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Property From the DCMA Perspective The Challenge of Change

Jerry Rothhaar DCMA Property Division November 5, 2009

Final(ly) FAR Changes

· Final Rule for FAR 52.245-1 issued June, 2007 · Reduced number of clauses from 19 to 3 (with 6 reservations) Provides "one stop shopping" for the contractor · Places all requirements in the clauses. The provisions in Subpart 45 are no longer incumbent on the contractor.

Final(ly) FAR Changes

· 52.245-1 mandatory for all contracts issued after June, 2007 · Some contractors voluntarily agreed to block changes, thus removing dual requirements for control systems with multiple contracts. · 2009 talks between DCMA and the Armed Services resulted in an agreement to issue block changes to all property-bearing contracts administered by DCMA. · Unilateral contract modification executing the block change was signed October 19, 2009, with an attachment listing >58,000 contracts administered by DCMA.

The Block Change

Deleted

52.245-1 ­ Property Records (any date prior to June, 2007) 52.245-2 ­ Government Property ( Fixed Price Contracts) 52.245-3 ­ Identification of Government Furnished Property) 52.245-4 - Government Furnished Property (Short Form) 52.245-5 ­ Government Property (Cost Reimbursement, Time and Material, or Labor Hour Contracts) 52.245-6 ­ Liability for Government Property (Demolition Services Contracts) 52.245-7 ­ Government Property (Consolidated Facilities) 52.245-8 ­ Liability for Facilities 52.245-10 ­ Government Property (Facilities Acquisition) 52.245-11 ­ Government Property (Facilities Use) 52.245-12 ­ Contract Purpose 52.245-13 ­ Accountable Facilities 52.245-14 ­ Use of Government Facilities 52.245-15 ­ Transfer of Title to the Facilities 52.245-16 ­ Facilities Equipment Modernization 52.245-19 ­ Government Property Furnished "As Is"

The Block Change Deleted

DFARS 252.245-7001 Reports of Government Property ·Contractor Property Management System (CPMS) is history ·Rest In Peace, DD 1662 ­For FY 2009 reporting, although the requirement to use the DD1662 may remain in most contracts, it is a a requirement DCMA chooses NOT to enforce. DFARS 252.211-7007 ­ Unique Identification of Government Property (Sept. 2007)

The Block Change ADDED

52.245-1 (June, 2007) Cost Type Contracts w/Alt I, Fixed Price Contracts (full liability) w/Alt II, Fixed Price Contracts (ltd. Liability) and Cost Type contracts w/Nonprofits 52.245-9 Use and Charges (June 2007)

Final(ly) FAR Changes

­ 52.245-9 Use and Charges clause remains unchanged in that · CO authorization must be obtained prior to alternate use · Situations where rent must be charged and exceptions to rent requirements remain largely unchanged ­ Formula for rent calculation has changed · Old formula relied on a percentage of acquisition cost based on age, and hours of use to arrive at a monthly rate. · New formula no longer relies on acquisition cost. The contractor is now required to obtain the equipment value from an accredited appraiser. · The formula then uses that value and the rental time to determine an hourly rate

LIABILITY

· Basic clause with limited contractor liability applies to all cost reimbursement, time-and-material, and labor-hour type solicitations and contracts, as well as fixed-price solicitations and contracts when Government property will be furnished or acquired. · The full risk of loss concept is now found under Alternate I to this clause. · Alternate II applies to non-profit R & D contractors and provides for limited liability and title revisions."

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Support Delegations · SOP is being developed offering guidance on the acceptance of Support Property Administration delegations. · Contractor should not be asking the PA to issue an SPD for DCMA to administer their subcontractors. · Current guidance does not allow the PA to unilaterally accept delegations on behalf of DCMA for subcontractor property support.

Administrative Changes

· FAR 52.245-1(b) requires that property control systems be consistent with voluntary consensus standards and industry leading practices. · The selected VCS/ILP should be recognized as such and in published form. · Procedures are still required, although they are not approved by the PA. · Prior to PMSA, PA will review the procedures for adequacy and compliance with FAR, DFARS, and contractual requirements. If determined to be deficient or noncompliant, the PA will require corrections.

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Contractor Self Audits

Difficult to initiate

· Advisable to develop the plan in consultation with the PA · Early audits may be redundant. PA may review the same functions using traditional methods to gain a familiarity with your plan and to establish whether your techniques yield consistent, verifiable results. · As confidence grows, oversight reduces

· Methods ideally should mimic PA's technique, i.e., random sampling, reverse sampling, frequency, stratification, etc. Govt. expects a 90% confidence level.

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Contractor Self Audits

·Take action when problems are identified

· It isn't enough to correct the instant deficiency (corrective action) · Root cause must be addressed (preventative measure) · In the Government's best interests, the PA may: · Reject self audit results if confidence is lost · Elect to perform traditional audits until conditions improve

· BOTTOM LINE

It's in everyone's best interests to cooperate in the development and execution of property administration strategies and self-audit procedures.

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DCMA Evolution In Risk Rating Factors · In ancient times:

­ Major (MA) or Limited (LA) analysis based solely on dollar threshold ($500K) ­ Evolved to a risk-based analysis.

· Inherent Factors

­ ­ ­ ­ Aggregate acquisition cost of all GP Amount of line items Number of categories Types of contracts

DCMA Evolution In Risk Rating Factors

· Past Performance Factors

­ ­ ­ ­ ­ PCS Status LDD History Variances in Physical Inventories Past Unauthorized Use Past Unauthorized Acquisition or Disallowed Costs

· System Changes

­ PCS CAPs ­ Contractor Changes to PCS

DCMA Evolution In Risk Rating Factors

· Combinations of inherent, past performance, and system change factors, with emphasis on inherent factors, were combined to determine the level of risk for a particular contractor property system. (low, moderate, high) · PA was empowered to determine the frequency of system and functional analyses based on level of risk.

­ Low Risk (LA) ­ on site or desk audit, usually on an alternate schedule ­ Moderate Risk (M1) ­ on site annually with functional waivers and occasional system waiver at PA discretion ­ High Risk (MA) ­ on site annually with functional waivers

· Regardless of risk rating, the PA is required to perform an onsite analysis no less than once every three years.

DCMA Evolution In Risk Rating Factors

· Presently, the same types of rating factors remain in place, but how those factors are assessed has been revised. · The PA is still empowered to determine the frequency of system and functional analyses based on level of risk.

­ Low Risk (LA) ­ on site or desk audit, usually on an alternate schedule. PA must justify more frequency in the schedule. ­ Moderate Risk (M1) ­ on site or desk audit, usually on annual schedule, although alternate schedule is PA option if justified. ­ High Risk (MA) ­ on site annually Inherent factors still influence the risk rating, but contractor performance over time is key to level of oversight and frequency of audits.

DCMA Evolution In Risk Rating Factors · Inherent, Past Performance and System Change factors still play a part in determining risk, but the PA has the flexibility to consider them, rather than being ruled by them. ­ Additional risk factors with the growing emphasis on self audits:

· Contractor's compliance with VCS/ILP and contractual requirements · Maturity of the property control system

­ Includes the working relationship between the contractor and the PA

DCMA Property Division Structure

Property Division

· · · · · · · · Director Deputy Director 2 Process Improvement Officers 10 Team Leaders 1 Management Analyst 1 Management Assistant 148 1103s (18 current vacancies) 12 Keystones (5 vacancies in process of hire) · 13 Emergency Essential (EE) positions ­ these personnel will be employed CONUS when not deployed to Middle East

EYJ WA MT OR ID WY SD ND MN NY WI MI NE CO KS MO WV KY VA IA IL IN OH MD PA NJ DE EYB VT NH MA CT ­ Long Island NV CA UT EYA EYE ME

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AZ EYI NM TX EYH El Paso LA FL OK AR AL MS GA TN SC NC

EYD

PR EYD

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EYF

AK EYJ H I EYI Rev: 13 4/30/2007 EYG

DCMA Property Division Structure

· Transition from CMO management to dedicated division seamless to the contractor · With Property under the CMOs, geographic boundaries were rarely crossed. · Although teams are geographically aligned, division structure allows routine flexibility to support special projects and manpower shortfalls across all boundaries.

Higher Visibility

· Special Report 1 of the Commission on Wartime Contracting in Iraq and Afghanistan dated September 21, 2009, listed the following among its recommendations for improvement:

­ "DCMA needs to develop an effective process that includes aggressive compliance enforcement."

As a result:

· DCMA PAs are being encouraged to work collaboratively with the contractor, the contracting officer, and the customer while ensuring Government property is being cared for and controlled IAW contractual requirements.

Our Mission

DCMA's mission is to ensure that contractor property management systems successfully meet the requirements of the Federal Acquisition Regulations (FAR), Defense Federal Acquisition Regulation Supplement (DFARS), and contract terms and conditions. This mission does not involve the keeping or maintaining of property records, rather it involves performing the necessary oversight and surveillance of assigned contractors. The keeping and maintaining of accountable property records is a DoD Component responsibility.

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