Changing Landscape. Contractors perform vital services in support of the entire DoD mission and team

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3 Changing Landscape What was once performed by uniformed military may now be provided by contractors Contractors perform vital services in support of the entire DoD mission and team Maintain combat equipment Move forces to and from combat operations Provide life support at contingency bases Sustain facilities and test ranges Provide health care services Etc. 2

4 Services Significance More than half of all DOD contracting dollars spent in support of the warfighter Touches everyone home station or deployed, services contractors support the mission Interest area of Congress, GAO, IG Emphasized by senior leadership Enhancing acquisition tradecraft and providing better tools Sharing best practices Strengthening contract management outside the normal acquisition chain Improving requirements definition Improving effectiveness and productivity of contracted engineering and technical services ensuring DoD promotes innovation to maintain technological superiority 3 3

5 Fiscal Year 2014 DoD Acquisitions Services was 55% of Spend in FY14 Services ($156B) 55 % 45 % S&E ($127B) Facility Related Services ($26.1B) 17% Construction Services ($12.1B) 8% Transportation Services ($8.1B) 5% Medical Services ($14.1B) 9% Electronic & Comm Services ($15.8B) 10% Equipment Related Services ($16.6B) 10% Research and Development ($26.3B) 17% Source: Business Intelligence Tool data from 2 Jan 15 Knowledge Based Services ($32.5B) 21% Logistics Mgmt Services ($4.5B) 3% Facilities S&E ($6.5B) 5% Sustainment S&E ($34.8B) 27% Clothing, Textiles & Subsistence S&E ($10.1B) 8% Electronic & Comm Equipment ($18.6B) 15% Miscellaneous S&E ($74.4M) 0% Aircraft, Ships, Subs & Land Vehicles ($41.9B) 33% Weapons & Ammunition ($15.2B) 12% Numbers may not add due to rounding 4

6 Historical Spending in Services 5

7 Distribution of DoD Services Contracts (Excludes Construction and R&D Contracts) 6 6

8 DoD Services Acquisition Focus Areas Policy Developed new DOD Instruction 5000.ac, titled Defense Acquisition of Services (in final staffing) Oversight Implemented senior-level Functional Domain Expert (FDE) structure for category management Training Established a Functional Integrated Product Team (FIPT) focused on providing services acquisition training Classroom, on-line, and workshops Samples and templates, website instruction Refresher training available for acquisition workforce 7 7

9 Defense Acquisition of Services the New DoDI 5000.ac USD(AT&L) directed a new, stand-alone DoD Instruction for acquisition of services Complements newly issued DoDI Operation of the Defense Acquisition System Establishes: Leadership responsibilities Training and experience requirements Affordability considerations, including should-cost 8 8

10 Areas of Emphasis in Services DoDI 7-Step Acquisition of Services Process Command Responsibility Service Categories (S-CATs) Services Requirements Review Boards (SRRBs) Tripwires Flexibility for Military Departments / Agencies 9 9

11 Seven Steps to the Service Acquisition Process 10

12 Services Categories (S-CATs) Category Threshold 1 Decision Authority Services Category I Any acquisition of services with an estimated total value of $1 billion, or more than $300 million in any one year USD(AT&L) or designee (for 4 th Estate); Service Acquisition Executive or designee (for MILDEPs) Special Interest 2 As designated by the USD(AT&L) USD(AT&L) or designee Services Category II Acquisitions of services with an estimated total value of $250 million or more, but less than $1 billion USD(AT&L) or designee (for 4 th Estate); SAE or designee (for MILDEPs) Services Category III Acquisitions of services with an estimated total value of $100 million or more, but less than $250 million Senior Services Manager (SSM) or designee Services Category IV Acquisitions of services with an estimated total value of $10 million or more, but less than $100 million SSM or designee Service Category V Acquisitions of services with an estimated total value of the SAT or more, but less than $10 million SSM or designee 1 Dollar threshold determined based on the Independent Government Estimate in current-year dollars 2 The Special Interest designation is typically based on one or more of the following factors: technological complexity; congressional interest; a large commitment of resources; or the program is critical to the achievement of a capability or set of capabilities, part of a system of systems, or a joint program. 11

13 Services Requirements Review Boards (SRRBs) SSRB objectives ensure DoD services requirements meet minimum mission needs, identify unneeded or low priority requirements, and transfer savings to higher priority needs Requirements review required for contracts above $10M Senior Services Managers responsible for implementing SRRBs within their Department/Agency SRRBs led by the requiring activity Requirements reviews should include, but not be limited to: Mission need Manpower analysis Strategic alignment Relationship to other requirements Prioritization Market research 12 12

14 SRRB Execution Membership & Structure Should include all major stakeholders Include as a minimum the customer/requirements owner, financial representatives, and contracting/acquisition representatives May also include legal, manpower, small business participants, etc. Periodicity At least annually; more often as needed Outcomes Increased visibility and collaboration on services requirements Requirements: Identified, explained, and justified Validated before a contract is solicited or renewed Prioritized to support funding decisions Active management of services acquisitions 13 13

15 Tripwires What it is Thresholds to spark (require) further discussion/ assessment Guidelines Enabler of risk mitigation What it is not A policy brick wall Reflection of poor performance 14 14

16 FDE Roles & Responsibilities Functional Domain Experts provide strategic leadership to achieve greater efficiency and reduce costs Plan Reduce redundancy in business arrangements Identify opportunities for strategic sourcing Leverage small business capabilities Inform acquisition planning & execution Collaborate Share best practices, lessons learned, useful metrics & data Leverage Requirement Review Board process to improve requirements definition and validation process Report portfolio accomplishments Provide data/information supporting tripwires DPAP, FDEs, SSMs & Component Leads work together to improve 15 portfolio management 15

17 Functional Domain Expert (FDE) Structure for Services 16

18 Post-Award Peer Reviews Completed 41 post-award execution reviews since Oct 2013 (still discovering programs not on the post-award review schedule) Best Practices Services acquisition workshop (SAW) or Acquisition Requirements Roadmap Training (ARRT) tool for effective statements of work Smallest possible minimumaward guarantees CORs that are trained, serve full time, and are subject matter experts Pain Points Incentivizing contractors to exceed required performance levels Grade inflation in Contractor Performance Assessment Reporting System (CPARS)evaluations Failure to actively monitor/approve invoices Unfocused award-fee criteria *Note: Peer Reviews required by Section 808, NDAA for Fiscal Year 2008, Public Law

19 Services Acquisition FIPT SA FIPT is focused on providing services acquisition training Identified primary roles, competencies, and training recommended for requirements community Assessing/selecting material to leverage to meet training requirements: Training classroom, on-line, webinar, avatars & apps Templates and examples of basic requirements documents Technology and alternative training methods Short-term focus on methodologies resulting in immediate, near-term improvement of specific acquisitions 18 18

20 Non -Acquisition Workforce Services often required and overseen by DoD personnel not a part of traditional (DAWIA) acquisition workforce SA FIPT identifying entire workforce with acquisition duties Among this group are Contracting Officer Representatives (CORs) and Requiring Codes who are non-traditional acquisition workforce with acquisition duties Recent NDAA allows use of Defense Acquisition Workforce Development Fund (DAWDF) funds to pay for training temporary members of the Acquisition Workforce 19 19

21 Services Acquisition Training/Tools Services website consolidates sample documents, templates, and training videos Available training tools include: Services Acquisition Workshops (SAWs) Acquisition Requirements Roadmap Tool (ARRT) Service Acquisition Mall (SAM) (at DAU) Prices Paid Portal Business Intelligence (BI) Tool 20 20

22 Improvement of Services Tradecraft Improvement of services contracts execution will enable mission risk mitigation during this period of reduced budgets, while contributing to a balanced Total Force DoD is continuing services acquisition analysis, oversight, and process improvement to find additional efficiencies and further savings On-going strategy is to focus on services acquisition policies, oversight, and training for the ultimate benefit to the warfighter and American taxpayer 21 21

23 For Additional Information

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25 Use of FPIF Contracts NOT a mandate FPIF should be used when: FFP is not appropriate FPIF will result in improved performance Incentive will motivate contractor performance that might not otherwise be achieved, and Incentive will motivate efficient performance FPIF will result in a fair allocation of risk between Government and Industry 24 24

26 Rewarding Efficient Cost The goal should be to determine what a reasonably challenging, but achievable Target Cost is and reward contractor accordingly. Challenging but achievable pertains to contractor s ability to perform the contract at that cost. Reward the contractor with a reasonably high Target Profit and favorable share ratios at that Target Cost. This should be the most favorable profitability offer from the Government makes in negotiations

27 Reasonably Challenging but Achievable Should not require extraordinary performance on the part of the contractor If contractor has been performing well, continuation of that performance should be considered reasonably challenging. Contractor should be rewarded for good performance Established on the basis of objective evaluation of contractor s proposal, historical data and reasonable projections of improvement. No unsubstantiated bogeys. What is considered to be a reasonably challenging, but achievable, cost position can change during negotiations based on new facts or data provided. If Government offers at Target Cost go above the reasonably challenging but achievable cost, profit and share ratios should become less favorable for the contractor. Substandard performance should never be considered challenging If contractor has not been performing well, a reasonably challenging position should reflect considerable 26 improvement 26

28 How Do We Establish Overrun Shares and Ceiling Prices? It depends upon two things: 1. The risk the company has identified that has not been accounted for in the negotiated target cost; and 2. The amount of profit the contracting officer and the program manager (PM) jointly view the contractor should earn if that risk occurs (given the target cost and the target profit). Once you have determined the dollar amount of risk for your contract, you can establish what profit dollars the contractor should earn at that cost level. That cost point is the Point of Total Assumption (PTA). Knowing the PTA enables you to determine the overrun share. The Ceiling Price (CP) is determined by solving for the Equation: CP = Target Price (TP) + (PTA Target Cost (TC)) X Government Overrun Share (GS) 27 27

29 FPIF Negotiation Strategy The Government strategy is to reward the contractor for accepting a reasonably challenging but achievable Target Cost. Achievable means achievable by the contractor in performance of the contract This offer should provide the contractor with the most favorable profit opportunity. If the Government moves beyond this cost to reach settlement, contractor profit opportunity is reduced.

30 QUESTIONS? 29