Federal Procurement Subcontracting Plans and Compliance March 30, 2017

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2 Federal Procurement Subcontracting Plans and Compliance March 30, 2017 Dr. Frank R. Scheer Business and Acquisition Management University of Maryland University College

3 Topics 1. Overview of Diversity Goals 2. Sample sub-contracting plan format 3. Sample sub-contracting plan checklist used by Federal agencies 4. Quarterly sub-contracting plan reports Participant exercises 5. Supplier-buyer process improvement plan elements.

4 1. Overview of Diversity Goals

5 Small Business Administration Policy It is the policy of the United States that all small businesses have the maximum practical opportunity to participate in providing goods and services to the Federal Government. Congress, in furtherance of that policy, enacted various small business goals for Federal procurement. The Small Business Act states that the Small Business Administration (SBA) is to aid, counsel, assist, and protect, insofar as is possible, the interests of small business concerns in order to preserve free competitive enterprise, to ensure that a fair proportion of total purchases and contracts or subcontracts for property and services for the Government be placed with small business enterprises, to ensure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the overall economy of the Nation. Helping small businesses participate in Federal procurement is one of the most important ways the SBA can fulfill that mission.

6 SBA Statutory Goals Congress first enacted a procurement goal in prime contracting for small business in The Small Business Act (Public Law 644 &15 (g) includes the various procurement goals. Statutory level or the average achievement for the past 3 years. Program Prime Subcontracting Statutory Reference Small Business 23% Public Law (1978) & (b) (1997 increase to 23%) Small Disadvantaged Business 5% 5% Public Law (1998) Women-Owned Small Business 5% 5% Public Law (a) (1994) HUBZone Business 3% Public Law (b) (1997) Service-Disabled Veteran-Owned Small Business 3% 3% Public Law (b) (1999)

7 Goaling Baseline Procurement goals are a percentage of the total value of all prime contract awards made in a fiscal year. Base includes awards for supplies and service to business concerns, non-profit organizations, educational institutions (including Historically Black Colleges and Universities and Minority Institutions) and state and local governments. There are several categories of procurement not included in the base because they are not covered by the goaling program. Goaling baseline includes only prime contracts awarded using appropriated funds and that are covered by the FAR. Examples include: 1. Non-appropriated Funds. Procurements with funds generated from operations such as user fees, gifts, etc. rather than appropriated funds. Examples include the Comptroller of the Currency, commissary PX (AAFES) Operations. 2. Internal Transactions 3. Mandatory Sources, e.g. JWOD/Ability1 4. Contracts for Foreign Governments or International Organizations Credit Card Transactions are excluded from goaling process. The credit card threshold is $2,500.

8 *8(a) concerns automatically qualify for SDB certification. SBA certifies SDBs to make them eligible for special bidding benefits. Negotiating Goals Agencies estimate their total prime contract dollars for the next fiscal year using prior fiscal year procurement budget and any estimated expected increases or decreases. Agencies derive their goaling base from total procurements minus the excluded categories. PRIME GOALS BASED ON ESTIMATED TOTAL PROCUREMENT OF $ Agency Small Disadvantaged Business Program SB 8(a) NON8(a) Total WOSB HZ SDVOSB Gov-wide statutory goals 23% * 5% 5% 5% 3% 3% Agency average achievement in last 3 years Agency s proposed goal for FY *8(a) concerns automatically qualify for SDB certification. SBA certifies SDBs to make them eligible for special bidding benefits.

9 Data Collection Agencies report prime contract actions on the Individual Contract Action Report (SF 279) and the Summary Contract Action Report (SF 281). Agencies get on-line forms and detailed instructions for reporting in the FPDS s Reporting Manual at The Reporting Manual provides guidance on the actions that should or should not be reported to the FPDS. Agencies must also report Summary Subcontracting Activity using the Summary Subcontract Report (SF 295) format.

10 Timeline July 1 Deadline for agencies to submit proposed goals for the next fiscal year. August 30 Deadline for SBA and agencies to complete negotiations for goals. SBA will assign goals if negotiates failed to resolve the issue by this date. Agencies may appeal its assigned goal to OFPP. September 30 Final goals for next fiscal year take effect, including assigned goals.

11 Agency Monitoring and Reporting Agencies report prime contract data quarterly according to the schedule published in FPDC s Reporting Manual. Prime Contractors report to agencies on their subcontracting achievements according to the schedule published in FPDC s Reporting Manual The FPDC publishes data on achievements following each quarter and publishes the final fiscal year data annually. The data are available in summary, for each agency and by state.

12 Definitions Small Business - The Small Business Act states that a small business concern is "one that is independently owned and operated and which is not dominant in its field of operation. The law also states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences accurately. SBA's Small Business Size Regulations implement the Small Business Act's mandate to SBA. SBA has also established a table of size standards, matched to North American Industry Classification System (NAICS) industries.

13 Definitions (continued) Subcontract - Any agreement (other than one involving an employer/employee relationship) entered into by a contractor or subcontractor calling for products or services required for performance of the contract or subcontract. Direct Subcontracting - Directly attributable subcontract spend activity within the agency s contract reporting period for each specific agreement calling for products or services.

14 Definitions (continued) Subcontracting Plan Submitted to the contracting officer at the time of contract award. The plan describes the approximate Tier 1 and Tier 2 diversity spend associated with the contract. The plan is not a guarantee; actual quarterly results may be lesser or greater. However, if there is a substantial variance, the contracting office may request an explanation. Subcontracting Report Submitted quarterly by the contractor, reporting the actual Tier 1 and Tier 2 diversity spend associated with the contract.

15 Definitions (continued) Allocable (indirect) Subcontracting - Allocable contracting activity is derived from indirect cost information. Allocable subcontracting activity is any expenditure (other than a direct contract or purchase) by the supplier which can be associated with the contract in accordance with Generally Accepted Accounting Principles (GAAP). Indirect subcontract spend activity within the agency s contract reporting period for each specific agreement calling for products or services as calculated using the following: (U / R) x (TIS) = AS ƒ

16 Definitions (continued) Indirect Spend is (U / R) x (TIS) = AS, where: U = Total of agency funds paid against a specific contract agreement during a reporting period - Supplier A ƒr = Total Revenue within reporting period for Supplier A ƒtis = Total Indirect Subcontract spend activity within reporting period ƒas = Allocable Subcontracting within reporting period

17 Definitions (continued) Number of Subcontracts (#SubKs) - Total number of subcontracts (direct awards, indirect awards, and/or purchases) and modifications made during the applicable period. This would include allocable transactions made by the supplier attributable to the USPS contract during the reporting period for each specific agreement calling for products or services.

18 Definitions (continued) Actions Business category counts based on the number of subcontracts identified for each subcontractor. Multiple business categories may apply to a subcontractor: Business Category: Size Classifications: Large Business LB Small Business SM Diversity Classifications: Minority-owned Business MO Woman-owned Business - WO

19 Definitions (continued) Small business: A business, including an affiliate (see below), that is independently owned and operated, is not dominant in producing or performing the supplies or services being purchased, and has no more than 500 employees, unless a different size standard has been established by the Small Business Administration (see 13 CFR 121, particularly for different size standards for airline, railroad, and construction companies). For subcontracts of $50,000 or less, a subcontractor having no more than 500 employees qualifies as a small business without regard to other factors.

20 Definitions (continued) Affiliate: A business, organization, person, or individual connected by the fact that one controls or has the power to control the other or by the fact that a third party controls or has the power to control both. Factors such as common ownership, common management, and contractual relationships may be considered. Franchise agreements are not conclusive evidence of affiliation if the franchisee has a right to profit in proportion to its ownership and bears the risk of loss or failure.

21 Definitions (continued) Dominant: Being a controlling or major influence in a market in which a number of businesses are primarily engaged. Factors such as business volume; number of employees; financial resources; competitiveness; ownership or control of materials, processes, patents, and license agreements; facilities; sales territory; and nature of the business must be considered. Woman-owned business: A concern at least 51 percent of which is owned by a woman (or women) who is a U.S. citizen, controls the firm by exercising the power to make policy decisions, and operates the business by being actively involved in day-to-day management.

22 Definitions (continued) Minority business: A minority business is a concern that is at least 51 percent owned by, and whose management and daily business operations are controlled by, one or more members of a socially and economically disadvantaged minority group, namely U.S. citizens who are Black Americans, Hispanic Americans, Native Americans, or Asian Americans. (Native Americans are American Indians, Eskimos, Aleuts, and Native Hawaiians. Asian Americans are U.S. citizens whose origins are Japanese, Chinese, Filipino, Vietnamese, Korean, Samoan, Laotian, Kampuchea (Cambodian), Taiwanese, in the U.S. Trust Territories of the Pacific Islands or in the Indian subcontinent.)

23 Definitions (continued) Number of employees: Average employment (including domestic and foreign affiliates), based on the number of people employed (whether full-time, part-time, or temporary), during each pay period of the preceding 12 months, or, if the business has been in existence less than 12 months, during each pay period of its existence.

24 Definitions (continued) Supplier s Use of Subcontractors - In accordance with Participation of Small, Minority-, and Woman-Owned Businesses (SMWOBs), the policy of the agency Service is to encourage the participation of small, minority-, and womanowned businesses in its purchases of supplies and services to the maximum extent practicable, consistent with efficient contract performance. The supplier agrees to follow the same policy in performing this contract and also agrees that any eventual subcontractors will also follow the same policy.

25 Definitions (continued) Supplier Reports - Each supplier awarded a contract valued at $500,000 or more must submit calendar-quarter reports on its subcontracting activity for that contract. Three types of reporting methods may be used: (1) reports showing direct subcontract awards, awarded under the agency Service contract; (2) reports showing subcontracting activity that is allocable to the agency Service contract using generally accepted accounting principles; or (3) reports that are a combination of the two.

26 Definitions (continued) During discussions, the agency s purchase team and the supplier must agree to which type of report will be used. The supplier will submit reports to the contracting officer within 15 calendar days after the end of each calendar-year quarter, describing all subcontract awards to small, minority, or woman-owned businesses. The contracting officers may require more frequent reports.

27 Definitions (concluded) Supplier Plans - Plans which specifically address subcontracting with SMWOBs are required for all contracts valued at $700 thousand or more. Unless formally waived by the contracting officer for urgent and compelling business reasons, suppliers must submit the plans with their proposals, and plans must be agreed to before award of the contract (small businesses are exempt from the plan requirement).

28 2. Sample sub-contracting plan format

29 [SUPPLIER NAME] SUPPLIER DIVERSITY PLAN "Subcontracting Plan" Contract Statement Concerning "Subcontracting" The [AGENCY NAME] defines a subcontract as any agreement (other than one involving an employer-employee relationship) entered into by a supplier or subcontractor calling for supplies or services required for performance of the contract or subcontract. [Supplier name] does not enter into such agreements for performance of this contract, but agrees to submit the requested information on its identified supplier base.

30 Vision The management team at [SUPPLIER NAME] envisions the continuing pursuit of a supplier base that reflects the American business community and is marked by broad, inclusive, supplier participation in all company purchasing activities. General Philosophy In order to maintain and improve [SUPPLIER NAME]'s capability to provide service that meets the needs of customers at cost effective and competitive prices, it is essential to find and use both large and small suppliers who provide performance excellence. In promoting and developing a diverse supplier base, [SUPPLIER NAME] will continue to ensure that no supplier is excluded from opportunities or given preference to compete on the basis of race, color, religion, sex, age, national origin or company size.

31 Responsibility Providing opportunities to those suppliers able to meet the needs of [SUPPLIER NAME] is the responsibility of all [SUPPLIER NAME] employees, whether defining requirements, identifying sources, or making purchasing decisions. Development and Opportunities [SUPPLIER NAME] will continue to communicate openly and actively with its suppliers and will work with suppliers to help them develop and enhance their capabilities to do business with [SUPPLIER NAME].

32 [SUPPLIER NAME] will strive for continuous improvement by establishing targets and monitoring progress through tracking the number of transactions, dollars awarded, opportunities offered, and other factors. [SUPPLIER NAME] will track performance over time. The goals, both percentages and dollar amounts, are established for a period of one year and then pro-rated by the mileage on each of our highway contract routes: CLASSIFICATION PERCENTAGE DOLLARS Small Business --% $ Minority Owned Business --% $ Small-Women-Owned Business --% $ TOTAL 100% $

33 Principal Types of Supplies and Services [SUPPLIER NAME] will report on all accounts payable associated with agency transportation contracts from its identified supplier base which will include all direct and indirect purchases. Method of Goal Development [SUPPLIER NAME] will use historical data in developing its small, minorityowned and women-owned business goals. Source Identification [SUPPLIER NAME] will identify diverse sources during the purchase planning stage and include small, minority and women-owned businesses in sourcing plans, wherever practical. [SUPPLIER NAME] will cooperate with organizations that promote small, minority and women-owned businesses and ensure that buyers are aware of those businesses which have performed successfully.

34 Source Identification (continued) [SUPPLIER NAME], acting in good faith, will rely upon written representations by suppliers and potential suppliers regarding their status as certified small, minority-owned or womenowned business concerns. The long-term goal of [SUPPLIER NAME] is to identify and do business with those suppliers who can compete effectively, provide best value, perform reliably, improve quality, and work with [SUPPLIER NAME] to reduce costs, risks and cycle time. [SUPPLIER NAME]'s experience makes it clear that efforts to promote supplier diversity do not detract from this goal.

35 Administration The designated individual with [SUPPLIER NAME] who will administer the supplier diversity program of this contract is: [Supplier's contact information] Duties of Administrator: 1) Oversees compliance with the content of this plan. 2) Coordinates and works with the contracting agency. 3) Provides records and reports and cooperates in all studies and surveys reasonably required by the contracting agency.

36 Assurance and Compliance Reports It is unlikely that goods or services subcontracts exceeding $700,000 will result from the award of this contract. Should such a situation arise, the subcontractor will be required to adopt and comply with a subcontracting plan similar to this Plan. The second tier subcontracting plan will be monitored periodically for compliance by the Administrator. [SUPPLIER NAME] will cooperate in any studies or surveys as may be required and will submit quarterly supplier diversity reports on this contract.

37 Records to Be Maintained [SUPPLIER NAME] agrees to maintain at least the following records in support of its Supplier Diversity Plan: 1. Source lists, guides, and other data identifying small, minority, and women-owned businesses; 2. Organizations contacted in an attempt to locate sources that are small business, minority and women-owned businesses; 3. Records on each subcontract solicitation, if any, resulting in an award of more than $100,000, indicating whether small, minority, or women-owned businesses were solicited and if not, why not; 4. Records to support subcontract award data, if any, including the name, address, and business size of each subcontractor.

38 3. Sample sub-contracting plan checklist used by Federal agencies

39 Sub-contacting Checklist Federal agency procurement staff review subcontracting plans submitted by suppliers. The following slides depict aspects that are considered. The draft sub-contracting plan described during the preceding section may need to be enhanced to consider specific aspects of the procurement and satisfy all items in this checklist.

40 Sub-contacting Checklist (continued) PART I - DESCRIPTION OF REQUIREMENT Date: Type of Contract: Solicitation No.: Description of the Requirement: Total Contract Value: $ Contract Period:

41 Sub-contacting Checklist (continued) PART II - SUBCONTRACTING PLAN CONTENT (Note: overlapping percentages may occur for multi-category businesses) 1. Does the subcontracting plan include goals in terms of percentages of the total amount of this contract to be subcontracted to small, minority, and woman-owned businesses (SMWOBs)? Yes No What is the percentage for small business? What is the percentage for minority-owned? What is the percentage for woman-owned? 2. Are the SMWOB percentages acceptable based on current market conditions and your research? Yes No

42 Sub-contacting Checklist (continued) 3. How critical are the SMWOB subcontracts to the overall performance of the contract? High Medium Low 4. Are all subcontracts that contribute to contract performance listed? Yes No 5. What is the percentage of subcontracts for large businesses? a. How critical are these subcontracts to the overall performance of the contract? High Medium Low

43 Sub-contacting Checklist (continued) 6. Is there a statement that includes total dollars planned for subcontracting? Yes No a. What are the total dollars for small business? b. What are the total dollars for minority-owned business? c. What are the total dollars for woman-owned business? d. What are the total dollars for large business? 7. Is there a description of the principle types of supplies and services to be subcontracted? Yes No 8. Are the types of supplies and services identified for subcontracting to small, minority, and woman-owned businesses? Yes No

44 Sub-contacting Checklist (continued) 9. Does the plan describe the method used to develop goals? Yes No 10. Did the goal development include indirect/overhead cost? Yes No a. Is there a description of the method used to allocate indirect/overhead costs? Yes No 11. Does the plan describe the method used to identify potential sources? Yes No

45 Sub-contacting Checklist (continued) 12. Does the plan describe efforts the supplier will make to ensure that small, minority, and woman-owned businesses have an opportunity to compete for subcontracts? Yes No 13. Does the plan provide the name and duties of the subcontracting program administrator? Yes No 14. Is the program administrator given adequate authority and responsibility to administer subcontracting program effectively? Yes No

46 Sub-contacting Checklist (continued) 15. Does the plan include flow down assurances that the supplier will require subcontractors receiving subcontracts in excess of $1 million to adopt a plan similar to the plan agreed to in this contract? Yes No Objective Evidence: Copy of appropriate subcontracting clauses or subcontract agreement.

47 Sub-contacting Checklist (continued) 16. Does the plan include a recitation of the types of records the supplier will maintain to demonstrate compliance with the requirements and goals in the contract? Yes No Does the list include? a. Contacts with business development organizations for SMWOBs? Yes No b. Records to support internal activities to guide buyers (including workshops, seminars, and training programs)? Yes No c. Attendance and participation in outreach activities? Yes No d. Records to support subcontract awards data, including name, address, and business size of each subcontractor? Yes No

48 Sub-contacting Checklist (continued) 17. Which of the required subcontracting reporting methods will the supplier use to report results? a. Amount of money paid to subcontractors during the reporting period. b. Subcontracting activity that is allocable to this contract using generally accepted accounting practices; or c. Combination of both methods above PART III - SUPPLIER PERFORMANCE AND SUITABILITY OF PROSPOSED PLAN 18. Is there an evaluation of the supplier s past performance in awarding subcontracts for similar services? Yes No

49 Sub-contacting Checklist (continued) 19. Does the supplier s management plan address relationships with subcontractors? Yes No Are the lines of authority and interface clearly defined? Yes No Who has the authority to make decisions? Who needs to be consulted for input on issues and decisions? Are there contingency plans for possible supply disruption related to capacity constraints, quality or production problems with subcontracts? Yes No 20.Is the Subcontracting Plan as submitted acceptable? Yes No 21. If the plan is unacceptable, was the supplier notified of the deficiencies? Yes No

50 Sub-contacting Checklist (continued) PART IV - POST-AWARD Although the questions below address issues that occur after contract award, the Purchasing Specialist should consider this information in the preliminary planning of the negotiation session. 22. Are the supplier s submittals based on the agreed report method and time period indicated in the plan? Yes No 23. Is the supplier making progress towards meeting all contract-specific plan goals? Yes No

51 Sub-contacting Checklist (continued) 24.What methods are used by the supplier to monitor performance in meeting goals, including feedback mechanisms? 25. Is there documentation of efforts to identify additional small, minority, and woman-owned businesses as potential subcontractors? Yes No 26. Is there documentation to support solicitation of small, minority, and woman-owned business participation? Yes No 27. Does any part of the existing plan contain special features such as an incentive clause (e.g., continuous improvement)? Yes No Describe the supplier s performance on these efforts.

52 Sub-contacting Checklist (concluded) 28. Is there evidence to support adoption of subcontracting plans of suppliers receiving subcontracts in excess of $1 million similar to this plan? Yes No 29. Does the supplier monitor subcontractor s performance against plan? Yes No 30. Was an annual meeting held with the supplier to ensure adequate understanding of agency policies and performance expectations? Yes No Plan Reviewed by: Date: Signature:

53 4. Quarterly sub-contracting plan reports

54 Scenarios The following scenarios illustrate how to report, on a calendarquarter basis, subcontracting activity for contracts with negotiated subcontracting plans which specifically address small, minority and woman-owned business participation. Notes Subcontracting activity for contracts with foreign suppliers are excluded. These are merely examples of how to report subcontracting activities using Generally Accepted Accounting Principles. Included are examples of how to allocate subcontractor costs that are part of overhead accounts. Supplier accounting systems may be different and their method of making such allocations may differ from those in the examples.

55 Scenarios (continued) Supplier Reports: Contracts valued at $700 thousand or more with negotiated subcontracting plan requirements Example 1: Supplies, Services, and Equipment Bennett, LLC, a technology support services company, was awarded a 3-year $12M agency contract with two option years. Because the contract is above $700 thousand, a Subcontracting Plan is required.

56 Scenarios (continued) Bennett LLC negotiated a Subcontracting Plan indicating total subcontracting would be $2M ((Large business 70% & Small business 30%) (Minority-owned business 70% & Womanowned business 12%)) Subcontracting Plan for Bennett LLC Total agency contract for Bennett LLC = $12M Total Subcontracting = $ 2M

57 Scenarios (continued)

58 Scenarios (continued) Example 1a: Direct Reporting (Supplies, Services, and Mail Equipment) Using the Subcontracting information provided in Example 1, Bennett LLC made three contract awards to suppliers whose work is directly attributable to the agency contract. Quarter I, Bennett LLC s subcontracting activity totaled $250k Total of agency contract awarded to Bennett LLC = $12M Total Subcontracting = $ 2M

59 Five minutes for filling in the handout template before discussion

60 Scenarios (continued)

61 Scenarios (continued)

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63 Scenarios (continued) Example 1b: Allocable Reporting (Supplies, Services, and Equipment) Using the Subcontracting information provided in Example 1, in Quarter I, Bennett LLC received $1 M towards the agency contract. Additionally, Bennett LLC s total revenue was $5M. During that time, Bennett LLC spent a total of $833,335 to support the operations of his business including expenditures that are associated with the agency contract (e.g. office supplies, support services, and utilities).

64 Scenarios (continued) Subject to the agreement between Bennett LLC and the agency, Bennett LLC will report showing subcontracting activity that is allocable to the contract during the report period using generally accepted accounting principles. Use the following formula to calculate the allocable spend for the reporting period: (F / R) x (TIS) = AS F = Total of Federal agency funds paid against a specific contract agreement during a reporting period - Supplier A R = Total Revenue within reporting period for Supplier A TIS = Total Indirect Subcontract spend activity within reporting period AS = Allocable Subcontracting within reporting period

65 Scenarios (continued) Quarter I F=$ 1M R=$ 5M TIS=$833,335 AS=Total Allocable Subcontracting within Quarter I (U=$1M / $5M) x ($833,335) = $166,667 Allocable Subcontracting Total dollars paid to Bennett LLC against agency contract: $ 1M Bennett LLC total revenue (Quarter I): $ 5M % of Bennett s Dependency on agency (1M/5M) 20%

66 Five minutes for filling in the handout template before discussion

67 Scenarios (continued)

68 Scenarios (continued)

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70 Scenarios (continued) Example 1c: Combination (Direct & Allocable) Reporting (Supplies, Services, and Equipment) Using the Subcontracting information provided in Example 1, in Quarter I, Bennett LLC received $1 M towards the agency contract; the company s total revenue was $5M. During that time, Bennett LLC made an award of $100k that was directly attributable to the agency Contract. The company spent a total of $833,335 to support the operations of the business including expenditures that are associated with the agency contract (e.g. office supplies, support services, and utilities).

71 Scenarios (continued) Subject to the agreement between Bennett LLC and the agency, Bennett LLC will report a combination of subcontracting activity showing the amount of money paid to subcontractors, and showing subcontracting activity that is allocable to the contract using generally accepted accounting principles for the report period.

72 Scenarios (continued) Use the following formula to calculate the allocable spend for the reporting period: (F / R) x (TIS) = AS F = Total of Federal agency funds paid against a specific contract agreement during a reporting period - Supplier A R = Total Revenue within reporting period for Supplier A TIS = Total Indirect Subcontract spend activity within reporting period AS = Allocable Subcontracting within reporting period Quarter I

73 Scenarios (continued) F=$ 1M R=$ 5M TIS=$833,335 AS=Total Allocable Subcontracting within Quarter I (U=$1M / $5M) x ($833,335) = $166,667 Allocable Subcontracting Total dollars paid to Bennett LLC against agency contract: $ 1M Bennett LLC total revenue (Quarter I): $ 5M % of Bennett LLC s Dependency on agency spend (1M/5M) 20%

74 Five minutes for filling in the handout template before discussion

75 Scenarios (continued)

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77 Scenarios (continued)

78 5. Supplier-Buyer process improvement plan elements

79 You can t manage what you can t measure. Before the defined metrics can be applied to evaluating a sub-contract supplier's performance, the contract must specify a baseline for each of the metrics. This activity must be completed before the contract commences.

80 A benchmark analysis or a performance comparison across different suppliers, in the case of multi-source contracts is another useful way to gauge improvements. Some industry benchmarks can also give rise to useful performance metrics.

81 Performance measures are used to motivate the Sub-Contract supplier to improve in areas important enough to be rated, but not to the detriment of overall performance. Performance improvements such as quality of work, productivity, and cost-efficiency must be embodied in the terms of the contract. Improvements should aim for alignment of objectives, so that the Client and Supplier are working toward the same goals and both derive when they are realized.

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83 Plan Planning is an important part of continuous improvement. Companies need to consider what they will do to meet certain business objectives. For instance, if the company is interested in expanding into new service areas it must identify the areas it intends to move into and then plan for how this expansion will be accomplished. Planning is a critical first step in the continuous improvement process.

84 Do Once a plan has been developed, it is time to put that plan in place, or implement it. Welldeveloped plans will contain strategies, tactics and action plans that clearly outline for the organization and its members what is to be done, when and by whom. Actually "doing" involves putting into place a series of activities or actions.

85 Study Once a plan has been implemented, the next step is to study the impact of that implementation. For instance, suppose a company plans and implements a new safety program designed to reduce the number of on-site accidents in a manufacturing plant. As the plan is implemented, the company studies the impact of the plan on safety levels. If safety levels improve, the company will assume that the plan had a positive impact. If safety levels remain the same or decline, the company will assume that the plan did not have a positive impact.

86 Act Based on the results after plan implementation, companies then take action. If the results have been favorable, the company will continue to implement the plan and perhaps spread the plan to other parts of the organization. If the plan has not been a success, the company will consider what it has learned and begin the planning cycle-- plan, do, check, act--again, as part of its continuous improvement efforts.

87 Seven Performance Metric Areas Typical performance metric categories that are often monitored for continuous improvement include: Key Process Cycle Time Client/Customer Satisfaction Process Improvements Process Quality Supplier Delivery Performance Organizational Performance Supplier Diversity

88 Questions?

89 Appendix slides: The sub-contract reporting scenario covered during the break out is included along with others, illustrating how to report small, minority, and women-owned spend data. These are provided as supplemental, self-guided references.

90 Thank you! Frank R. Scheer, D.B.A. Assistant Professor Acquisition and Supply Chain Management University of Maryland University College

91 Appendix slides Other sub-contract reporting examples

92 Scenarios (continued) Example 3: Facilities In October, 2008, B&B Construction was awarded a 3-month $12M agency contract to renovate a facility after a tornado. Because B&B Construction s contract is above $1M, B&B negotiated a subcontracting plan indicating total subcontracting would be $2.4M. Large business goal was set at 65%, small business goal at 35%, minority-owned business goal at 35%, the women-owned business goal at 50%. Total of agency contracts awarded to B&B Construction = $12.0M Total Subcontracting = $ 2.4M

93 Scenarios (continued)

94 Scenarios (continued)

95 Scenarios (continued) Example 3a: Direct Reporting (Facilities) Using the subcontracting information provided in Example 3 - B&B Construction made three contract awards to suppliers whose work is directly attributable to the agency contract. Quarter I, B&B Construction s subcontracting activity totaled $2.6M, which exceeded the negotiated goal.

96 Scenarios (continued) Subject to the agreement between B&B Construction and the agency, B&B will report subcontracting activity showing the amount of money paid to subcontractors during the report period using generally accepted accounting principles. Total of agency contracts awarded to B&B Construction = $ 12.0M Total Subcontracting = $ 2.6M

97 Scenarios (continued)

98 Scenarios (continued)

99 Scenarios (continued) Example 3b: Allocable Reporting (Facilities) Using the subcontracting information provided in Example 3 - At the end of Quarter I, B&B Construction received the final payment toward the fulfillment of the $12M contract with the agency. The company s total revenue during the reporting period was $60M. B&B Construction spent a total of $12M to support the operations of the business including expenditures that are associated with the agency contract (e.g. roofing, cabling, and drywall).

100 Scenarios (continued) Subject to the agreement between B&B Construction and the agency, B&B Construction will report showing subcontracting activity that is allocable to the contract during the report period using generally accepted accounting principles.

101 Scenarios (continued) Use the following formula to calculate the allocable spend for the reporting period: (F / R) x (TIS) = AS F = Total of Federal agency funds paid against a specific contract agreement during a reporting period - Supplier A R = Total Revenue within reporting period for Supplier A TIS = Total Indirect Subcontract spend activity within reporting period AS = Allocable Subcontracting within reporting period

102 Scenarios (continued) Quarter I F=$ 12M R=$ 60M TIS=$12M AS=Total Allocable Subcontracting within Quarter I (U=$12M / $60M) x ($1 2M) = $2,400,000 Allocable Subcontracting Total dollars paid to B&B against agency contract: $ 12M B&B total revenue (Quarter I): $ 60M % of B&B Dependency on agency (12M/60M) 20%

103 Scenarios (continued)

104 Scenarios (continued)

105 Scenarios (continued) Example 3c: Combination (Direct & Allocable) Reporting (Facilities) Using the subcontracting information provided in Example 3 At the end of Quarter I, B&B Construction received the final payment toward the fulfillment of the $12M contract with the agency. The company s total revenue during that period was $24M. B&B Construction awarded three contracts to suppliers in support of the agency contract. During that time, B&B Construction spent a total of $500K to support the operations of the business including expenditures that are associated with the agency contract (e.g. roofing, cabling, and drywall).

106 Scenarios (continued) Subject to the agreement between B&B Construction and the agency, B&B Construction will report a combination subcontracting activity showing the amount of money paid to subcontractors and showing subcontracting activity that is allocable to the contract using generally accepted accounting principles during the reporting period.

107 Scenarios (continued) Use the following formula to calculate the allocable spend for the reporting period: (F / R) x (TIS) = AS F = Total of Federal agency funds paid against a specific contract agreement during a reporting period - Supplier A R = Total Revenue within reporting period for Supplier A TIS = Total Indirect Subcontract spend activity within reporting period AS = Allocable Subcontracting within reporting period

108 Scenarios (continued) Quarter I I F=$ 12M R=$ 24M TIS=$500K AS=Total Allocable Subcontracting within Quarter I (U=$12M / $24M) x ($500K) = $ 250,000 Allocable Subcontracting Total dollars paid to B&B against agency contract: $ 12M B&B total revenue (Quarter I): $ 24M % of B&B Dependency on agency spend: (12M/24M) 50%

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110 Scenarios (continued)

111 Scenarios (continued) Example 4: Transportation In Quarter II of 2008, Global World Transport was awarded a 6- month $12M agency contract. Global World Transport negotiated a subcontracting plan indicating total subcontracting would be $3M. Large business goal was set at 72%, small business goal at 28%, minority-owned business goal at 28%, the women-owned business goal at 40%. Total of agency contracts awarded to Global World Transport = $12M Total Subcontracting = $ 3M

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115 Scenarios (continued) Example 4a: Direct Reporting (Transportation) Using the Subcontracting information provided in Example 4 - Global World Transport made awards to seven suppliers whose work is directly attributable to the agency contract. At the end of Quarter II, Global World Transport subcontracting activity totaled $1,524,000 Subject to the agreement between Global World Transport and the agency, Global World Transport will report subcontracting activity showing the amount of money paid to subcontractors during the report period using generally accepted accounting principles.

116 Scenarios (continued) Total of agency contracts awarded to Global World Transport = $12M Total Subcontracting = $ 3M

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119 Scenarios (continued) Example 4b: Allocable Reporting (Transportation) Using the Subcontracting information provided in Example 4 Quarter II, Global World Transport received $6M toward the agency contract. Global World Transport s total revenue was $24M. Global World Transport spent a total of $6M to support the operations of the business, including expenditures that are associated with the agency contract. (e.g. VMF, maintenance, fuel, and freight).

120 Scenarios (continued) Subject to the agreement between Global World Transport and the agency, Global World Transport will report showing subcontracting activity that is allocable to the contract during the report period using generally accepted accounting principles.

121 Scenarios (continued) Use the following formula to calculate the allocable spend for the reporting period: (F / R) x (TIS) = AS F = Total of Federal agency funds paid against a specific contract agreement during a reporting period - Supplier A R = Total Revenue within reporting period for Supplier A TIS = Total Indirect Subcontract spend activity within reporting period AS = Allocable Subcontracting within reporting period

122 Scenarios (continued) Quarter II F=$ 6M R=$ 24M TIS=$ 6M AS=Total Allocable Subcontracting within Quarter II (U=$6M / $24M) x ($6M) = $1.5M Allocable Subcontracting Total dollars paid to Global against agency contract: $ 6M Global total revenue (Quarter II): $ 24M % of Global Dependency on agency (6M/24M) 25%

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126 Scenarios (continued) Example 4c: Combination (Direct & Allocable) Reporting (Transportation) Using the subcontracting information provided in Example 4 Global World Transport made five awards to suppliers whose work is directly attributable to the agency contract. In Quarter II Global World Transport reported zero dollars against the subcontracting plan. In Quarter III Global World Transport received delayed invoices from suppliers and a delayed payment for Quarter II activity. In Quarter III, Global World Transport s total revenue was $100M, during that time Global World Transport spent a total of $475k to support the operations of the business including expenditures that are associated with the agency contract (e.g. maintenance, fuel, and freight).

127 Scenarios (continued) Subject to the agreement between Global World Transport and the agency, Global World Transport will report a combination subcontracting activity showing the amount of money paid to subcontractors and showing subcontracting activity that is allocable to the contract using generally accepted accounting principles during the reporting period.

128 Scenarios (continued) Use the following formula to calculate the allocable spend for the reporting period: (F / R) x (TIS) = AS F = Total of Federal agency funds paid against a specific contract agreement during a reporting period - Supplier A R = Total Revenue within reporting period for Supplier A TIS = Total Indirect Subcontract spend activity within reporting period AS = Allocable Subcontracting within reporting period

129 Scenarios (continued) Quarter III Reporting: F=$12M R=$100M TIS=$475k AS=Total Allocable Subcontracting within Quarter I (U=$12M / $100M) x ($475k) = $57k Allocable Subcontracting Total of agency contracts awarded to Global World Transport = $ 12M Global World Transport total revenue (Quarter III) = $100M % of Global World Transport s Dependency on agency 12.0% Total of agency contracts awarded to Global World Transport = $12.0M Total Subcontracting = $ 3.0M

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