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One team, one voice delivering global acquisition insight that matters. DCMA’s Property Management System Analysis Presented By: Andrew C. Obermeyer, Director, DCMA Business Operations Center

Business Operations Center • Ensure that suppliers’ have purchasing systems in • Ensure that contractors’ property management place that contribute to effective subcontract management. systems control, use, preserve, protect, repair and maintain the Government property (GP) in their possession. • Evaluation of the efficiency and effectiveness with which the contractor spends Government funds and complies with Government policy when subcontracting. • The CPSR Group’s recent focus has been on improving supplier sourcing practices and promoting intelligent pricing decisions. Set to conduct over 130 reviews in FY 16. • Perform Property Management System CONTRACTOR PURCHASING SYSTEM REVIEW (CPSR) GROUP Analysis (PMSA) and investigate Property Loss to determine liability PROPERTY GROUP • PMSAs performed FY 15 – 1025 • Total acquisition cost of GP - $138, 121, 543, 421 DCMA employs 244 of the 368 1103 s in Do. D Total Personnel Authorized: 394 • Negotiate settlements for Contracts terminated for the convenience of the Government. TERMINATIONS GROUP PLANT CLEARANCE GROUP Property saving time and money that might otherwise be expended in re-procurements. guidance to Buying Activities by facilitating policy and procedures and technical support • • Conduct post-termination briefings. • • Approve contractors’ settlements with subcontractors. • • Approve interim payments prior to final settlement. • Currently have over 700 actions valued at $26. 6 B in process. Terminations had negotiated savings of $78. 1 M in FY 15 and has saved $11. 8 M to date in FY 16. of excess government property in the possession of contractors. • Facilitate the reutilization of Government • Provide technical assistance and CPSR Group – travel cost savings of $56 k in FY 15 as a result of remote access to contractor records • Provide timely, cost effective disposal Benefits to DOD Customers Assure Government Property is disposed of properly and demilitarized when required. Selling surplus Government Property returning proceeds from sales to the Government Clearing Plant Clearance cases while maintaining data integrity in our case files and PCARSS. FY 15 cleared 17 K cases; Acquisition Cost - $5. 9 B Property Administrators investigate losses of Government property, and when contractually appropriate, recommend that the contractor be held liable. In FY 15, this resulted in the recoupment of $2, 982, 624. Plant Clearance reutilized $500 M in Gov’t Property and returned $6. 8 M to the U. S. Treasury through sales of Surplus Gov’t Property in FY 15. FY 16 YTD reutilized $185 M and sales $2. 3 M.

What is our Property mission? The Property Group ensures that Government Property in the possession of contractors is effectively and efficiently managed as required by FAR 52. 245 -1– Government Property. 3

How Do We Perform the Mission? By performing Property Management System Analyses (PMSAs). A PMSA is a systematic, objective review and evaluation of a contractor's PMS including the procedures and the implementation of applicable property management processes to determine whether the contractor is complying with contractual terms and conditions relating to property management. 4

Corporate IPTs • The Property IPT construct provides a forum in which PAs with oversight of property management systems of a single contractor, regardless of location, can discuss matters affecting those systems in order to achieve consistency in addressing issues and problems, regulatory interpretation and auditing techniques and approaches to ensure the Property Group speaks with one voice to the contractor. Contractor DCMA Property Lead Boeing Randy Scott (Pensacola, FL) Raytheon Deena Day (Denver, CO) Northrup Grumman Len Salazar (Carson, CA) 5

Low Risk Practice “Low Risk Property” means assets that: • Meet the definition of Equipment, Special Tooling, or Special Test Equipment, as defined at FAR 2. 101, FAR 45. 101 and FAR 52. 245 -1 (a). • Have a unit acquisition cost less than $5, 000. • Are not: • “material” as defined at FAR 45. 101 and FAR 52. 245 -1(a). • “sensitive property” as defined at FAR 45. 101 and FAR 52. 245 -1(a). • classified assets, i. e. assets for which the existence, description or association with a contractor, Government agency, or particular contract is restricted to those with authorized access and a need to know. • computers or other devices capable of storing and transmitting data. • “aircraft” as defined at DFARS 252. 228 -7001(a)(1), or “Flight Safety Critical Aircraft Parts” as defined at 41 CFR 102 -36. 40. • assets identified with demilitarization code G, P, F, C, or D per Do. D Manual 4160. 28 -M-V 3 or considered environmentally hazardous or dangerous to public safety. When low risk practices may be approved • PAs shall make contractors aware of the criteria that will be applied to low risk property. Contractors are responsible for developing their own processes and procedures at their facilities. PAs shall not require contractors to implement low risk practices. 6

Government Property Storage • Objective • Determine the costs associated with the storage of Government property at contractor’s facilities as a result of closed contracts/programs, specifically how and by whom the costs are paid. • Pilot sites • Two major Defense contractors with resident Property Administrators. • Initial Findings • Pilot review at two major defense contractors identified no issues with storage of Government property that is not accountable to active contracts. • There are no storage agreements or contracts in place at either facility. • Excess property accountable to active contracts is a continuing concern and is an area of focus for the DCMA Property Group. 7

Two Types of PMSAs • Standard PMSAs require entrance and exit conferences, involve plant visits, formal examinations with detailed workpapers generated and formalized conclusions drawn as to the condition of the contractor's system. The depth and detail of review and analysis are far greater for a standard system analysis than for a limited system analysis. • Limited PMSAs or “desk audits” permit less formal testing methods and techniques including contractor responses to a series of questions covering each applicable element of a contractor’s PMS, and interviews of contractor personnel among other methods as appropriate, depending on the risk level, amount and value of property, etc. 8

How Does Property Schedule PMSAs? • New contractors: • Identified during contract receipt and review. • • • Contracts that contain the Government Property (GP) clause and/or GP attachment Initial PMSA scheduled within one year. Within six months if there is sensitive property. • Established contractors: • Type and frequency of PMSAs determined IAW risk level of contractor’s PMS. • When sensitive property is involved, PAs perform annual on-site reviews of records, storage, utilization, and physical inventories processes, regardless of the contractor’s risk rating. 9

Risk Assessments • Performed immediately after each PMSA and validated annually. • Based on PMSA results and other sources of reliance, PAs • Identify unfavorable future events, • Assess the likelihood or probability of unfavorable future events and • Estimate the consequence or impact of those events. 10

Risk Assessments • PAs assign each PMS a risk rating of high, moderate or low. • High Risk – Requires a Standard PMSA at least annually • Moderate Risk - A Standard or Limited PMSA as frequently as conditions warrant, but at least once every 2 years • Low Risk - Standard or Limited PMSA as frequently as conditions warrant, but at least once every 3 years • PMSA schedules are maintained in the Contract Property Administration System (CPAS) e. Tool. 11

PMSA Performance • PAs review all applicable elements and processes of the contractor’s PMS as identified at FAR 52. 245 -1(f)(1)(i through x) including: Written procedures Reports Contractor self-assessment Relief of stewardship Acquisition Utilization Receiving Declaration of excess Discrepancies incident to shipment Consumption Identification Movement Records Storage Receipt and issue system Storage – commingling Physical inventory Maintenance Subcontractor awards and flowdown Disposal Subcontractor reviews Closeout 12

Audit Process for Records Process • Define the population i. e, the aggregation of documents, records, assets, or actions selected for review due to common characteristics. • All records of GP in the contractor’s possession • Subject to the judgment and determination of the PA, sampling is used as an efficient and economical method for analyzing a system. One of three different types of sampling may be used: • Statistical- A number of items are selected from the population for analysis so that the sample is representative of the entire population from which it was selected. The most widely used sampling plan will discover defects of 10% or more, if they exist, 90% of the time • Automated tools (www. randomizer. org) used to ensure randomness • Judgmental- A number of items are selected from the population for analysis without meeting the random selection and sample size criteria of statistical sampling. • Purposeful- Known, suspected, or reported conditions of a critical or substantial nature are used to select items, for review to determine the possible adverse systemic impact. 13

Audit Process for Records Process • Determine Sample Size • Determined by the Sampling Plan for statistical samples. • Randomly Select Sample • Using automated tools such as Randomizer. org. to ensure randomness • Review each record sampled to determine whether they are complete, containing the 10 data elements required by FAR 52. 245 -1 (f) (1) (iii) (A) • Trace the records to the items to verify the balances and locations to test whether the records are current and accurate. • Review receiving reports, requisition slips, issue documents, inventory adjustment vouchers, transfer documents, shipping documents, etc. and compare to transactions posted to the record to determine whethere an auditable record of all transactions with posting references supported by documentation. • Take a random selection of property from the floor and find their records to test whether record have been established for all GP 14

Audit Process for Records Process • Record relevant data on workpapers • Analyze the outcome of the sample • Determine the Status of Process and System • Document findings describing and analyzing the quantitative and qualitative information obtained. • Determine if the process is compliant with contractual requirements and explain the rationale for all determinations. • Inform Contracting Officer of findings in a Business System Analysis Summary. Describe any deficiencies in sufficient detail to enable the CO to understand whether they materially affect the ability of Do. D officials to rely upon information produced by the system. 15

After the PMSA • If there any deficiencies, PA indicates whether they materially affect the ability of Do. D officials to rely upon information produced by the system. • PA issues Level II CARs for deficiencies determined by the CO to be nonsignificant. • Findings are reported to the Contracting Officer (CO) who either approves or disapproves the PMS in accordance with DCMA-INST 131. • • The CO records the status of the PMS in the Contract Business Analysis Repository (CBAR) e. Tool. • The CO may implement a payment withhold on an individual contract if the contract contains DFARS 252. 242 -7005, Contractor Business Systems and DFARS 252. 245 -7003 Contractor Property Management System Administration. PA evaluates the adequacy of all corrective action plans, monitors the performance of corrective actions and determines if corrective actions have been implemented and adequately address the deficiency. 17

Standard PMSA Timeline • P-30 Notify contractor in writing of PMSA • P-30 Request data and documentation from contractor • P-30 PMSA Planning • PMSA – Entrance Brief, Daily Outbrief, Exit Conference • Exit Conference+30 Management review, Report to CO • Exit Conference+40 CO approval if no deficiencies, or initial determination • Exit Conference+70 Ktr response to initial determination • Ktr Response+30 Final determination • Ktr Response+45 Corrective Action Plan if requested, due to CO 18

Subcontractor PMSAs • Prime contractor is responsible for performing periodic reviews to determine the adequacy of the subcontractor's property management system. • DCMA may perform a PMSA for a subcontractor only when the exceptions listed at FAR 42. 202(e)(2) apply • The Government otherwise would incur undue cost; • Successful completion of the prime contract is threatened; or • If a contracting officer for a major system acquisition designates certain high risk or critical subsystems or components for special surveillance in addition to requesting supporting contract administration. • The prime contractor must also consent to accept the findings. • Prime contractor consent is not required for DCMA to perform a PMSA at an alternate site of the prime contractor. 19

Property Who Performs the Property Mission? DCMA-AQB Andrew C. Obermeyer Director Business Operations Center Ft. Lee, VA Michael Karolak Performance Improvement Officer (St. Petersburg, FL) DCMA-AQBY Director – Teresa Lardaro (Ft. Lee, VA) Deputy – David Ryan (Philadelphia, PA) John Conley Management Analyst (Ft. Lee, VA) Kitty Olson Management Assistant (Arlington Heights, IL) DCMA-AQBYA Team Lead – Holli Felch (Hartford, CT) DCMA-AQBYF Team Lead – Steven Abramowitz (Orlando, FL) DCMA-AQBYK Team Lead – Deena Day (Lakewood, CO) DCMA-AQBYB Team Lead – Maura Lachance (Boston, MA) DCMA-AQBYG Team Lead – Duke Montgomery (Arlington Heights, IL) DCMA-AQBYL Team Lead – Derek Urban (Phoenix, AZ) DCMA-AQBYC Team Lead – Jack Pocorobba (Philadelphia, PA) DCMA-AQBYH Team Lead – Randy Scott (Crestview, FL) DCMA-AQBYM Team Lead – Leonardo Salazar (Carson, CA) DCMA-AQBYD Team Lead – Vacant (Pittsburgh, PA) DCMA-AQBYI Team Lead – Carmen Strange (Dallas, TX) DCMA-AQBYN Team Lead – Bridgette Harris (Los Angeles, CA) DCMA-AQBYE Team Lead – Henry Pielaet, Jr. (Chantilly, VA) DCMA-AQBYJ Team Lead – Charles Faircloth (San Antonio, TX) DCMA-AQBYO Team Lead – Edwin Hoenig (Ft. Lee, VA) 20

Property Workload Trend Indicator FY 2012 2013 2014 2015 2016 # of Government Property (GP) Systems GP Value GP Line Items Onboard/Authorized Audits Performed Audit Target Complete % 1, 850 $ 147. 7 B 41. 0 M 183/185 917 984 93% 2, 130 $ 139. 8 B 43. 7 M 182/197 1026 1121 92% 2, 131 $ 129. 7 B 65. 6 M 174/201 1090 1145 95% 2, 415 $128. 9 B 78. 9 M 170/199 1025 1066 96% 2, 599 $139. 0 B 61. 0 M 187/231 980 1022 96% 21 21

Property Systems by Status Totals: Total Systems 2599 Approved 1520 Approved w/Def 85 Percentage: 100% 58. 5% 3. 3% Disapproved 8 Pending CO 118 Not Evaluated 269 New Contractor 599 0. 3% 4. 5% 10. 4% 23. 0% 22

Property Management Challenges • Audit Quality • Use of appropriate auditing techniques • Improved audit reports • Data Integrity • Accuracy of CPAS has improved but requires constant attention • Contract Receipt and Review • Ensure assignment is taken of all contracts with GP • Ensure contracts contain required property related clauses • Disruption of mission performance due to • CRF positions • OCONUS obligated positions • Aging workforce 23

Property Group Workforce • Property Group personnel eligible for retirement Today On # Elig to % Elig to Board Ret 187 49 26. 20% 3 Years On # Elig to % Elig Board Ret to Ret 187 66 35. 29% 5 Years On # Elig % Elig Board to Ret 187 88 47. 06% 24

Administration of Government Property Loss • Government typically self-insures against loss. • Exceptions: • The risk is covered by insurance or the contractor is otherwise reimbursed. • The loss is the result of willful misconduct or lack of good faith on the part of the contractor's managerial personnel. • The CO has revoked the Government's assumption of risk for loss of Government property due to a determination that the contractor's property management practices are inadequate, and/or present an undue risk to the Government, and the contractor failed to take timely corrective action. 25

PA’s Role in Property Loss Administration Within 90 days of receipt of a loss report from contractor in the Property Loss e. Tool, PA shall: • Ensure FAR/DFARS definitions for “loss of Government property are met • Determine whether contract imposes risk of loss on Government or contractor • Evaluate facts and circumstances • Determine if loss was caused by deficiencies in contractor’s PMS 26

PA’s Role in Property Loss Administration Based on the findings and conclusions resulting from the actions described on the previous slide, the PA shall either • Relieve the contractor of responsibility and liability where the Government bears the risk of loss under the contract, or • Recommend the Contracting Officer • Hold the contractor responsible and liable for the item’s acquisition cost (in full or in part) • Authorize the contractor to repair or replace the property or • Determine a form on consideration appropriate for the circumstances. 27

Property Loss Administration Workload FY Number of Loss Cases Acquisition Value Percentage Recovered 12 3, 479 $1, 698, 645, 547 0. 3% 13 5, 935 $688, 848, 155 0. 4% 14 4, 640 $7, 245, 306, 357 0. 2% 15 3, 775 $1, 809, 881, 019 0. 2% 16 3, 003 $1, 352, 852, 537 0. 1% 28

Priorities as We Look Ahead • Improving PMSA performance via training and assertive performance monitoring • Filling vacancies, CRF and Keystone positions • Improving Data Integrity • Focus Areas FY 15 FY 16 FY 17 Reporting to IUID Registry Utilization Declaration of Excess Subcontractor Control Disposition Contract Receipt and Review Subcontractor Control 29

PMSAs Questions? 30