The Subcontract Management Body of Knowledge (ScMBOK ): The Competitive Edge

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2 The Subcontract Management Body of Knowledge (ScMBOK ): Breakout Session #: A09 - Track 3. Post-Award (CMBOK 3.0) M. Subcontract Management Presented by: The Subcontract Management Institute (ScMI ) Date: Monday, July 25 Time: 11:15-12:30 AM DEDICATED TO REDUCING PERFORMANCE RISK IN THE EXECUTION OF PUBLICLY-FUNDED CONTRACTS Combines Certification with Qualification

3 Panelists: ScMBOK What s unique? Dan Jacobs, Chairman, ScMI ; NCMA Fellow, CPCM, Past National President, Honorary Life Member. Charles A. Dana Distinguished Service Award; Director, Procurement Round Table; Certified Management Consultant (CMC/IMC- ISO) The Subcontract Management Team Lenn Vincent, RADM USN (Ret.) Vice Chair, ScMI ; NCMA Fellow, Past National President, Roback Award; Commander, DCMA; Commandant, Defense Systems Management College (DAU); NDIA Industry Chair, DAU; Director, Procurement Round Table Competitive Pricing Vic Avetissian, CFO, ScMI ; NCMA Fellow, Past National President, Honorary Life Member, Charles A. Dana Distinguished Service Award, Outstanding Fellows Award and Director, Procurement Round Table Winning & High Performance Tom Reid, JD, President, ScMI ; NCMA Fellow, CPCM, Former National Director; Outstanding Fellow Award and National Achievement Award 2

4 The Subcontract Management Body of Knowledge (ScMBOK) defines the essential knowledge, skills and competencies for successfully managing subcontracts in publicly funded contracts. To Gain the Competitive Edge: It is important, even necessary to develop standards (world wide), determine consistency, competencies, and develop useable training curriculum, etc.; Individuals/organizations can use the ScMBOK to learn, train, ensure compliance, consistent processes AND be more competitive and profitable % of all Federal Acquisition $ are spent with SUBCONTRACTORS 3

5 THE SUBCONTRACT MANAGEMENT ICEBERG EFFECT The majority of activities occur at the Subcontract level Public, Private, Commercial, Large, Medium, Small, and Foreign Companies 4

6 WHAT LEADERSHIP MUST DO TO AFFECT CHANGE Increasing Work Content Focusing on just the prime s efforts is insufficient in today s environment, where the bulk of the work lurks below Decreasing Government Insight Traditional Focus The Prime Contractor Interface Tier I (Major Subs) Tier II Tier III The Needed Paradigm Leadership with a value chain perspective that is focused where the work is performed What s below the water level? 5

7 TAKEAWAYS: 1. Importance of subcontract management as a strategic management decision to achieving business and mission outcomes. 2. The impact and major price-related factors that contribute to program success. 3. Targeted and strategic decisions on developing subcontract management talent and pricing expertise to meet key organizational and program objectives. 6

8 As indicated in the Packard Commission Report (1986), the single greatest risk factor in the acquisition process is the failure of the using activity to adequately define its requirements from the outset. The second greatest risk factor is the failure of the prime contractor to adequately manage its subcontractors with whom the federal government has no privity (no contractual arrangement). Approximately 60-80% of all acquisition dollars are expended with subcontractors. THAT RISK STILL EXISTS UNTIL NOW, THERE WAS NO INDUSTRY STANDARD FOR SUBCONTRACT MANAGEMENT OF PUBLICLY-FUNDED CONTRACTS. 7

9 ScMI CHARTER The purpose of The Subcontract Management Institute (ScMI ), a non-profit organization, 501c(3), is to: 1. Establish and maintain the Global Standard for Subcontract Management and Administration to include the Subcontract Management Body of Knowledge (ScMBOK ); 2. Provide the contractor with knowledge, skills, competencies, tools and techniques to execute subcontracts more effectively, reduce performance risk and deliver value to company shareholders and taxpayers; and 3. Provide organizations and individuals the opportunity to become certified to enhance productivity, profitability and their value proposition. 8

10 Copyright The Subcontract Management Institute ScMBOK What s unique? BEST PRACTICES Pricing & Performance Enterprise-wide focus on Subcontracts! 9

11 The Subcontract Management Team Lenn Vincent, RADM USN (Ret.) Vice Chair, ScMI ; NCMA Fellow, Past National President, Roback Award; Commander, DCMA; Commandant, Defense Systems Management College (DAU); NDIA Chair, DAU; Director, Procurement Round Table 10

12 The Subcontract Management Team Financial Contracts Program Manager Government Customer Supply Chain Manager Marketing & Business Development Global Business Manager Manufacturing Legal Subcontract Management a Team Effort Risk Manager Project Planning And Scheduling Personnel Estimating Subcontract Manager Engineering Process Design Technical Representatives Subcontractors Purchasing 11

13 Prime Contractor Three Teaming Perspectives: Prime, Sub, and Government Contractual relationships are often rocky, and hard to manage, but subcontracting is critical for success in the global market place The prime contractor accepts the total contract risk, but must design business arrangements where the risk for subcontracted work is further allocated to the subcontractor Subcontractor The prime-subcontractor relationship is critical and growing in importance in a dynamic global market shaped by fewer opportunities as a result of declining budgets and a much tougher business environment Just as negotiations occur between government and the prime contractor on risk, liabilities, and warranties, there are also vigorous negotiations among teammates and subcontractors on the degree of risk that will be accepted at each level Government Expects industry to pay very close attention to the selection of subcontractors from management, technical, execution and risk perspectives Strong teaming and collaboration no surprises 12

14 The Subcontract Management Team Managing a Contract/Subcontract typically includes: Identifying requirements Addressing various needs, concerns, expectations Balancing the competing constraints (unique per contract) including but not limited to: Scope Quality Schedule Budget (Cost) Resources, Issues (problems) Risks (potential problems) SCHEDULE The Triple Constraint 13

15 The Subcontract Management Team Must Plan for Success 10 Questions the Team Should Ask When Planning for Success: 1. How should subcontractor management be handled in our office? 2. Who will be the focal point for subcontractor issues? 3. How will we find the right people and train them sufficiently in subcontractor management? What tools do they need in order to be successful? 4. What should my counterpart and I discuss regarding subcontractor / supplier management? What do we need to agree upon? How will we share this with the rest of the team? 5. How will the government and the prime collectively define key -- critical, and major subcontractors / suppliers? How or will they be managed differently? 14

16 The Subcontract Management Team Must Plan for Success 10 Questions the Team Should Ask When Planning for Success: 6. How often should key/critical/major subcontractors and suppliers be visited? 7. What sorts of things will be measured? Can we ensure the metrics are linked (between the subcontractors / suppliers, the prime, and the Program Office)? 8. How will we include key/critical/major subcontractors / suppliers in various reviews? 9. How will the team respond when problems arise? Is there a response plan in place? How is it triggered? 10.At what point should a joint team be sent to investigate the root cause of significant problems? 15

17 COMPETITIVE PRICING Vic Avetissian, CFO, ScMI ; NCMA Fellow, Past National President, Honorary Life Member, Charles A. Dana Distinguished Service Award, Outstanding Fellows Award and Director, Procurement Round Table 16

18 COMPETITIVE PRICING Subcontract Selection Process Cost Analysis Commercial Item Price Determination 17

19 COMPETITIVE PRICING SUBCONTRACT SELECTION PROCESS Financial Capability Past Performance Technical Capability Approved Business Systems 18

20 COMPETITIVE PRICING SUBCONTRACT COST ANALYSIS The Proposed Cost is Realistic for Work To Be Performed It is Consistent With the Technical Proposal It Supports Clear Understanding Of All The Requirements 19

21 COMPETITIVE PRICING SUBCONTRACTOR COMMERCIAL ITEM PRICE DETERMINATION Obtaining Sufficient Data To Support Determination Of Commercial Item and Price Analysis Determination Of A Type Modification To Meet Contract Requirement 20

22 Winning & High Performance Tom Reid, JD, President, ScMI ; NCMA Fellow, CPCM, Former National Director; Outstanding Fellow Award and National Achievement Award 21

23 Winning & High Performance Discipline!! Managing a subcontract is similar to a prime contract EXCEPT: The sub contract is a UCC governed contract The prime contract dictates additional clauses and requirements Commercial remedies differ from government remedies. The prime must be conscious of those non-mandatory flow downs that it needs. 22

24 Winning & High Performance Good SCM is a Competitive Advantage If 50%+ of your prime costs flows to subs, are you devoting 50%+ of your management attention to the subs? 100% of subcontract problems will be yours to resolve ScMI provides the industry standard for subcontract management of publiclyfunded contracts. 23

25 Winning & High Performance Organizations that embrace and institutionalize the knowledge and skills enterprise-wide, take a proactive, problem avoidance approach and realize greater efficiencies and higher profitability. 24

26 Winning & High Performance 1. Importance of subcontract management as a strategic management decision to achieving business and mission outcomes. 2. The impact and major price-related factors that contribute to program success. 3. Targeted and strategic decisions on developing subcontract management talent and pricing expertise to meet key organizational and program objectives. 25

27 DEDICATED TO REDUCING PERFORMANCE RISK IN THE EXECUTION OF PUBLICLY-FUNDED CONTRACTS Combines Certification with Qualification The Subcontract Management Institute 3509 Connecticut Avenue NW, Suite 1112 Washington, DC Ph: Fax: Contact ScMI Today! For more information: