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Lesson 6: Risk Management of Performance-Based Payments

Lesson 6: Risk Management of Performance-Based Payments. What We Will Learn. Quick review of risk management and how it applies to PBPs Potential increased risk situations . Risk Management . The art of maintaining a balance.

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Lesson 6: Risk Management of Performance-Based Payments

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  1. Lesson 6:Risk Managementof Performance-Based Payments

  2. What We Will Learn • Quick review of risk management and how it applies to PBPs • Potential increased risk situations DCMA Contract Financing – PBPs

  3. Risk Management • The art of maintaining a balance Facilitating contractor performance to ensure quality, timely product to customers Limiting risk DCMA Contract Financing – PBPs

  4. Risk Management • Review of contractor key processes, such as: • Management of PBP request preparation and submittal • Management of supplier financial condition • Successful completion of performance events DCMA Contract Financing – PBPs

  5. Risk Management: Considerations • Pre-Award Survey • Development of PBP terms • Postaward Orientation Conference • Type of technical evaluations/ validations that must occur DCMA Contract Financing – PBPs

  6. Risk Management (cont’d) • Identify and analyze key areas within the contractor’s PBP process • Are they adequate to calculate, prepare, and substantiate PBPs? DCMA Contract Financing – PBPs

  7. Risk Management (cont’d) • ACO must consider: • Past and current performance and reliability • Experience • Quality of management • Other attributes identified by the CMO PBP Team • Any special circumstances (i.e., Conversion from Progress Payment to PBPs, contract with reduced or suspended PBPs) DCMA Contract Financing – PBPs

  8. Risk Management (cont’d) • See FAR 32.1007(c) for review criteria • Periodic Reviews • Financial condition review is performed in manner similar to Progress Payments • Ensure no encumbrances to property described in paragraph (f) of FAR 52.232-32 DCMA Contract Financing – PBPs

  9. Risk Management Tools • Process proofing • Systems evaluations • Data analysis • Audits DCMA Contract Financing – PBPs

  10. Risk Management Resources • MOCAS • Technical reviews and event completion validations • Review and approval of PBP Request • Liquidation application and adjustment, if appropriate • Payment Verification/Validation DCMA Contract Financing – PBPs

  11. Risk Management (cont’d) • Monitoring of risk includes • Financial Capability Reviews • Subcontractor Payment Consistency • Production Reviews • CMO ongoing analysis and recommendations DCMA Contract Financing – PBPs

  12. Risk Management (cont’d) • ACO should retain the following documentation: • PBP transactions and correspondence • Reports and information (i.e., from DCAA, DACO, other ACOs, and officials, etc.) • Risk analysis • Risk monitoring results • Updates as applicable DCMA Contract Financing – PBPs

  13. Potential Increased Risk Situations • Liquidation errors • Delegation of PBP negotiations • Reduction or suspension of PBPs • Conversions from Progress Payments to PBPs DCMA Contract Financing – PBPs

  14. Conversion: PP to PBP • Contracts cannot contain both Progress Payment (PP) and PBP provisions; however, contracts can be modified to convert from PPs to PBPs • Liquidation schedules and related matters are of primary concern when converting from PP to PBPs DCMA Contract Financing – PBPs

  15. Conversion: PP to PBP (cont’d) • Conversion modification must provide instructions on how to liquidate all unliquidated PPs • Liquidation Options: • Instruct contractor to repay unliquidated PPs • Re-allocate previous PPs via adjustments • Instruct paying office to take offset against first PBP invoice DCMA Contract Financing – PBPs

  16. Conversion: PP to PBP (cont’d) • Liquidation options (continued) • Incorporate previous PPs into the first PBP event DCMA Contract Financing – PBPs

  17. ACO Negotiation of PBPs • PCO may delegate negotiation of: • Performance criteria • Successful event completion • Event value DCMA Contract Financing – PBPs

  18. PBP Reduction-Suspension • ACO may reduce or suspend PBPs when contractor: • Fails to comply with material requirement of the contract • Fails to progress • Becomes financially unsound • Is delinquent in paying subcontractors • Reduction/suspension taken on PBP request DCMA Contract Financing – PBPs

  19. Communicate • ACO should notify the customer if contractors: • Fail to meet scheduled performance event • Jeopardize contract completion due to financial deterioration • Enter into a financial agreement encumbering property title DCMA Contract Financing – PBPs

  20. What We Learned • Risk management techniques • Some situations have increased risk potential • Liquidation errors • Delegation of PBP negotiations • Reduction or suspension of PBPs • Conversions from Progress Payments to PBPs DCMA Contract Financing – PBPs

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