Program Management Systems Committee (PMSC)

1. Program Management Systems Committee (PMSC) Contractual Requirements/Issues Sub-Team Update 7 August 2007

2. Sub-Team • Team Members Mike Martin - P&W Rocketdyne (Team Lead) Beverly Solomon - Northrop Grumman Gay Infanti - Northrop Grumman Eleanor Haupt - Consultant to the Institute for Defense Analyses Dave Muzio - MCR Peter Schwarz - MDA Jeff Poulson - Raytheon Linda Nobel - Raytheon Mike Pelkey – OSD Randy Steeno – Boeing Debbie Tomsic – OSD Larry Axtell – OSD Ivan Bembers – NGA Fred Meyer – DCMA EV Center • 8 Meetings conducted to date / 1 Face to Face on 12 June • Reviewed all previously identified issues to focus efforts. • Selected highest payback issues.

3. Issues List • Currently working 4 issues. * See backup charts – pages 7 and 8

4. Order of Precedence Suppliers have been contractually-directed by customers to depart from their validated EVM Systems to manage their contracts via • Section H – Special Provisions • Section C – Statement of Work requirements • In addition to inclusion of FAR or DFARs EVMS clauses in Section I The central issue is whether and by what means and to what extent can a supplier be rightfully required to violate the requirements of its validated EVM System. • Issue could arise between Customer and Prime and may or may not be flowed down to the Subcontractors • Issue could also arise between Prime and Subcontractors Issue Recommendations Existing contracts: • Issues identified must be resolved, bilaterally, by the buyer and seller • PCO’s and ACO’s must agree with the resolution. • Resolution may involve adjustments to price and/or other changes to the T’s & C’s of the contract . New acquisitions: • Involve all stakeholders in decision-making early in the acquisition process • Suppliers seek clarification of issues identified in RFPs using prescribed process • Issues identified after ATP must be resolved, bilaterally, by the buyer and seller • Conduct communication and training • Conduct RFP reviews within DoD / Primes and engage the EV Center for clarification when necessary Impact • DCMA issuing corrective action request (CAR) to Supplier for failing to follow Supplier’s validated EVMS • This finding appears inconsistent with the Contract Order of Precedence • Supplier cannot unilaterally resolve conflict in the contract nor can Supplier fail to comply with contract requirements

5. Order of Precedence – T’s & C’s Contract Example Part I – The Schedule C) Description/specifications /statement of work EVM SOW text (infrequent) H) Special Provision clauses H) Special Contract Requirements Part II – Contract Clauses Suppliers EVM System Description I) 252.242-7002 Part III – List of Documents, Exhibits, and Other Attachments IMS or CPR DIDs J) List of Documents, CDRLs/SDRLs Part IV – Representations and Instructions (Solicitations only, excluded from the Contract)

6. Integrated Subcontract EVMS Implementations • The use of a single EVMS by all program participants to manage large programs involving major subcontractors may be viewed as non-compliant to the DFARS EVMS clause by the new DCMA EV Center • This approach also referred to as badgeless, virtual, or gray badge • Characterized by adoption of a single validated system to manage the effort (typically the prime’s EVMS), use of a common tool set, integrated schedules and performance reporting Issue Recommendations • Contracts Working Group define valid options for EVMS flow down to subcontractors considering: • Different subcontract types • Roles and responsibilities • Validation requirements for prime and subcontractors • Reporting CDRLs (CPR and IMS) • Submit matrix for approval to the full PMSC • Submit for concurrence by OSD and DCMA EV Center • Conduct communication and training • Incorporate guidance into EVMIG • Incorporate modified guidance into NDIA Guides, as required Impact • Potential of DCMA Corrective Action Request (CAR) • The risk to the Subcontractors’ EVM System validation is still unclear at this time.

7. Ownership and Control of Management Reserve • Direction has been given to prime contractors and subcontractors to use their Management Reserve (MR) for purposes other than the intent expressed in the ANSI/EIA-748 Standard. • MR is sometimes viewed as a contingency to eliminate in negotiations or to use for out-of-scope work. • Government involvement in MR approval process Issue Discussion • Decisions for the use of MR have been the province of the contractor within the confines of its approved use in accordance with the ANSI Standard • Misuse of MR is on the DCMA EV Center “Watch List” as a serious concern. Impact • Use of MR for out-of-scope work violates accepted contracting procedures and is tantamount to constructive change to the contract. • Improper use of MR distorts the Performance Measurement Baseline (PMB) resulting in skewed data and indices. Recommendations • Contractors should object to direction for the use of MR that deviates from accepted ANSI standard. • Contracting officers and prime should be alert to instances of improper contract direction.

8. Subcontractor Compliance, Validation and Surveillance • Conduct a formal workshop with DCMA EV Center and Industry Reps • Results of workshop would require the development and / or modification of policy / guidance. Issue Discussion • There is confusion regarding the responsibility of subcontractor Compliance, Validation and Surveillance. Inconsistency between EVMIG , ANSI and DCMA Policy. • DCMA? • or • Prime Contractor? • < $20M • > $20M - < $50M • > $50M • Current policy / guidance can be interpreted in a variety of ways. • DCMA’s position is that they are responsible. • Industries position is that they are responsible. • Represents a paradigm shift in the Prime / Subcontracting relationship. Impact • Confusion between Prime and Subcontractors regarding oversight responsibilities. • Implementation responsibility gaps could cause significant compliance issues to go unnoticed. • May drive different implementation policies and procedures (e.g. DoD vs. Non DoD). Recommendations

9. Path Forward • Understand stakeholders positions • Include DCMA EV Center, DoD and Industry Contracting SMEs to discuss our primary issues • Consider “Unintended Consequences” • Further Define and Prioritize Issues • Seek Corporate Guidance • Achieve consensus • Communicate, Communicate, Communicate • Develop and publish articles • Personal presentations • Revise Requirements as needed