AN UNEXPECTED ANGLE ON COST CONTROL
Reference Guide mentions anything about using a probable cost estimate as a contract administration tool or funding baseline.
Te MPC is not a cost-control panacea. It requires the proper staff, with the right training and clear lines of accountability, to achieve the desired benefits. Applied with the necessary support processes in place, however, the MPC can succeed in bringing ongoing costs under control, even in a post-award environment.
CASE IN POINT I saw the difference the MPC can make when I was the com- mander of the National Training Center (NTC) Acquisition Command at Fort Irwin, California, from June 2002 to May 2005. Faced with spiraling cost overruns on our multimillion- dollar, multiyear, cost-reimbursement base operations contract, we used the MPC and the process of developing it as a contract administration tool and funding baseline and brought the con- tract costs under control. Te experience was a case study of sorts in making the most of the MPC.
Te contract in question covered everything from minor con- struction to crossing guards at the installation. Approximately 80 percent of the work performed on this installation was done by the contractor who held this contract.
Te contractor at the time regularly overran the estimated cost of our cost-plus-award-fee contract for base operations and hit the contract price ceiling by the fourth quarter, when fiscal con- straints take hold and additional funding is limited. Te money for base operations contracts normally comes from operations and maintenance (O&M) funds. DOD’s Financial Manage- ment Regulation says that O&M appropriations are considered expenses that cannot cross accounting periods or fiscal years. Tus, O&M funds used to pay for services under a base opera- tions contract are good for one fiscal year, or through Sept. 30. After this date, these funds expire and are no longer available for new awards or new contract actions.
Te question was whether the contractor couldn’t manage its costs, or whether there was a problem in the MPC that the command had developed and used as a funding baseline. Even though the FAR and Contract Pricing Reference Guide did not require using the MPC process to create a probable cost estimate after the contract award, doing so was an avenue that we had found worthy of exploration.
If using the MPC before the contract award could help the government determine whether the offeror’s cost proposal was realistic, why not use the MPC after the award to determine if the contractor’s actual cost was still in line with what was proposed? If not, then the government would investigate the cir- cumstances and take the appropriate actions.
Now, instead of the CORs explaining cost overruns to the contracting officer at the Acquisition Command organization, they and their directors would have to explain them to the chief of staff (who in many cases was the directors’ senior rater), in the presence of the garrison commander (who in many cases was the directors’ rater).
We needed to take into consideration the characteristics of the contract, as well as the context surrounding it, when determin- ing how best to address cost overruns.
Te FAR calls for the government to “ensure timely notification by the contractor of any anticipated overrun or underrun of the estimated cost under cost-reimbursement contracts.” Depend- ing on whether the contract is funded in a lump sum or paid out in increments, the FAR requires the contractor to notify the government when there’s reason to believe that costs will exceed 75 percent of the estimated cost of the contract. Te regulation further says that under cost-reimbursement contracts, the gov- ernment is not obligated to reimburse the contractor for costs incurred in excess of the estimated cost specified in the schedule.
Unfortunately, the contractor was not notifying us of over-
runs in a timely fashion, nor were we proactively monitoring the situation to determine the root cause of the overruns. Te NTC director of resource management was funding the con- tract at the MPC amount, as opposed to the estimated contract
120
Army AL&T Magazine
January - March 2018
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160 |
Page 161 |
Page 162 |
Page 163 |
Page 164 |
Page 165 |
Page 166 |
Page 167 |
Page 168