Identifying and Administration Federal Aviation Reducing ... · Identifying and Administration...

Presented by: AGC-500

Date: Summer 2011

Federal AviationAdministrationIdentifying and

Reducing Contracting Waste

Training Presentation

Federal AviationAdministration

Controlling WasteAGC-500

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Why Are We Concerned About Waste?• As Federal employees, each of us is responsible for

making sure that taxpayer funds are spent well.• The Federal Government is facing a tight budget

environment, making it likely that Agencies will face reduced budgets.

• At FAA, this could mean sizeable cuts. Therefore, it is as important as ever to be able to identify, reduce and/or eliminate wasteful spending.



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Why Are We Concerned About Waste? Continued

• Federal procurement is a $500 billion a year industry, making procurement a likely target for deficit reduction.

• Given the Agency’s mission, we cannot afford to waste resources.

• We all need to be more cost efficient to achieve the FAA’s mission.



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The FAA’s Unique Acquisition System• In dealing with contract issues, including wasteful

spending, the FAA uses the AMS, a unique acquisition system.

• The AMS supersedes the Major Acquisition Policies and Procedures of the Department of Transportation and all other acquisition and procurement statutes and regulations, including the Federal Acquisition Regulation (FAR). However, the Procurement Integrity Act is still applicable to the FAA.



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The FAA’s Unique Acquisition System Continued

• The AMS is based on several fundamental principles intended to create a procurement system that:– Promotes high standards of conduct and professional

ethics; – Provides streamlined methods and initiates innovative

processes to conduct timely and cost-effective procurements;

– Requires appropriate file documentation to support business decisions;

– Assures adequate checks and balances; and – Ensures public trust.



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What is Waste?• Eliminating waste frequently involves internal

proactive measures and analysis of Government actions or omissions. Waste is frequently internal, it is our responsibility to control!

• Some examples of “waste” include– Buying goods or services the Agency doesn’t need– Consuming goods or services in an inefficient manner– Paying for goods or services the Agency doesn’t

receive– Overpaying for goods or services (i.e. paying more

than fair value)



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Scenario 1Agency X has awarded a contract for a developmental system. The contractor is required to build to the Agency’s specification. When the Agency created the specifications, it did not take into account all of its requirements.

The Agency later decided to add requirements. The contractor made the changes to the system each time the Agency added new specifications. As a result, after all the changes were made, the cost to the agency increased. Half of the cost increase related to the addition of new requirements could have been avoided.



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Scenario 1: Question 1

1. Is the cost increase related to new requirements considered waste under AMS policy?

A. No, this is not waste, the Agency is under no obligation to control costs.

B. No, this is not waste, the Agency has the right to change its specifications at any time.

C. No, as long as the final system specifications meets the Agency’s requirements, no waste has been committed.

D. Yes, some of it is waste.



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Scenario 1 : Answer 1

Answer D is correct.• When the Agency does not properly plan its acquisition and define

its requirements at the outset, the increased cost resulting from the changing of requirements can lead to wasteful spending.

• Under AMS Policy 3.1.3, the FAA procurement system needs to “provide streamlined methods and initiate innovative processes to conduct timely and cost-effective procurements.”

• One element of conducting a timely and cost-effective procurement is ensuring that the product specifications properly address all of the Agency’s needs and requirements as early as possible.



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Scenario 1 : Question 22. What should the Agency have done differently in

order to prevent waste under this scenario? A. Nothing, waste cannot be eliminated.B. The Agency should have identified early on in the process

that the specifications did not satisfy their requirements. Once the Agency has evaluated that the differential between the specifications and the requirements was significant, the Agency should have delayed the procurement or not initiated until the requirements are known.

C. Nothing, it is the contractor’s responsibility to identify and address waste.

D. None of the above.



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Scenario 1 : Question 2

Answer B is correct. • Two key principles of the AMS are timely and cost-effective

procurements. AMS Policy 3.1.3. In keeping with those principles, it is the individual responsibility of all of the Agency’s employees to eliminate waste. It is not the contractor’s responsibility. Waste can be eliminated if proper forethought is given to requirements early on in the acquisition planning process.



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• Poorly planned acquisitions can cost the Agency significant sums. Consider the following examples.

• Broad or inadequate contract specifications– In order to prevent requirements creep and waste,

ensure that the procurement has specific goals and criteria.

• Specifying outdated parts or equipment in a SIR– Having to rework a SIR because an integral piece of

equipment no longer exists wastes Agency employees time and resources. Proper planning can avoid having to redraft a SIR or collect/initiate market research much later than expected.

Waste Results from Poorly Planned Acquisitions



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Waste Results from Poorly Planned Acquisitions Continued

• Poorly planned acquisitions include:• Failing to verify resumes

– Without verifying the experience of new employees on a contract, it is impossible to determine if their labor rates are accurate. The CO and the COTR are both responsible for reviewing this.

• Failing to verify a vendor proposed labor mix– Without analyzing each task order it is impossible to

confirm whether the appropriate labor rates were assigned. The CO and the COTR are both responsible for reviewing this.



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• Poorly planned acquisitions include:• Failing to provide GFE on time

– The government is forced to compensate contractors when GFE is not provided as promised in the contract. Early planning and accurate knowledge of what GFE is actually available prevent this type of waste.



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• The AMS includes instructions for contract planning dedicated to decreasing waste. For example:– “Procurement planning is an indispensable

component of the total acquisition process. Service organizations are expected to use procurement planning as an opportunity to evaluate/review the entire procurement process, so that sound judgments and decision making will facilitate the success of the overall program.”

– AMS Policy 3.2.1.1



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• A written procurement plan is required for each contemplated procurement or class of procurements. That plan should address the significant considerations of the procurement action.– AMS Policy 3.2.1.2

• A Procurement Strategy Meeting should occur prior to creating a written procurement plan. See. AMS Sec. 3.2.1.3 for the applicability of this provision.



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• An independent Government cost estimate (IGCE) is required for any anticipated procurement action (including modifications) whose total estimated value is $100,000 or more. An IGCE is a key tool to reducing waste.– AMS Policy 3.2.1.4




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• Waiting until the end of the fiscal year often creates the perfect storm for waste. For example, this can cause:

– Purchase of items based on potential rather than actual needs

– Failure to adequately justify a single source acquisition

– Misplace significant sums onto task orders while failing to accurately assess the amount of work actually required on that task.




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• Wasteful year-end spending often occurs when a line of business rushes to use funds in its budget that will expire at the end of the fiscal year. This type of waste can be avoided by following these tips:

– Realistically evaluate the Agency’s current needs– Thoroughly consider a market survey before making

a single source award– Before increasing funds, precisely determine the

amount a task order needs




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Scenario 2

• The FAA awarded a support contract to Incumbent Inc. just before the end of the fiscal year for an existing Program.

• The new contract included new labor categories. Due to the year-end deadline, the FAA relied exclusively on the labor rates from the prior contract in determining the rates for the new contract.

• The ceiling for the first year of effort was $10 million. The program office has $12 million in expiring funds and obligates all of the $12 million to Incumbent Inc.’s contract.



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1. Did the contracting official commit waste in using the labor rates from the prior contract?

A. No, due to the impending fiscal year-end deadline the Agency can rely upon the rates established in a prior contract for the same program.

B. No, because the same contractor is continuing support for an existing program, the same labor rates should apply.

C. Yes, the Agency cannot solely rely on the rates from the prior contract

D. None of the above.



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Scenario 2: Answer 1

Answer C is correct.• The contracting official committed waste because she/he cannot

merely rely on prior contract rates when awarding successive contracts without reviewing or ensuring that prices were evaluated for reasonableness. The contracting official should also carefully review the new contract to determine if there are changes that require additional analysis such as new labor categories, changes in markets and technology.



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2. Did the contracting official commit waste by obligating all $12 million?

A. NoB. No, because otherwise the Agency would lose the money.C. Yes, because the extra $2 million should have been obligated

on another contract. D. Yes, because the contracting official obligated (“banked

money”) in excess of the ceiling without a bona fide need.



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Answer D is correct.• The contracting official committed waste because he/she obligated

funds above the contract ceiling without documenting a bona fide need for the funds.

• The contracting official must realistically evaluate a program’s current needs and obligate funds only in accordance with those needs.

• If the needs change, the contracting official must document the reason for the additional needs.



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Paying for Goods or Services the FAA Doesn’t Receive• Waste occurs when the FAA pays for goods

or services that it does not receive.

• Consider the following examples:– Paying for the same invoice twice– Paying for items or services that we don’t receive– If a fee is linked to performance, failing to reduce the

fee when performance criteria have not been met



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Overpaying for Goods or Services

• Overpaying for goods or services is a subtle form of waste and occurs when goods or services acquired by the Agency could have been purchased at a better price.

• Consider the following examples:– A contractor provides staff that doesn’t meet

minimum requirements for a particular labor category.

– Allowing a contractor to overcharge for labor



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Examples of Overpaying for Goods or Services• A contractor proposes labor rates that are lower

than those estimated in the IGCE. However, the contractor’s rates do not adequately compare to the IGCE rates because the total number of hours proposed is significantly lower or the qualifications for each labor category do not match.

• Using a program analyst that primarily performs administrative support.



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Examples of Overpaying for Goods or Services Continued

• In a support services contract vendor X has been submitting timely correct invoices. However, miscommunication between the COTR and the CO causes the invoices to go unnoticed. As a result the invoices do not get paid on time and were late. The Agency will owe late fees under the Prompt Payment Act.



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Eliminating Overpayment for Goods or Services• In order to eliminate the overpayment for goods

and services, utilize these practice tips:– Ensure the acquisition team is relying on a solid

IGCE to analyze labor rates.– When analyzing labor rates, the acquisition team

must compare apples to apples. That is, the team must ensure that the labor rate in the IGCE and that proposed by the contractor is for an individual with similar qualifications, experience, and total estimated hours.



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Eliminating Overpayment for Goods or Services Continued

• More practice tips to eliminate the overpayment for goods and services include:

– Labor rates and other costs must be both fair and reasonable.

– Avoid paying invoices late. Late payments result in unnecessary interest charges.



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Examples of Inefficiencies

• Inefficient contracting practices occur when an Agency uses expensive labor to do work that could be done at a lower cost.

• Consider the following examples:– Asking a senior engineer to do work that could be

done by a junior engineer.



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Examples of Inefficiencies Continued

• Asking a program manager to perform simple office tasks like making copies; putting together binders; or taking minutes.

• Requiring support contractors to attend a meeting where they do not contribute or are not required to be there.



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Labor Creep

• Labor creep is an example of an inefficient contracting practice because it results in an Agency paying too much for the services provided.

• Experience or labor creep on contracts occur when a contractor is hired at one level and gains experience with time but continues to perform similar level tasks albeit at higher compensation levels.



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Example of Labor Creep

• An Agency initially utilizes a contractor to fill the role of a Junior Project Analyst. Over time, the Junior Project Analyst gains more experience and eventually qualifies as a Senior Project Analyst. The Agency begins paying the higher rate for the individual, despite the fact that the individual’s role and responsibilities have not changed.

– In this scenario, the Agency needed labor from a lower rate category but paid a higher price for the same services.



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Eliminating Labor CreepIn order to eliminate labor creep governmentpersonnel should actively consider thefollowing:

1. What level of expertise would the open market require for a given task?

2. Is an individual performing tasks typically below their skill level because of convenience or custom?

3. Would a third party consider the tasks assigned to the staff member appropriate given their abilities and pay?



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Review of Qualifications

• Contractor employees should not be permitted to perform work for which they are not qualified.

• Consider the following example:– A support staff contractor does not meet the

contract’s qualifications for a senior position. While the individual has two years of experience, that level of experience is below the threshold for a senior position.



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Eliminating Inappropriate Qualification Waivers• Qualification waivers present two types of waste

risk. First, the government may receive an inferior product. Second, contributions from an individual that does not meet qualification criteria should not cost as much as contributions from someone who does meet the standards. AMS does allow the qualification based on waiver only if the proper process is followed and a rational basis is documented.

• Practice tip:– Academic internships should not count towards

professional experience.



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Examples of Wasted Labor in Meetings• Poorly planned meetings are an example of labor

waste. Agency employees must ensure that meetings and teleconferences are cost efficient.

• Consider the following example:– A program office asks five contractor personnel to

attend a meeting. The average labor rate for these personnel is $150 per hour. Asking these contractors to attend this meeting costs the Agency $750 per hour. If the meeting begins late or digresses from topic frequently and consumes one and a half hours the cost to the Agency is $1125.



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Eliminating Waste in Meetings

• Plan the meeting or teleconference agenda ahead of time. Early planning allows government personnel to more accurately identify the scope of the meeting and any support needs in advance.

• Only allow essential contractor staff to attend or participate. A staff member is essential if they will actively contribute to the meeting or cannot be adequately briefed about the proceedings after the fact.

Consider the following ways to eliminate waste and improve efficiency in meetings and teleconferences:



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Scenario 3• The FAA is contracting to purchase spare parts for an

aircraft warning system program from contractor Acme. In evaluating the Acme’s proposed pricing, the Agency only reviewed and relied upon the Acme’s internally prepared pricing analysis.

• The identical spare part is available for purchase from other contractors as well; however, the Agency’s evaluation of the price did not review or consider the price of a recently acquired identical spare part, evaluate market prices or request additional information from Acme supporting the proposed price.

• Acme’s pricing for the product is $5,000 more than the next most expensive contractor, Bargain-Right Corp.



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1. Did waste occur in this scenario:A. Yes, the Agency did not take the appropriate steps to ensure

that the prices paid for the spare parts were fair and reasonable.

B. No, the Agency only needs to review the contractor’s own pricing analysis in making a determination regarding pricing.

C. No, as long as the Agency believes that the price is fair and reasonable no waste has occurred.

D. No, because the pricing difference between the contractors for the product is less than $10,000.



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Answer A is correct. • In all circumstances, a contracting official must responsibly

spend the Agency’s money. In order for the contracting officer to make the determination that the price is fair and reasonable, the contracting officer needs support and justification for his/her decision, merely reviewing a contractor’s own price analysis is insufficient.

• In evaluating the price of the part for reasonableness, the contracting officer should consider the price of recently acquired identical parts, evaluate the market price for parts and request additional information from the contractor supporting the proposed price. Answer D is incorrect because there is no minimum dollar amount concept associated with waste.



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Summary: Ways to Reduce Waste

• Solid planning is achieved by ensuring that requirements definitions appropriately support the acquisition

• Avoid wasteful year-end spending• Use contractor staff time efficiently

– Don’t use expensive labor for simple tasks– Limit meetings to essential contractor staff

In order to reduce waste remember these practice tips.



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Summary: Ways to Reduce Waste Continued

• Don’t overpay for labor by ensuring that:– Contractor staff meet labor category

requirements– A solid IGCE exists as a basis to compare

whether labor rates are both fair and reasonable• Give invoices close scrutiny: don’t pay for

goods or services we don’t receive



Congratulations!

You have successfully completed this course.

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