RECORD RETENTION 4.703

• (a) Except as stated in 4.703 (b), Contractors shall make available records, which includes books, documents, accounting procedures & practices, and other data, regardless of type & whether such items are in written form, “computer dater,” or any other form…


CONTRACTOR RECORD RETENTION 4.703

• (a) …to satisfy contract negotiation, administration, and audit requirements of the Contracting Agencies & Comptroller General for‐

• (1) 3 years after final payment for certain records

• (2) Period specified in 4.705 through 4.705‐3, whichever of these periods expires first.


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FINANCIAL & COST ACCOUNTING RECORDS 4.705‐1

• Accounts receivable invoices…retain 4 years

• Material, work order, or service order files, including P.O.’s for material or services…retain 4 years

• Accounts payable records to support disbursement of funds for materials…retain 4 years


ACQUISITION & SUPPLY RECORDS 4.705‐3

• Store requisitions for materials…retain 2 years

• Work orders for maintenance…retain 4 years

• Equipment records…retain 4 years

• Expendable property records…retain 4 years

• Receiving & inspection report records…retain 4 years

• P.O. files for supplies, equipment, material…retain 4 years


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THE FINAL JEOPARDY QUESTION

• “If a contractor converts paper documents to electronic documents for storage – how long must they keep the original paper documents?”

• What is _________________________?


RECORDSTHE BOTTOM LINE

• It is expected to comply with the contract that CONTRACTORS ESTABLISH and MAINTAIN RECORDS for EVERY ITEM of Government Property and provide the records of ALL TRANSACTIONS


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RECORDS

• IF you do not have records, the PROPER records, complete records, timely records…

• You probably will have problems with your PROPERTY MANAGEMENT SYSTEM and its AUDIT!!!



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AN OVERVIEW OF PROPERTY MANAGEMENT SYSTEM AUDIT PROCESS

and the CONTRACTOR SELF ASSESSMENT/AUDIT

PROCESS

Presented by:


San Diego Chapter

PROPERTY MANAGEMENT SYSTEM

• PROPERTY MANAGEMENT SYSTEM: The system that identifies a contractor’s internal management program encompassing the protection, preservation, accounting for, and control of property from its acquisition through disposition.

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The Contractor’s Property Management System consists of two parts:

1. Written Procedures2. Application of the

Procedures

PMS AUDIT

• On the Government Side of the house…– The agency responsible for contract

administration shall conduct an analysis of the contractor’s property management policies, procedures, practices, and systems.

• FAR 45.105

• On the Contractor side of the house…– 52.245‐1(f)(3) The Contractor shall establish and

maintain procedures necessary to assess its property management system effectiveness, and shall perform periodic internal reviews and audits.

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PMS AUDIT

• The following ITEMS are used in Auditing the PMS:– Contract(s) and its/their

requirements– Other Applicable Regulations

cited in the contract: FAR, DFARS, NFS, etc.

– Applied VCSes– Applied ILPs– Applied CCPs– The Contractor’s written property

management procedures

PMS AUDIT

PMS AUDIT: An AUDIT of all applicable processes of a contractor’s property management system for the purpose of obtaining overall knowledge of the contractor’s performance in complying with the property management system and contractual obligations as they pertain to property.

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PMS AUDIT

• We have seen the CONTRACTUAL REQUIREMENTS that the GOVERNMENT shall audit and that the CONTRACTOR shall audit!

– Policy Statement for the Government under FAR Part 45

– Clausal Requirement for the Contractor under 52.245-1(f)(3)

PMS AUDIT

• Audits may take place at any time during contract performance, upon contract completion or termination, or at any time thereafter during the period the contractor is required to retain such records– FAR 4.7

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PMS AUDIT

(2) Records of Government property shall be readily available to authorized Government personnel and shall be appropriately safeguarded.

FAR 52.245-1(g)

PMS AUDIT

AUDIT REFERENCES:• Generally Accepted Audit Standards (GAAS)• GAO Yellow Book (GAGAS)• DCAA Manual DCAAM 7640.1• The DOD Property Guide, (Unnumbered)• Any Supplemental Agency Peculiar

Regulations:-DCMA-NAVSUPPPUBS-Army Regs.-Etc.

• The “OLD” DOD Property Manual 4161.2-M

• And my FAVORITE… BOOKS!!!

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PROCESSES TO BE AUDITED

There are 10 Processes Called out in the FAR GP CLAUSE –52.245-1(f)

1. Acquisition

2. Receiving

3. Records

4. Physical Inventories

5. Subcontractor control


6. Reports

7. Relief of Stewardship Responsibilities

8. Utilization

9. Maintenance

10.Property Closeout

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There were 15 Processes Called out in the OLD DOD Property Manual

1. Property Management

2. Acquisition

3. Receiving

4. Identification

5. Records

6. Movement

7. Storage


8. Physical Inventories

9. Reports

10. Consumption

11. Utilization

12. Maintenance

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13.Subcontractor Control

14.Disposition

15.Contract Closeout


Property Professionals need to be critical in the establishment of a Property Management System (PMS) to ensure that all PERFORMANCE CRITERIA and OUTCOMES (PROCESSES) are covered in that PMS.

Note – Not all Processes are called out in the Contractor’s Plans and Systems Requirement of the GP Clause – FAR 52.245-1, e.g., Disposal.

A Pondering:If you want to be technical –There are really 16 PROCESSES embedded In the GP Clause – because of the Audit ProtocolRegarding Population Definition.

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PMS

Acquisition

Receiving Identification

Records

Physical Inventories

Reports

USE

Storage

Movement

Utilization

Consumption

Maintenance

Liability

Subcontractor Control

Disposition

Contract Closeout

Though some processesappear to be subsumedunder other processes –they are in fact auditableas separate independentProcesses and outcomes!

BOTTOM LINE IN REGARD TO PROCESSES AND OUTCOMES

• It should be expected that each of these processes will be audited/reviewed.

• Contractors should be prepared for these audits by:

– Having their Procedures appropriately designed for each process, up to date, and complete

– Have their records available for review/audit

– Have the supporting documents available for review/audit in accordance with FAR 4.7.

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NOTIFICATION OF THE PMS AUDIT

• Government Side:– The PA shall notify the contractor

in writing of the planned dates for the system AUDIT no later than 30 days before the commencement of the review.

• GAGAS REQUIREMENT

• Contractor side:– Auditor shall notify the Auditee of

the impending audit.• GAAS Requirement

ENTRANCE CONFERENCE

• An entrance conference shall be held with entity (Contractor or Internal Party) to be audited to inform the entity of the scheduled system audit, timeframe for performance, processes subject to review, and other pertinent items– GAGAS Requirement– GAAS Requirement

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PERFORM AUDITAudit Protocols (10 Steps):1. State the objectives of the

audit2. Define the Attributes and

Transactions3. Define the Population and/or

Sampling Unit4. Specify the Acceptance

and/or Rejection Rate5. Determine sample size

PERFORM AUDIT (SURVEY)

6. Randomly select sample7. Perform Audit8. Analyze Defects and/or

Deviations9. Generalize from Sample

to Population10.Determine status of

processes and process Segments

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EXIT CONFERENCE

Upon completion of the PMS Audit, the auditor shall conduct an exit conference with the Audited Entity to discuss the overall results of the engagement (the audit)

GAGAS RequirementGAAS RequirementDCMA Instruction 124

EXIT CONFERENCE

This conference must also address any process or process segment in which adequacy of controls, procedures, or the application thereof was found INADEQUATE.

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EXIT CONFERENCE

OTHER METHODOLOGIES

• In the previous slides – I have focused on the AUDIT PROTOCOLS!!! But, there are other ASSESSMENT methods such as:

– Balanced Scorecard, Kaplan» http://www.balancedscorecard.org/

– Maturity Models» ASTM E2452 ‐ Standard Practice for Equipment Management Process Maturity (EMPM) Model

» http://www.astm.org/Standards/E2452.htm

» And others

– Statistical Process Control (SPC)

– Even various “Risk Assessment” strategies may come into play.

Caution: If you use the EMPM you will have to ensure that MATERIAL is covered as the EMPM

focuses on Equipment.

HOW YOU DO IT!

• If you are going to use EITHER:– AUDIT PROTOCOLS or

– Other METHODOLOGIES

• From a CONTRACTOR STANDPOINT, you need to clearly define and detail the methodology or methodologies you selected to apply.

• GOVERNMENT – well, they have no choice. The must use AUDIT and Sampling Protocols set forth in their Guidance.

• GAO Guidance

• DoD Guidance

• Agency Guidance, i.e., DCMA, Army, Navy, etc.

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AND ON TO OUR NEXT TOPIC!!!

THE NEW BUSINESS SYSTEM

RULES

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1

Defense Contract Property Management and the Business

Systems Rules

Presented by:


San Diego Chapter

HISTORY OF THE BSR

• Numerous Congressional Hearings

• The Rules

– Proposed Rule (75 Fed. Reg. 2,457 (Jan. 25, 2010))

– Revised Proposed Rule (75 Fed. Reg. 75,550 (Dec. 3, 2010))

– Interim Rule (76 Fed. Reg. 28,856 (May 11, 2011))

– Final Rule (77 Fed. Reg. 11,355 (Feb. 24, 2012))

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THE BSRs

• Based upon the FINAL RULE ‐‐we have six different “SYSTEMS” including:– Accounting System

– Estimating System

– Purchasing System

– Earned Value Management System (“EVMS”)

– Material Management and Accounting System (“MMAS”) and the

GOVERNMENT PROPERTY SYSTEM


• We have referenced this “System” in our

discussions of the Government Property Clause, FAR 52.245‐1.

• This is not a new Requirement… It has been a requirement since the days of the ASPR and DAR.

– In other words… A LONG time!!!

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HISTORICAL ACTIONS

• Historically, when the Property Management System (PMS) was inadequate the Government Property Administrator (PA) (DCMA or other activity, ONR, Army, AF, etc.) would request corrective action.

• If the Contractor FAILED to take corrective action – the PA would elevate the issue to the Contracting Officer (Generally the ACO).

• BUT!!! There was no withholding of $!!!

HISTORICAL ACTIONS

• After request from the ACO ‐‐ If the Contractor FAILEDto take corrective action – The ACO had the AUTHORITY to “Withdraw or Disapprove” the Contractor’s PMS.

• Natural Consequence – the Contractor became LIABLEfor all Loss, Theft, Damage or Destruction (Now called Loss) of GP– Yes, I know… there were escape mechanisms. But there was no FINANCIAL ACTION, i.e., withholding of Progress Payments or monies.

– Yes, if the contractor was ultimately proven liable then the Government would collect compensation for the LOSS of the Government property – not the inadequacy of the “System.”

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4

TODAY

• The Business System Rules –well, they change a lot of this!

THE BSR AND GOVERNMENT PROPERTY

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DFARS 252.245‐7003Some Definitions

• Contractor Property Management System Administration

– “Acceptable property management system” means a property system that complies with the system criteria in paragraph (c) of this clause.

– “Property management system” means the Contractor’s system or systems for managing and controlling Government property.

– “Significant deficiency” means a shortcoming in the system that materially affects the ability of officials of the Department of Defense to rely upon information produced by the system that is needed for management purposes. (I’ll talk about this one later)

DFARS 252.245‐7003

• (b) General. The Contractor shall establish and maintain an acceptable property management system. Failure to maintain an acceptable property management system, as defined in this clause, may result in disapproval of the system by the Contracting Officer and/or withholding of payments.

• (c) System criteria. The Contractor’s property management system shall be in accordance with paragraph (f) of the contract clause at Federal Acquisition Regulation 52.245‐1.

• See Next Slide

Let me talk history for amoment

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PROCESSES TO BE AUDITEDFAR 52.245-1

PMS

Acquisition

Receiving Identification

Records

Physical Inventories

Reports

USE

Storage

Movement

Utilization

Consumption

Maintenance

Liability

Subcontractor Control

Disposition

Contract Closeout

Yup, these are all of the Processes that the

Government expects to see addressed In the

Contractor’s PropertyManagement System!

These are the PROCESSES called out in

FAR 52.245‐1(f)

So How do YOU (Contractor) Know your PMS is Adequate?

• Requirement of FAR 52.245‐1(b)– (4) The Contractor shall establish and maintain procedures necessary to assess its property management system effectiveness and shall perform periodic internal reviews, surveillances, self assessments, or audits. Significant findings or results of such reviews and audits pertaining to Government property shall be made available to the Property Administrator.

• NOTE – The ASTM E‐53 Committee is working on a “GUIDE” that may be used by Contractors to do just this!

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PROCESSES TIED TO CONTRACTOR’SPMS PROCEDURES AND FAR REQUIREMENTS

• BOTTOM LINE WITH A SIMPLE EXPLANATION– DO YOUR OWN INTERNAL ASSESSMENTS

– COMPLY WITH FAR GP CLAUSE REQUIREMENTS

– COMPLY WITH ANY VCSes, ILPs and CCPs

– COMPLY WITH WRITTEN PROCEDURES (Contractor’s Written Procedures)

– ENSURE CLARITY as to CRITERIA for each PROCESS, i.e., clarify nebulous terms, e.g., “immediately, promptly, periodically, within a reasonable period of time.”

PA AUDITS

• None of this should be a surprise!

• Government PAs have been doing this for DECADES

• Contractors have been doing this for DECADES

• The AMPLIFICATION is who ACTS upon the PA’s Findings?

– We’ll see that in a minute.

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DFARS 252.245‐7003

• The Clause discusses the issue of…

– (d) Significant deficiencies.

• (1) The Contracting Officer will provide an initial determination to the Contractor, in writing, of any significant deficiencies. The initial determination will describe the deficiency in sufficient detail to allow the Contractor to understand the deficiency.

• And then the “Sturm and Drang” of corrective actions, debate as to the significance of deficiencies, and other “stuff”….

GUIDANCE ON SIGNIFICANT DEFICIENCIES

• DFARS 252.245‐7003 Definition

– “Significant deficiency” means a shortcoming in the system that materially affects the ability of officials of the Department of Defense to rely upon information produced by the system that is needed for management purposes.

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DOD Property Administrator Guidance

• OLD GUIDANCE – DOD 4161.2‐M (Rescinded)

– Chapter 4 provided good EXPLANATION and EXPLICATION of the issue of “SIGNIFICANCE.”

• CURRENT DCMA GUIDANCE for PROPERTY FOLKS

– (Note – other areas have other/more guidance)

– DCMA‐INST 124 dated February 1, 2013

• http://www.dcma.mil/policy/124/DCMA‐INST‐124.pdf

DCMA‐INST 124 dated February 1, 2013

• 3.9.15. Analyze Defects. The PA shall:

– 3.9.15.1. Analyze defects from both quantitative (using established statistical sampling tables acceptance and rejection rates for set populations) and qualitative (impact, significance, materiality) perspectives.

– 3.9.15.2. Determine if defects materially affect the ability of DoDofficials to rely upon information produced by the contractor’s property management system. [REITERATIVE]

– 3.9.15.3. Review appropriate source and supporting documents pertaining to each process outcome.

– 3.9.15.4. Validate alignment and consistency of testing/sampling results against a contractor’s written procedures.

– 3.9.15.5. Incorporate contractor self‐assessment results into PMSAfindings (to the extent the results are reliable; i.e., are conducted in a manner similar to a PMSA).

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Ahhhh, but there is MORE!!!

• Still from DCMA 124, Note to Chapter 3.10

• NOTE: In all cases, the PA shall inform the contractor that the Contracting Officer will determine the significance of any deficienciesand formal system status, i.e., approved, disapproved.

– See DCMA‐INST 131 (Reference (p)).

And still more…

• 3.11. PREPARE BUSINESS SYSTEM ANALYSIS SUMMARY (BSAS). Upon completion of a PMSA (either Standard or Limited), the PA shall:

– 3.11.1. Prepare BSAS in accordance with DCMA’s Correspondence Manual (Reference (x)) and BSAS template format. See DCMA‐INST 131 (Reference (p)).

– 3.11.2. Ensure BSAS provides a clear understanding of work performed and its conclusions, and a level of detail necessary to allow a Contracting Officer to determine the significance of deficiencies.

– NOTE: If the Contracting Officer determines that cited deficiencies are not significant, PAs should still seek contractor corrective action, preferably by issuing an appropriate level II CAR. See DCMA‐INST 1201, “Corrective Action Process” (Reference (y)). If the contractor does not cooperate, the PA shall escalate the matter to the Contracting Officer, notwithstanding the significance of findings or deficiencies. See paragraph 3.14.

– 3.11.3. Forward BSAS to the Contracting Officer

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DFARS 252.245‐7003

• (f) Withholding payments. If the Contracting Officer makes a final determination to DISAPPROVE the Contractor’s property management system, leading to a potential risk of harm to the Government, and the contract includes the clause at 252.242‐7005, Contractor Business Systems, the Contracting Officer will withhold payments in accordance with that clause.

• DFARS 252.242‐7005 says, – “five percent of amounts due from progress payments and performance‐

based payments, and

– … withhold five percent from its billings on interim cost vouchers on cost, labor‐hour, and time‐and‐materials contracts .”

– “…Ten percent for significant deficiencies in multiple contractor business systems.”

THE RULE ON UNINTENDED CONSEQUENCES

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OVERLAPPING BSRs

GovernmentProperty

ManagementSystem

DFARS 252.245‐7003

Accounting System

DFARS 252.242‐7004

ContractorPurchasingSystem

DFARS 252.244‐7001

MaterialManagementAccounting System

DFARS 252.242‐7004

ImpactsSubcontracts, e.g.,Flowdown of GP Risk of Loss,GP Management Requirements, etc.

ImpactsManagement of GP of the

CAP MATERIAL classification, e.g.,

Consumption, Transfer, Physical Inventories, etc.

Impactsthe charging of Property

that becomes Government Property,

e.g., R, A, & A, direct versus indirect,

Cost Accounting Standards, etc.

DOUBLE JEOPARDY

• We need to be very careful about the potential for different “Auditing/Reviewing” entities discovering the same deficiencies in different SYSTEMS due to their “overlap” and therefore viewing it as two different findings.

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And …A POTENTIAL DOUBLE WHAMMY!

• If the Contractor’s PMS is DISAPPROVED two things may happen:– Withholding of Payment and

• DFARS 252.245‐7003

– Withdrawal of Government’s Assumption of Risk for “Loss” of GP

• FAR 52.245‐1 and• DFARS 252.245‐7002

SOME PROPERTY SYSTEMS ADVISE

• Contractor ‐‐ Use your Self Assessments to maintain the “Health” of your PMS– FAR 52.245‐1(b)(4)

• Contractor ‐‐ PLAN for your Government Audits. They SHOULD be scheduled by your cognizant PA at the start of the fiscal year.

• Government and Contractor ‐‐ Focus SHOULD be on the SIGNIFICANT, SYSTEMIC, DEFECTS, DEFICIENCIES OR WEAKNESS!

• Government ‐‐ FOLLOW your agency’s guidance in regard to audit criteria!!!

• Government ‐‐ FOLLOW your agency’s instructions to ensure DUE PROCESS!!!

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THANK YOU!

Dr. Douglas N. Goetz, CPPM, CFPRESIDENT, GP CONSULTANTSOLD AFIT/DAU PROFESSORHopefully a Good Instructor.

233 N. Maple AveFairborn, OH 45324

[email protected]

1‐937‐754‐18111‐937‐878‐6680

© 2013 GP Consultants LLC

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Dr. Douglas N. Goetz

President and CEO of GP Consultants – specializing in Contract Property Management issues. He received his BA and MA from Hunter College of the City University of New York, and his Doctorate (Ph.D.) from The Ohio State University in National Security Policy Studies and Adult Education. He has served on the faculty of DAU and previously the Air Force Institute of Technology (AFIT) for over a quarter of a century. Even after retirement, he has been brought back on board as a Professor of Contract and Property Management on an intermittent basis at the Defense Acquisition University (DAU) in Dayton, Ohio where he specializes in Contract Property Administration.

Dr. Goetz has had extensive experience as a Property Administrator within the Department of Defense. He has traveled extensively through the United States and overseas researching the application of the Government Property Management Requirement. He has experienced Property Management up close and personal in the war zones of the Balkans and Iraq – as well as far flung operations in Japan, Guam, Turkey and Saudi Arabia. Based upon his research he has written and has had published over 100 articles and multiple textbooks. His publications have included articles for numerous professional magazines and journals including articles for the National Contract Management Association and the National Property Management Association – with numerous article receiving awards of Technical Excellence. He served as the National Editor of the “Property Professional,” an international publication, for twenty years and is now the Editor Emeritus. Dr. Goetz Chaired the DFARS Supplement 3 Rewrite Committee, where he was the principal author responsible for the creation of the DOD manual, DoD 4161.2-M used by all Government Property Administrators in the performance of their jobs. His most recent challenge – writing the Department of Defense Guide for the Administration of Contract Property – the replacement for the 1991 DoD Property Manual. Dr. Goetz’ awards are impressive: He was the 1990 recipient of the Federal Property Manager of the Year award, the highest award presented by the United States Government in the field of Property Management. In 1993 he received the Jack Griffiths Property Manager of the Year award, and in 1998 the Lifetime Achievement Award from the National Property Management Association, and in 2007 was presented the NCMA Alan E. Peterson Award for Distinguished Service in Government Contracts. He has also been recognized for his teaching abilities – awarded the John Demidovich Excellence in Teaching Award by AFIT in 1990 and in 2008, he was awarded the Defense Acquisition University Teacher of the Year. He has received both the Meritorious Civilian Service Award and the Superior Civilian Service Award. Dr. Goetz is listed in Marquis’ “Who’s Who in American Education,” “Who’s Who in America,” and “Who’s Who in the World.”

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Documents

GOVERNMENT PROPERTY SYSTEMS REVIEWS - San Diego