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Managing Fixed Price Development Programs

Learn about critical areas to address when changing contract type on development contracts, including requirements definition, risk reduction, metrics, contract incentives, and post-award contract management.

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Managing Fixed Price Development Programs

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  1. Managing Fixed Price Development Programs Presented by John Pritchard Professor of Contract Management Defense systems Management College

  2. Agenda • Trend Change • Critical Areas to Address when changing Contract Type on Development Contracts • Requirements Definition • Risk Reduction • Requirements Baselines • Metrics • Contract Incentives • Post Award Contract Management

  3. Critical Areas to Address in Development efforts • Requirements Definition • Realistic Requirements • Risk Reduction • Baselines • Design to Cost/CAIV • Metrics • Budgeting

  4. Requirements DefinitionRealistic Requirements • Realistic Requirements • Requirement process is even more critical in a Fixed Price environment • Unrealistic requirements can doom a program • All funds spent by the contractor reduce profit and/or come out of corporate funds • Trade off between “hard core” requirements and “nice to have” requirements • Must have realistic delivery schedules

  5. Requirements DefinitionRisk Reduction • Risk reduction involving tradeoff studies (early on) to weed out unrealistic requirements: • Producability • Supportability • Beyond the “state of the art” items • Beyond production capabilities of industry

  6. Requirements DefinitionBaselines • Baselines to which all parties have agreed! • User • Developer • Supporter • Changes should be kept to a minimum and rarely occur after tradeoff studies have addressed the impacts • Configuration Control Boards play a very critical role

  7. Contract Incentives • Positive or Negative Incentives or both? • Increase of Decrease Profit based on degrees of Success (or lack there of) • Objective or Subjective Incentives? • Avoid to many incentives Remember: You get what you incentivize, not what you intended to incentivize

  8. Incentivize Higher Quality • Increased Fee • Extended Contract Length • Follow-on Contracts Awarded • Accelerated Progress Payments (cash flow) • Shared Savings • Warranties • Performance Based Payments • Others?

  9. Post Award Contract Management • Effectively managing development contracts are highly dependent on limiting the amount of contract changes • Contract Cost Incentives may make contractors less willing to accept non official or just helpful advice as any change may, and probably will, affect profit • Baselines become more entrenched • Discipline by both sides is necessary any changes should be clearly stated, evaluated , priced and incorporated into the contract

  10. Post Award Contract Management • Acquisition Program Transition Workshop is advisable after award to: • Create an environment of teamwork, collaboration, communication and trust • Conducted jointly with government/contractor teams • High energy effort over a couple of days • Align Government and contract startup activities • Focus on improved program execution and communication

  11. Post Award Contract Management • Risk Assessment/Reduction should still be a primary consideration • Philosophy must be applied to ECPs or restructures • Keep careful watch on the contracts incurrence of cost and the availability of funding, especially on any incremental funding • Contractor is only obligated to work as long as the Government provides the incremental funding

  12. Post Award Contract ManagementMinimize Change Activity • As Dr. Carter stated “We on the Government side are assuming the risk of being able to articulate what it is exactly that we want and, then, not changing that notion.” • As children we were told to keep our hands to ourselves • As program mangers in fixed-price development, we should keep our hands off the contract. • Changes can be “profit in escrow” • If changes are needed, you will either need to find money and/or be prepared to back off requirements (i.e. adjust the baseline)

  13. Post Award Contract ManagementManaging Requirements Changes • Configuration Control Boards are crucial: • Establish an effective CCB Team • Establish a firm CCB process that all understand • Don’t allow requirements creep • No changes without either identifying the funds or reduction in the baseline to pay for the change

  14. Post Award Contract ManagementClaims • Under an FP arrangement - Contractors may be more willing to submit claims • Claims must be submitted within 6 years after the accrual of the claim • Contracting officer will review the claim and make a “Final Decision” • If contractors are not pleased with the final decision(s), under the Contract Disputes Act, they can appeal the decision via two routes • Administrative – Armed Services Board of Contract Appeals • Judicial – Federal Claims Court

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