Kathy Daniels

Contract Issues in Contract Issues in Project Management Project Management

Project Management for ARA Engineers and Scientists

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Desired Learning ObjectivesDesired Learning Objectives Understand the different considerations for commercial

and government customers Understand the different attributes (and cautions) of

T&M, CPFF, CPAF and Fixed Price contracts Be able to know what to look for in a contract and what

to avoid Know what it takes to work at risk and what it means Understand authority on both sides of the contract

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OverviewOverview Customers and Contracts – the good, the bad, the ugly Types of contracts and their implications What to look for in a contract and what to avoid Working at risk and what it means Authority on both sides of the contract Ethics and standards of conduct reminder How to get help

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Commercial CustomersCommercial Customers Do we know the customer and ability to pay?

• Financial Risk Assessment Procedure

• We can check DBS or customer’s bank

Commercial contracts generally are fixed price… However, read the fine print

• Payment, when, by whom, based on what?

• What are the deliverables?

• Who accepts work and approves payment?

• Are there intellectual property or liability issues?

In some ways, riskier than government business

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Government CustomersGovernment Customers Must understand roles and authorities of customers

• Procuring Contracting Officer (PCO) can negotiate and sign contract, approve changes and issue mods, terminate contract

• Administrative Contracting Officer (ACO) administers contract, ensures delivery, oversees contract closeout

• Contract Auditor (DCAA) audits cost, payments, rates

• Technical Representative (COR, COTR, CTM) is performance monitor, cannot make changes or authorize new work

A contract must be signed before we start work Contracts range from simple to very complex

based on risk of completion and dollar value

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Contract Type RefresherContract Type Refresher

CPFF – Cost Plus Fixed Fee CPAF – Cost Plus Award Fee T&M – Time and Materials FFP – Firm Fixed Price Type used depends on relative buyer-seller risk and

other considerations

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Cost Plus Fixed Fee -- CPFFCost Plus Fixed Fee -- CPFF R&D with high technical risk Buyer reimburses actual costs

• Contract modification required to exceed

not-to-exceed price

• ARA policy to avoid cost overrun

Negotiated fixed fee amount paid • Cost-plus-percent-of-cost illegal

Must report costs incurred and notify Buyer before 75 percent point of completion

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Cost Plus Award Fee -- CPAFCost Plus Award Fee -- CPAF R&D with high technical risk Buyer reimburses actual costs (like CPFF) Maximum award fee percent specified in contract (may

be base and variable portions) Evaluation criteria spelled out in contract fee plan Customer determines fee percent earned usually every

six months Fee determination cannot be disputed

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Time and Materials – T&MTime and Materials – T&M Cost ceiling on labor, other direct costs (ODCs) or both Labor is reimbursed at fixed hourly rates

• Includes DL, OH, GA, Fee

Quantity of hours estimated – can change Materials, travel, ODCs reimbursed at actual cost plus

negotiated – not actual – burden (e.g. 13% G&A or 4% materials burden) if authorized in contract• No fee on these non-labor costs

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T&M CautionsT&M Cautions Limited to people/rates listed in contract

• May not be able to use a new person

• No changes allowed for pay raises

• Consider use of average vs. individual rates

Can only bill labor unless ODCs specifically listed Earned fee reduced by high materials or ODC ratio Billed at negotiated vs. actual rates Post Audit often reduced payments Prefer CPFF or FFP as alternative

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Firm Fixed Price – FFPFirm Fixed Price – FFP Buyer pays specified price for job

• No adjustment based on actual cost

Seller (ARA) bears all risk (performance and cost) Warrants a higher profit percentage Profit is remaining residual when costs are paid (plus or

minus) Try to reserve for well defined task or requirement The “norm” in commercial contracting

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Profit or FeeProfit or Fee Depends on:

• Contract type and relative risks

• Amount of competition

• Government or commercial▪ Not restricted to government rates on commercial jobs

General rules• Cost Reimbursable – propose 10 percent

• Fixed Price – propose 15 percent – more on commercial jobs

Will almost always be reduced in the final negotiations Profit is not a dirty word

• It’s how we stay in business and grow

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What to Look for in a ContractWhat to Look for in a Contract Subcontracts awarded to ARA by Government prime

contractors often attempt to pass liabilities or impose conditions unfavorable to ARA• Indemnification clauses that shield prime

• Clauses that give IP ownership to prime

• Clauses that prevent access to customer

• Unreasonable review and approval requirements

• Pay-when-paid clause

• Refusal to recognize all costs (e.g. computer use)

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What to Look for in a ContractWhat to Look for in a Contract Government contracts

• Understand what is to be delivered and when (SOW, CDRLs, other contract clauses)

• Contract value, funding, options are different

• Limitation of cost/funds notices are important

• Understand payment provisions

• Protect ARA intellectual property – assert rights otherwise government has unlimited rights

• Adhere to security provisions, clauses requiring approval of public releases, Government Property requirements

• If contract is greater than $550K, Small Business subcontracting plan and reporting required

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Working at Risk – What Does it Mean?Working at Risk – What Does it Mean? Working at Risk includes:

• Commencing work prior to contract award

• Continuing work prior to receipt of fund increment

• Continuing work beyond contract end date

Sector Manager must approve working at risk• PI sends request in writing documenting circumstances in

advance of the need date

• The SM approval will be included in the project file with copy provided to COO

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Working at Risk – What Does it Mean?Working at Risk – What Does it Mean? To commence work pending contract award

• Written authorization of the customer (pre-contract cost letter, letter contract or notice to proceed signed by authorized official). Authorization must state effective date and dollar ceiling pending award. Equivalent documents if commercial.

To continue work pending contract modification, adding funding or extending end date • Document the funding status or the request for time extension

including customer response in request to the SM

• PI insures timely notification has been given

under Limitation of Funds clause to include

estimate to complete contract

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ARA Proposal Signature AuthorityARA Proposal Signature Authority

Division Manager (if corporate officer) Sector Manager Vice President, Contracts Executive Vice President, CFO, CEO Urgent – any ARA Vice President Provide copy to corporate if signed elsewhere

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ARA Contract Signature AuthorityARA Contract Signature Authority

Vice President, Contracts (routine) Executive Vice President, President, CEO Urgent – any ARA Vice President Provide copy to corporate if signed elsewhere

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Ethics and Standards of ConductEthics and Standards of Conduct BOD policy statement updated on Feb. 10, 2009

• Frank, open and ethical dealings

• Corporate and individual acceptance of responsibility

• Ethics – behavior based on right conduct

Managers create supportive work environment • Demonstrate ethical behavior day to day

• Train staff and deal with issues forthrightly

• Report breaches and forbid retaliation

Federal requirements for Disclosure and Training

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Ethics and Standards of ConductEthics and Standards of Conduct Specific Requirements:

• Integrity in accounting and contracts

• Full, accurate, timely disclosure

• Avoidance of conflicts of interest

• Avoid acceptance or giving of gratuities

• Maintain confidentiality of information

• Safeguard physical and intellectual property of ARA and its clients

• Further details in Policy Guide #11 and #12

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Where to Find HelpWhere to Find Help Spend time perusing the ARA Intranet

• http://intranet.ara.com/cont_purch

• Forms and Formats

• Policies and Procedures

• Information to Prepare Proposals http://intranet.ara.com/marketing/proposalsupport.html

Call (505) 881-8074 or contact the key person as identified on the corporate responsibilities list • Contracts, subcontracts, purchasing, P-Cards, government

property, small business program, project set-up and administration, proposals

• Ethics and Standards of Conduct guidance

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Phases of Project ManagementPhases of Project Management

Elation Disenchantment Confusion Search for the Guilty Reprimand for the Innocent Distinction for the Uninvolved