performance based payments (pbps) webcast 8.2… · \⠀搀尩 liquidating performance-based...

One AFMC… Powering the World’s Greatest Air Force

PERFORMANCE BASED PAYMENTS (PBPs)

Hosted By:Defense Pricing and Contracting

Sponsored By:Defense Acquisition University

Presented By:Derek KubaAFMC/PKF

Unclassified


PBP Contents

2

• PBP Overview• Developing PBP Events & Completion Criteria• Valuing PBP Events• PBP Clauses

Unclassified


PBP Overview

3Unclassified


Basic Terms/Concepts

4Unclassified

• Generally, two types of payments:– Contract Financing Payment - a Government

disbursement “Funding” made under a contract clause or other authorization prior to acceptance of supplies or services by the Government.

– Invoice Payment - a Government disbursement made under a contract or other authorization for supplies or services accepted by the Government.



5Unclassified

• Liquidation (of contract financing payments)- Process of lowering the outstanding balance

of financing payments and converting some portion of them to partial or final (i.e. non-refundable) payment status

- Un-Liquidated contract financing payments must be returned in the event of termination*

* To the extent that they have not yet been earned through partial or complete performance

(Reference: FAR 32.1004(d))

PresenterPresentation Notes (d) Liquidating performance-based finance payments. Performance-based amounts shall be liquidated by deducting a percentage or a designated dollar amount from the delivery payments. The contracting officer shall specify the liquidation rate or designated dollar amount in the contract. The method of liquidation shall ensure complete liquidation no later than final payment. (1) If the contracting officer establishes the performance-based payments on a delivery item basis, the liquidation amount for each line item is the percent of that delivery item price that was previously paid under performance-based finance payments or the designated dollar amount. (2) If the performance-based finance payments are on a whole contract basis, liquidation is by predesignated liquidation amounts or liquidation percentages.



6Unclassified

• Customary Contract FinancingAgency deemed financing that’s available for use by the Contracting Officer that generally do not require specific reviews or approvals by higher Management.

• Unusual Contract FinancingFinancing that’s not deemed customary by the agency but is legal and proper and requiresreviews or approvals by higher Management.



7Unclassified

• Contract “Financing Methods” are not applicable to Cost-Reimbursable Contracts– Cost-Reimbursable contracts generally paid every

two weeks, plus fee

• Two General Categories of Contract Financing– Non-Commercial Item Financing– Commercial Item Financing


Methods

8Unclassified

Non-CommercialItem Financing

FAR 32.1

CommercialItem Financing

FAR 32.2

Government Contract Financing

PerformanceBased

Payments

ProgressPayments

AdvancePayments

LoanGuarantees

AdvancePayments

InstallmentPayments

InterimPayments

Invoice Payments are NOT Financing


Conditions for Customary Financing

9Unclassified

• Period of performance– 6 months or > (large business)– 4 months or > (small business)

• Contract Price– $2.5M or > (large business)– > simplified acquisition threshold (small

business)

PresenterPresentation Notes


PBP Definition

10Unclassified

• Contract financing payments for non-commercial purchases that are payments made on the basis of

(1) performance measured by objective, quantifiable methods;(2) accomplishment of defined events; or(3) other quantifiable measures of results.

(Reference FAR 32.10)

PresenterPresentation NotesAs defined by the FAR, PBP are finance payments that are for noncommercial items and are made on the basis of performance. The most frequently used method is the accomplishment of defined events.


FAR PBP Policy

11

• “Preferred” method of financing• Contract financing not payment for accepted items • Fully recoverable in the event of default• Treated like progress payments for government accounting

purposes and not subject to interest penalty provisions of prompt payment

• May be used on competitive negotiations (though not on sealed bids)

• Not used for architect-engineer services or construction, or for shipbuilding or ship conversion, alteration, or repair, when the contracts provide for progress payments based upon a percentage or stage of completion

Unclassified

PresenterPresentation NotesPBPs are not payments for deliverable items. They are fully recoverable in the event of default and they are treated like progress payments for government accounting purposes.


PBP Criteria For Use

12Unclassified

• Shall be used only if the following are met:

– Contracting Officer and contractor agree onPBP terms

– Fixed-price type contract– Contract cannot also provided for progress

payments

PresenterPresentation NotesThey shall be used if the CO and contractor agree on PBP terms. They cannot be used in conjunction with any other method of financing. May be used on competitive negotiations.


DFARs 2020 Changes & Impacts

13Unclassified

• The PBP “cost limitation” clause previously at 252.232-7012/13 is no longer used to constrain PBP payments to cost incurred

– PBPs can no longer be conditioned upon costs– Very significant change that results in the need to thoroughly vet

expenditure profiles, analyze PBP values, and analyze whether events should be cumulative versus severable

• Contractor financial statements shall be in accordance with Generally Accepted Accounting Principles

• While title is still preferred for security, there are other alternatives that can be used depending on a company’s accounting system

PresenterPresentation NotesAs of the issuance of the latest rule change (Apr 8, 2020), the contractor’s financial statements must be in compliance with GAAP. Law dictates that this does not grant DCAA the authority to audit compliance with GAAP.

New rule eliminates the ability to limit PBPs on the basis of incurred costs on the action to which they are applied.


Planning for PBP

14Unclassified

• Assess potential for PBP during contract planning

• Include PBP as part of pricing effort– Educate team members up front regarding good

PBP events & criteria, purpose of financing, etc.

– Do not separate PBP negotiations from price negotiations

• Also, be prepared for number of elements to be negotiated, e.g. event content, criteria, %/dollars, etc., as this can add time to the pre-award schedule


Planning for PBP

15Unclassified

• Communicate expectations to Contractor early– Need for detailed program schedule– Types of events (should propose specific events)– Frequency of events (include planned completion date)– Completion criteria– Monthly expenditure profile

• Government and Contractor Must Agree on PBP terms – or possibly resort to Progress Payments


Planning for PBP

16Unclassified

• If Converting to PBPs (FAR 32.005 (a)(2))– Consideration is required for changes to, or the addition of, contract financing after award (including an undefinitized contract where progress payments are provided at award)– Amount of new consideration:

• Monetary or nonmonetary means, provided the value is adequate• The fair and reasonable consideration should approximate the amount by

which the price would have been less had the contract financing terms been contained in the initial contract.

• In the absence of definite information on this point, the contracting officer should apply the following criteria in evaluating whether the proposed new consideration is adequate:

– Value to the contractor of the anticipated amount and duration of the contract financing at the imputed financial costs of the equivalent working capital– The estimated profit rate to be earned through contract performance

PresenterPresentation NotesDoing PBPs on UCAs is very challenging, but is possible. Would recommend it only be done in circumstances where you have easily definable events/criteria and good production history where monthly costs are easy to determine and anticipate.


PBP Key Steps

17Unclassified

1. Establish Detailed Program Schedule2. Identify Key Performance Milestones (PBP

Events)3. Establish Completion Criteria for PBP

Events4. Determine/Evaluate Monthly Expenditure

Profile5. Establish Event Values and Create Win-Win

Scenario6. Develop Special Contract Provisions


Developing PBP Events & Completion Criteria

18Unclassified


FAR Requirements for PBP Events

19Unclassified

• Basis may be specifically described event or some measurable criterion of performance

• Events must be integral, necessary part of performance

• Events must be identified, with description of what constitutes successful completion

• Events need not be critical, but performance must be readily verifiable

PresenterPresentation NotesIn terms of procedures, the CO must set up a set of defined events that have completion criteria and associated payment events.


FAR Requirements for PBP Events

20Unclassified

• Events may be cumulative or severable*– Severable – successful completion is

independent of other events– Cumulative – successful completion is

dependent upon previous accomplishment of another event (must identify dependent event)

* Note – This is an area where the best of intentions can lead to unintended consequences, which will be discussed in later slides

Typical PBPs contain both severableand cumulative events


FAR Guidelines for PBP Events

21Unclassified

• Whole Contract or Deliverable Item Basis– Whole Contract – financing payments are

applicable to entire contract– Deliverable Item – financing payments are

applicable to a specific individual deliverable item

PresenterPresentation NotesEvents may be made on a whole contract or deliverable item basis. For example, if you are buying aircraft you could set up a schedule of events that would apply to each individual aircraft. Otherwise, the whole contract basis would imply a lot of items that would get tracked together for payment purposes.


FAR Guidelines for PBP Events

22Unclassified

• Not designed to reward for performance above contract requirements

• Signing of contracts shall not be used as basis for event


How to Develop Events/Criteria

23Unclassified

• PBP Key Step 1 – Establish detailed program schedule – Work with Program Management & technical

personnel– What is program critical path?– What are key activities that must be completed

to ensure contract delivery?– Are there significant subcontractor activities?– Utilize Integrated Master Plan & Schedule



24Unclassified

• PBP Key Step 2 – Identify Key Performance Milestones – PBP Events

– Use Defense Contract Management Agency (DCMA), Program Management & Technical Personnel

– Use Meaningful and Objective Events

– Consider Whether Events Should be Cumulative or Severable

– Structure Events on Whole Lot or Line Item Basis (Contract must be one or other)



25Unclassified

• PBP Key Step 2 – Identify Key Performance Milestones – PBP Events (cont)– Consider Frequency of Events (& burden to

administer)– Use Appropriate Anticipated Event Completion

Dates– Don’t Use Prime Contract Award to Trigger a PBP– Don’t Use Invoices to Trigger a PBP



26Unclassified

• PBP Key Step 3 – Establish Completion Criteria for PBP Events

– Use Specific, Objective and Clear Criteria

– Make Sure Criteria for Cumulative Events Identifies Related Events

– Obtain DCMA Input

– Identify Appropriate Person/Organization for Verification of Events

• First three steps are an iterative process• Contractor may take first cut at events/criteria• Each event must have an associated completion

criterion!


PBP Exercise

27Unclassified

Examples of PBP Events &Completion Criteria


PBP Example 1

28Unclassified

Event: Award of Contract F33657-03-C-0001

Completion Criteria: Complete upon contractor signature on contract

Is this a good or bad event?A. GoodB. Bad, cannot do per FAR 32.10004


PBP Example 1

29Unclassified

Event: Award of Contract F33657-03-C-0001

Completion Criteria: Complete upon contractor signature on contract

Is this a good or bad event?A. GoodB. Bad, cannot do per FAR 32.10004


PBP Example 2

30Unclassified

Event: Award of Subcontract #xyz

Completion Criteria: Complete upon subcontractor signature on subcontract

Choose the best answer from the following:A. Good event and criteria.B. Okay, but consider significance of subcontract & “value” of event. Event should be cumulative.C. Okay, but consider significance of subcontract & “value” of event. Event should be severable.


PBP Example 2

31Unclassified

Event: Award of Subcontract #xyz

Completion Criteria: Complete upon subcontractor signature on subcontract

Choose the best answer from the following:A. Good event and criteria.B. Okay, but consider significance of subcontract & “value” of event. Event should be cumulative.C. Okay, but consider significance of subcontract & “value” of event. Event should be severable.


PBP Example 3

32Unclassified

Event: Initiate testing of avionics software

Completion Criteria: Aircraft arrives in test station #12

Choose the best answer from the following:A. Good event and criteria.B. Bad event, but good criteria.C. Good event, but bad criteria.D. Bad event and criteria.


PBP Example 3

33Unclassified

Event: Initiate testing of avionics software

Completion Criteria: Aircraft arrives in test station #12

Choose the best answer from the following:A. Good event and criteria.B. Bad event, but good criteria.C. Good event, but bad criteria.D. Bad event and criteria.

PresenterPresentation NotesWhat does “initiate” mean? No accomplishment of anything. Did anything significant happen before they initiated the testing? If so, why not make that the criteria?


PBP Example 4

34Unclassified

Event: Completion of fabrication of forward fuselage

Completion Criteria: 100,000 hours charged to work order 387 as verified by DCMA

Choose the best answer from the following:A. Good event and criteria, but should be cumulative to another event.B. Bad event, but good criteria and should be cumulative to another event.C. Good event, but bad criteria and should be cumulative to another event.D. Good event, but bad criteria and should be a severable event.E. Bad event and criteria.


PBP Example 4

35Unclassified

Event: Completion of fabrication of forward fuselage

Completion Criteria: 100,000 hours charged to work order 387 as verified by DCMA

Choose the best answer from the following:A. Good event and criteria, but should be cumulative to another event.B. Bad event, but good criteria and should be cumulative to another event.C. Good event, but bad criteria and should be cumulative to another event.D. Good event, but bad criteria and should be a severable event.E. Bad event and criteria.

PresenterPresentation NotesWhat would be good criteria?


PBP Example 5

36Unclassified

Event: Fabrication complete for forward fuselage

Completion Criteria: Shop inspection record indicates an earned operation for fabrication as signed off by DCMA. (Cumulative to Event #4)

Choose the best answer from the following:A. Good event and criteria.B. Good event and criteria, but should be severable.C. Good event, but bad criteria.D. Good event, but bad criteria and should be a severable

event.E. Bad event and criteria.


PBP Example 5

37Unclassified

Event: Fabrication complete for forward fuselage

Completion Criteria: Shop inspection record indicates an earned operation for fabrication as signed off by DCMA. (Cumulative to Event #4)

Choose the best answer from the following:A. Good event and criteria.B. Good event and criteria, but should be severable.C. Good event, but bad criteria.D. Good event, but bad criteria and should be a severable

event.E. Bad event and criteria.

PresenterPresentation NotesThere may be more detailed documents internal to DCMA that define the completion criteria


PBP Example 6

38Unclassified

Event: Attendance at Management Status Review (MSR)

Completion Criteria: Administrative Contracting Officer validates meeting minutes which show the contractor’s attendance at the MSRChoose the best answer from the following:

A. Good event and criteria.B. Good event and criteria, but should be severable.C. Good event, but bad criteria.D. Good event and criteria, but should be cumulative.E. Bad event and criteria.


PBP Example 6

39Unclassified

Event: Attendance at Management Status Review (MSR)

Completion Criteria: Administrative Contracting Officer validates meeting minutes which show the contractor’s attendance at the MSRChoose the best answer from the following:

A. Good event and criteria.B. Good event and criteria, but should be severable.C. Good event, but bad criteria.D. Good event and criteria, but should be cumulative.E. Bad event and criteria.

PresenterPresentation NotesThis one is kind of tricky. You could use this as an event, if you really thought it showed progress. Otherwise, you might want to assign a very nominal value to it.


PBP Example 7

40Unclassified

Event: Completion of PMR

Completion Criteria: Mutual agreement that contractor action items are closed

Choose the best answer from the following:A. Good event and criteria.B. Meetings should never be used.C. Good event, but bad criteria.D. Meetings are tricky events and care should be taken

when using them. What is the proposed value?E. Bad event and criteria.


PBP Example 7

41Unclassified

Event: Completion of PMR

Completion Criteria: Mutual agreement that contractor action items are closed

Choose the best answer from the following:A. Good event and criteria.B. Meetings should never be used.C. Good event, but bad criteria.D. Meetings are tricky events and care should be taken

when using them. What is the proposed value?E. Bad event and criteria.

PresenterPresentation NotesThis could be PMR, CDR, etc. (Major review)Discussion on how completion criteria can affect the event itself (and the program).


PBP Example 8

42Unclassified

Event: 6 Months prior to delivery

Completion Criteria: DCMA reviews the Contractor’s Master Scheduling Plan (MSP) and confirms the current projections of delivery at not more than 6 months from the date of review.

Choose the best answer from the following:A. Good event and criteria.B. Good event, but bad criteria.C. Bad event, but good criteria.D. Bad event and criteria.


PBP Example 8

43Unclassified

Event: 6 Months prior to delivery

Completion Criteria: DCMA reviews the Contractor’s Master Scheduling Plan (MSP) and confirms the current projections of delivery at not more than 6 months from the date of review.


PresenterPresentation NotesThis may be okay in the commercial market (customary), but it is not okay in PBPs

Bad - time does not constitute progress


PBP Example 9

44Unclassified

Event: Aircraft moved to paint facility

Completion Criteria: Aircraft assembly completed per Contractor’s major assembly sequence chart and aircraft moved to paint facility. Assembly verified by DCMA. (Cumulative to event #5).



PBP Example 9

45Unclassified

Event: Aircraft moved to paint facility

Completion Criteria: Aircraft assembly completed per Contractor’s major assembly sequence chart and aircraft moved to paint facility. Assembly verified by DCMA. (Cumulative to event #5).


PresenterPresentation NotesGood, but why not use completion?

The event alone is not a good event, but with the completion criteria it is okayThe event should have been Completion of Aircraft AssemblyBeware of Begin or Initiate anything


PBP Example 10

46Unclassified

Event: Delivery of Aircraft #1

Completion Criteria: Execution of DD Form 250



PBP Example 10

47Unclassified

Event: Delivery of Aircraft #1

Completion Criteria: Execution of DD Form 250


PresenterPresentation NotesBad - PBPs are contract financing payments NOT payments for accepted items- FAR 32.1001

They are going to be paid – it is a liquidation payment, not a financing payment.


PBP Example 11

48Unclassified

Event: APU Engine Delivery

Completion Criteria: Delivery of APU Engine to Prime Contractor. The APU Engine must be delivered and accepted defect free. (Severable)Choose the best answer from the following:

A. Good event and criteria.B. Good event and criteria, but should be cumulative.C. Good event, but bad criteria.D. Bad event and criteria.E. Bad event, but good criteria.


PBP Example 11

49Unclassified

Event: APU Engine Delivery

Completion Criteria: Delivery of APU Engine to Prime Contractor. The APU Engine must be delivered and accepted defect free. (Severable)Choose the best answer from the following:

A. Good event and criteria.B. Good event and criteria, but should be cumulative.C. Good event, but bad criteria.D. Bad event and criteria.E. Bad event, but good criteria.


PBP Example 12

50Unclassified

Event: Receipt of all Production Material

Completion Criteria: Longest lead time part, Decoder, Part #X11115AC has been received or is being reported as “Late” on the weekly Material Action Report.

Choose the best answer from the following:A. Good event and criteria.B. Good event and criteria, but should be cumulative.C. Good event, but bad criteria.D. Bad event and criteria.E. Bad event, but good criteria.


PBP Example 12

51Unclassified

Event: Receipt of all Production Material

Completion Criteria: Longest lead time part, Decoder, Part #X11115AC has been received or is being reported as “Late” on the weekly Material Action Report.

Choose the best answer from the following:A. Good event and criteria.B. Good event and criteria, but should be cumulative.C. Good event, but bad criteria.D. Bad event and criteria.E. Bad event, but good criteria.

PresenterPresentation NotesBad, the part is either delivered or it is late!

How do you make this a good event? The event is not in itself bad, the completion criteria made it meaningless.Other examples of P.O.s – common upfront event


PBP Example 13

52Unclassified

Event: Main landing gear bulkhead frames machined

Completion Criteria: Shipset of 10 bulkhead frames complete through machining, document stamped/signed by DCMA.

Choose the best answer from the following:A. Good event and criteria.B. Good event and criteria, but should be cumulative.C. Good event, but bad criteria.D. Bad event and criteria.E. Good event and criteria, but should be severable.


PBP Example 13

53Unclassified

Event: Main landing gear bulkhead frames machined

Completion Criteria: Shipset of 10 bulkhead frames complete through machining, document stamped/signed by DCMA.



PBP Example 14

54Unclassified

Event: Completed 50 percent of software coding

Completion Criteria: Completion of 5,000 lines of code based on initial estimate of 10,000 lines of code.



PBP Example 14

55Unclassified

Event: Completed 50 percent of software coding

Completion Criteria: Completion of 5,000 lines of code based on initial estimate of 10,000 lines of code.


PresenterPresentation NotesBad. The 10,000 lines of code was just the original estimate. Is 5,000 50% of the real software requirement?


Cumulative versus Severable Determination

56Unclassified

• Categorizing events as severable can have unintended consequences for the Government

– If a severable event is priced based on an expenditure profile and performed early, the company will likely receive costs for activities that are scheduled to take place in the future

– One way to mitigate this is to include in the PBP clause that the contractor cannot be paid for a severable event before a certain date or X days early from the PBP scheduled date


Cumulative vs Severable Determination

57Unclassified

Unintended Consequence of Severable Events Example

MonthCumulative Cost

Expenditures PBP EventPBP Event

ValueCumulative

PBPsCumulative (C) or Severable (S)

Jan $100Feb $150 Event 1 $100 $100 SMar $500Apr $900 Event 2 $600 $700 SMay $1,000Jun $1,500 Event 3 $200 $900 SJul $1,700 Event 4 $600 $1,500 S



ValueCumulative


Jan $100Feb $150 Event 1 and 4 $100 & $600 $700 SMar $500 Event 3 $200 $900 SApr $900 Event 2 $600 $1,500 SMay $1,000Jun $1,500Jul $1,700

Negotiated

Actual

• As can be seen from the above example, negotiating all severable events has resulted in PBP payments that are in excess of costs for four months



58Unclassified

Mitigating Unintended Consequences



ValueCumulative


Jan $100Feb $150 Event 1 $100 $100 SMar $500Apr $900 Event 2 $600 $700 C to 1May $1,000Jun $1,500 Event 3 $200 $900 SJul $1,700 Event 4 $600 $1,500 C to 2



ValueCumulative


Jan $100Feb $150 Event 1 $100 $100 SMar $500 Event 3 $200 $300 SApr $900 Event 2 $600 $900 C to 1May $1,000 Event 4 $600 $1,500 C to 2Jun $1,500Jul $1,700

Negotiated

Actual

• By changing two of the events to cumulative, the contracting officer was able to reduce the number of months where PBPs exceeded costs incurred to one month



59Unclassified

Mitigating Unintended ConsequencesMonth

Cumulative Cost Expenditures PBP Event

PBP Event Value

Cumulative PBPs

Cumulative (C) or Severable (S)

Jan $100Feb $150 Event 1 $100 $100 SMar $500Apr $900 Event 2 $600 $700 C to 1May $1,000Jun $1,500 Event 3 $200 $900 SJul $1,700 Event 4 $600 $1,500 C to 2**Clause language includes stipulation that event 4 cannot be paid earlier than 30 days before the PBP scheduled date.



ValueCumulative


Jan $100Feb $150 Event 1 $100 $100 SMar $500 Event 3 $200 $300 SApr $900 Event 2 $600 $900 C to 1May $1,000Jun $1,500 Event 4 $600 $1,500 C to 2*Jul $1,700*Clause language includes stipulation that event 4 cannot be paid earlier than 30 days before the PBP scheduled date.

Actual

Negotiated

• Further, by including language within the PBP clause that restricts the contractor to only receiving Event 4 payment 30 days early, the contracting officer has eliminated an advanced payment situation.


Valuing PBP Events & Creating a Win-Win Scenario

60Unclassified


FAR Requirements for Valuing Events

61Unclassified

• Total PBPs must reflect prudent contract financing only to extent needed for contract performance

• Total PBPs shall not exceed 90%* of contract price or delivery item price

• Contracting Officer (CO) must establish a rational basis for PBP amounts

*90% is not an entitlement, but rather negotiable


FAR Requirements for Valuing Events

62Unclassified

• CO must ensure the total contract price is fair and reasonable, considering all factors (including the cost to the treasury)

• CO must ensure amounts are commensurate with the value of the event/criteria and are not expected to result in an unreasonably low or negative level of contractor investment in the contract


Negative Contractor Investment in the Contract

63Unclassified

Example of Front Loaded PBP

$-

$1,000

$2,000

$3,000

$4,000

$5,000

1 3 5 7 9 11 13 15 17 19

Thou

sand

s

Month

Front Loaded PBP

Cum Cost (Expenditures)

Cum Prog Pay (80%Cost)

In this example, every month, the company gets paid inexcess of incurred costs – what is the incentive to deliver?

Chart13

5000081256500

1500002036116288.8

45000042035.3155633628.252448

1233035119931.09924831295944.8793986496

2233035217592.654239564174074.123391651

2833035315956.191526207252764.953220966

3333035418632.017287206334905.613829765

3733035755471.327745419604377.062196335

39330351807201.085410331445760.86832826

40330352120402.937334971696322.34986798

41830352425846.135806261940676.90864501

43080352783684.97884992226947.98307992

44080353177455.483329962541964.38666397

44830353587604.53197512870083.62558008

45330353967148.058481673173718.44678534

45680354261233.159325693408986.52746055

45880354409385.159325693527508.12746055

46030354446271.159325693557016.92746055

46130354477409.159325693581927.32746055

46180354501009.159325693600807.32746055

Front Loaded PBP


Cum Prog Pay (80% Cost)

Month


Sheet1

0.150.80.15

cumulativeProg Paycum90%

mocostpricecostpricePBPcum PBP

1$ 10,000.00$ 11,500$ 10,000$ 8,000$ 11,50010,350.00$ 10,350

2$ 50,000.00$ 57,500$ 60,000$ 48,000$ 69,00051,750.00$ 62,100

3$ 100,000.00$ 115,000$ 160,000$ 128,000$ 184,000103,500.00$ 165,600

4$ 250,000.00$ 287,500$ 410,000$ 328,000$ 471,500258,750.00$ 424,350

5$ 500,000.00$ 575,000$ 910,000$ 728,000$ 1,046,500517,500.00$ 941,850

6$ 250,000.00$ 287,500$ 1,160,000$ 928,000$ 1,334,000258,750.00$ 1,200,600

7$ 100,000.00$ 115,000$ 1,260,000$ 1,008,000$ 1,449,000103,500.00$ 1,304,100

8$ 50,000.00$ 57,500$ 1,310,000$ 1,048,000$ 1,506,50051,750.00$ 1,355,850

9$ 10,000.00$ 11,500$ 1,320,000$ 1,056,000$ 1,518,00010,350.00$ 1,366,200

$ 1,320,000.00

cum costcum PBPcum Prog Pay

$ 10,000$ 10,350$ 8,000

$ 60,000$ 62,100$ 48,000

$ 160,000$ 165,600$ 128,000

$ 410,000$ 424,350$ 328,000

$ 910,000$ 941,850$ 728,000

$ 1,160,000$ 1,200,600$ 928,000

$ 1,260,000$ 1,304,100$ 1,008,000

$ 1,310,000$ 1,355,850$ 1,048,000

$ 1,320,000$ 1,366,200$ 1,056,000

Sheet2

profit0.180.08

0.90.8

mocumcumcumcum

costcostPBPPBPPP

1$ 8,125$ 8,125$ 8,629$ 7,898$ 6,500

2$ 12,236$ 20,361$ 21,623$ 19,791$ 16,289

3$ 21,674$ 42,035$ 44,642$ 40,858$ 33,628

4$ 77,896$ 119,931$ 127,367$ 116,573$ 95,945

5$ 97,662$ 217,593$ 231,083$ 211,500$ 174,074

6$ 98,364$ 315,956$ 335,545$ 307,109$ 252,765

7$ 102,676$ 418,632$ 444,587$ 406,910$ 334,906

8$ 336,839$ 755,471$ 802,311$ 734,318$ 604,377

9$ 1,051,730$ 1,807,201$ 1,919,248$ 1,756,599$ 1,445,761

10$ 313,202$ 2,120,403$ 2,251,868$ 2,061,032$ 1,696,322

11$ 305,443$ 2,425,846$ 2,576,249$ 2,357,922$ 1,940,677

12$ 357,839$ 2,783,685$ 2,956,273$ 2,705,742$ 2,226,948

13$ 393,771$ 3,177,455$ 3,374,458$ 3,088,487$ 2,541,964

14$ 410,149$ 3,587,605$ 3,810,036$ 3,487,152$ 2,870,084

15$ 379,544$ 3,967,148$ 4,213,111$ 3,856,068$ 3,173,718

16$ 294,085$ 4,261,233$ 4,525,430$ 4,141,919$ 3,408,987

17$ 148,152$ 4,409,385$ 4,682,767$ 4,285,922$ 3,527,508

18$ 36,886$ 4,446,271$ 4,721,940$ 4,321,776$ 3,557,017

19$ 31,138$ 4,477,409$ 4,755,009$ 4,352,042$ 3,581,927

20$ 23,600$ 4,501,009$ 4,780,072$ 4,374,981$ 3,600,807

$ 4,501,009

1

Front Loaded

mocumcumcum

PBPcostcostPBPPP

$ 50,0001$ 8,125$ 8,125$ 50,000$ 6,500

$ 100,0002$ 12,236$ 20,361$ 150,000$ 16,289

$ 300,0003$ 21,674$ 42,035$ 450,000$ 33,628

$ 783,0354$ 77,896$ 119,931$ 1,233,035$ 95,945

$ 1,000,0005$ 97,662$ 217,593$ 2,233,035$ 174,074

$ 600,0006$ 98,364$ 315,956$ 2,833,035$ 252,765

$ 500,0007$ 102,676$ 418,632$ 3,333,035$ 334,906

$ 400,0008$ 336,839$ 755,471$ 3,733,035$ 604,377

$ 200,0009$ 1,051,730$ 1,807,201$ 3,933,035$ 1,445,761

$ 100,00010$ 313,202$ 2,120,403$ 4,033,035$ 1,696,322

$ 150,00011$ 305,443$ 2,425,846$ 4,183,035$ 1,940,677

$ 125,00012$ 357,839$ 2,783,685$ 4,308,035$ 2,226,948

$ 100,00013$ 393,771$ 3,177,455$ 4,408,035$ 2,541,964

7500014$ 410,149$ 3,587,605$ 4,483,035$ 2,870,084

5000015$ 379,544$ 3,967,148$ 4,533,035$ 3,173,718

3500016$ 294,085$ 4,261,233$ 4,568,035$ 3,408,987

2000017$ 148,152$ 4,409,385$ 4,588,035$ 3,527,508

1500018$ 36,886$ 4,446,271$ 4,603,035$ 3,557,017

1000019$ 31,138$ 4,477,409$ 4,613,035$ 3,581,927

500020$ 23,600$ 4,501,009$ 4,618,035$ 3,600,807

$ 4,618,035$ 4,501,009

Price5,311,190.81

profit0.11

0.90.8

real

Front Loadedmocum Frontcumcumcum

Exp CurvecostLoaded ExpPBPPPcost

$ 50,0001$ 8,125$ 50,000$ 49,950$ 6,500$ 8,125

$ 100,0002$ 12,236$ 150,000$ 149,850$ 16,289$ 20,361

$ 300,0003$ 21,674$ 450,000$ 449,550$ 33,628$ 42,035

$ 783,0354$ 77,896$ 1,233,035$ 1,231,802$ 95,945$ 119,931

$ 1,000,0005$ 97,662$ 2,233,035$ 2,230,802$ 174,074$ 217,593

$ 600,0006$ 98,364$ 2,833,035$ 2,830,202$ 252,765$ 315,956

$ 500,0007$ 102,676$ 3,333,035$ 3,329,702$ 334,906$ 418,632

$ 400,0008$ 336,839$ 3,733,035$ 3,729,302$ 604,377$ 755,471

$ 200,0009$ 1,051,730$ 3,933,035$ 3,929,102$ 1,445,761$ 1,807,201

$ 100,00010$ 313,202$ 4,033,035$ 4,029,002$ 1,696,322$ 2,120,403

$ 150,00011$ 305,443$ 4,183,035$ 4,178,852$ 1,940,677$ 2,425,846

$ 125,00012$ 357,839$ 4,308,035$ 4,303,727$ 2,226,948$ 2,783,685

$ 100,00013$ 393,771$ 4,408,035$ 4,403,627$ 2,541,964$ 3,177,455

7500014$ 410,149$ 4,483,035$ 4,478,552$ 2,870,084$ 3,587,605

5000015$ 379,544$ 4,533,035$ 4,528,502$ 3,173,718$ 3,967,148

3500016$ 294,085$ 4,568,035$ 4,563,467$ 3,408,987$ 4,261,233

2000017$ 148,152$ 4,588,035$ 4,583,447$ 3,527,508$ 4,409,385

1500018$ 36,886$ 4,603,035$ 4,598,432$ 3,557,017$ 4,446,271

1000019$ 31,138$ 4,613,035$ 4,608,422$ 3,581,927$ 4,477,409

500020$ 23,600$ 4,618,035$ 4,613,417$ 3,600,807$ 4,501,009

$ 4,501,009

Sheet2

Front Loaded PBP



Month


Sheet3

Cum PBP

Front Loaded Cum Cost

Real Cum Cost (Expenditures)


Month

Example of Front Loaded Expenditure Profile


Cum PBP (90% Price, 18% Profit)



Month

90% Monthly PBP Examples


When does Contractor Investment Become Negative or Unreasonably Low?

64Unclassified

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1 3 5 7 9 11 13 15 17 19

Thou

sand

s

Month


Cum PBP (90% Price,18% Profit)


Cum PBP (90% Price,8% Profit)

Cum Prog Pay (80%Cost)

Profit, Payment Frequency and Lag Time affect Investment

Chart14

8628.7581257897.56500

21623.3822036119790.89216288.8

44641.5051247242035.3155640858.3267243233628.252448

127366.827401707119931.099248312116573.02846935995944.8793986496

231083.398802417217592.654239564211500.059920856174074.123391651

335545.475400832315956.191526207307109.418163473252764.953220966

444587.202359013418632.017287206406910.320803164334905.613829765

802310.550065635755471.327745419734318.130568547604377.062196335

1919247.552705771807201.085410331756599.455018841445760.86832826

2251867.919449742120402.937334972061031.655089591696322.34986798

2576248.596226252425846.135806262357922.444003691940676.90864501

2956273.447538592783684.97884992705741.79944212226947.98307992

3374457.723296423177455.483329963088486.729796722541964.38666397

3810036.012957563587604.53197513487151.60507982870083.62558008

4213111.238107533967148.058481673856067.912844183173718.44678534

4525429.615203884261233.159325694141918.630864573408986.52746055

4682767.039203884409385.159325694285922.374864573527508.12746055

4721939.971203884446271.159325694321775.566864573557016.92746055

4755008.527203884477409.159325694352041.702864573581927.32746055

4780071.727203884501009.159325694374980.902864573600807.32746055





Month


Sheet1

0.150.80.15



1$ 10,000.00$ 11,500$ 10,000$ 8,000$ 11,50010,350.00$ 10,350

2$ 50,000.00$ 57,500$ 60,000$ 48,000$ 69,00051,750.00$ 62,100

3$ 100,000.00$ 115,000$ 160,000$ 128,000$ 184,000103,500.00$ 165,600

4$ 250,000.00$ 287,500$ 410,000$ 328,000$ 471,500258,750.00$ 424,350

5$ 500,000.00$ 575,000$ 910,000$ 728,000$ 1,046,500517,500.00$ 941,850

6$ 250,000.00$ 287,500$ 1,160,000$ 928,000$ 1,334,000258,750.00$ 1,200,600

7$ 100,000.00$ 115,000$ 1,260,000$ 1,008,000$ 1,449,000103,500.00$ 1,304,100

8$ 50,000.00$ 57,500$ 1,310,000$ 1,048,000$ 1,506,50051,750.00$ 1,355,850

9$ 10,000.00$ 11,500$ 1,320,000$ 1,056,000$ 1,518,00010,350.00$ 1,366,200

$ 1,320,000.00


$ 10,000$ 10,350$ 8,000

$ 60,000$ 62,100$ 48,000

$ 160,000$ 165,600$ 128,000

$ 410,000$ 424,350$ 328,000

$ 910,000$ 941,850$ 728,000

$ 1,160,000$ 1,200,600$ 928,000

$ 1,260,000$ 1,304,100$ 1,008,000

$ 1,310,000$ 1,355,850$ 1,048,000

$ 1,320,000$ 1,366,200$ 1,056,000

Sheet2

profit0.180.08

0.90.8

mocumcumcumcum

costcostPBPPBPPP

1$ 8,125$ 8,125$ 8,629$ 7,898$ 6,500

2$ 12,236$ 20,361$ 21,623$ 19,791$ 16,289

3$ 21,674$ 42,035$ 44,642$ 40,858$ 33,628

4$ 77,896$ 119,931$ 127,367$ 116,573$ 95,945

5$ 97,662$ 217,593$ 231,083$ 211,500$ 174,074

6$ 98,364$ 315,956$ 335,545$ 307,109$ 252,765

7$ 102,676$ 418,632$ 444,587$ 406,910$ 334,906

8$ 336,839$ 755,471$ 802,311$ 734,318$ 604,377

9$ 1,051,730$ 1,807,201$ 1,919,248$ 1,756,599$ 1,445,761

10$ 313,202$ 2,120,403$ 2,251,868$ 2,061,032$ 1,696,322

11$ 305,443$ 2,425,846$ 2,576,249$ 2,357,922$ 1,940,677

12$ 357,839$ 2,783,685$ 2,956,273$ 2,705,742$ 2,226,948

13$ 393,771$ 3,177,455$ 3,374,458$ 3,088,487$ 2,541,964

14$ 410,149$ 3,587,605$ 3,810,036$ 3,487,152$ 2,870,084

15$ 379,544$ 3,967,148$ 4,213,111$ 3,856,068$ 3,173,718

16$ 294,085$ 4,261,233$ 4,525,430$ 4,141,919$ 3,408,987

17$ 148,152$ 4,409,385$ 4,682,767$ 4,285,922$ 3,527,508

18$ 36,886$ 4,446,271$ 4,721,940$ 4,321,776$ 3,557,017

19$ 31,138$ 4,477,409$ 4,755,009$ 4,352,042$ 3,581,927

20$ 23,600$ 4,501,009$ 4,780,072$ 4,374,981$ 3,600,807

$ 4,501,009

1

Front Loaded

mocumcumcum

PBPcostcostPBPPP

$ 50,0001$ 8,125$ 8,125$ 50,000$ 6,500

$ 100,0002$ 12,236$ 20,361$ 150,000$ 16,289

$ 300,0003$ 21,674$ 42,035$ 450,000$ 33,628

$ 783,0354$ 77,896$ 119,931$ 1,233,035$ 95,945

$ 1,000,0005$ 97,662$ 217,593$ 2,233,035$ 174,074

$ 600,0006$ 98,364$ 315,956$ 2,833,035$ 252,765

$ 500,0007$ 102,676$ 418,632$ 3,333,035$ 334,906

$ 400,0008$ 336,839$ 755,471$ 3,733,035$ 604,377

$ 200,0009$ 1,051,730$ 1,807,201$ 3,933,035$ 1,445,761

$ 100,00010$ 313,202$ 2,120,403$ 4,033,035$ 1,696,322

$ 150,00011$ 305,443$ 2,425,846$ 4,183,035$ 1,940,677

$ 125,00012$ 357,839$ 2,783,685$ 4,308,035$ 2,226,948

$ 100,00013$ 393,771$ 3,177,455$ 4,408,035$ 2,541,964

7500014$ 410,149$ 3,587,605$ 4,483,035$ 2,870,084

5000015$ 379,544$ 3,967,148$ 4,533,035$ 3,173,718

3500016$ 294,085$ 4,261,233$ 4,568,035$ 3,408,987

2000017$ 148,152$ 4,409,385$ 4,588,035$ 3,527,508

1500018$ 36,886$ 4,446,271$ 4,603,035$ 3,557,017

1000019$ 31,138$ 4,477,409$ 4,613,035$ 3,581,927

500020$ 23,600$ 4,501,009$ 4,618,035$ 3,600,807

$ 4,618,035$ 4,501,009

Price5,311,190.81

profit0.11

0.90.8

real



$ 50,0001$ 8,125$ 50,000$ 49,950$ 6,500$ 8,125

$ 100,0002$ 12,236$ 150,000$ 149,850$ 16,289$ 20,361

$ 300,0003$ 21,674$ 450,000$ 449,550$ 33,628$ 42,035

$ 783,0354$ 77,896$ 1,233,035$ 1,231,802$ 95,945$ 119,931

$ 1,000,0005$ 97,662$ 2,233,035$ 2,230,802$ 174,074$ 217,593

$ 600,0006$ 98,364$ 2,833,035$ 2,830,202$ 252,765$ 315,956

$ 500,0007$ 102,676$ 3,333,035$ 3,329,702$ 334,906$ 418,632

$ 400,0008$ 336,839$ 3,733,035$ 3,729,302$ 604,377$ 755,471

$ 200,0009$ 1,051,730$ 3,933,035$ 3,929,102$ 1,445,761$ 1,807,201

$ 100,00010$ 313,202$ 4,033,035$ 4,029,002$ 1,696,322$ 2,120,403

$ 150,00011$ 305,443$ 4,183,035$ 4,178,852$ 1,940,677$ 2,425,846

$ 125,00012$ 357,839$ 4,308,035$ 4,303,727$ 2,226,948$ 2,783,685

$ 100,00013$ 393,771$ 4,408,035$ 4,403,627$ 2,541,964$ 3,177,455

7500014$ 410,149$ 4,483,035$ 4,478,552$ 2,870,084$ 3,587,605

5000015$ 379,544$ 4,533,035$ 4,528,502$ 3,173,718$ 3,967,148

3500016$ 294,085$ 4,568,035$ 4,563,467$ 3,408,987$ 4,261,233

2000017$ 148,152$ 4,588,035$ 4,583,447$ 3,527,508$ 4,409,385

1500018$ 36,886$ 4,603,035$ 4,598,432$ 3,557,017$ 4,446,271

1000019$ 31,138$ 4,613,035$ 4,608,422$ 3,581,927$ 4,477,409

500020$ 23,600$ 4,618,035$ 4,613,417$ 3,600,807$ 4,501,009

$ 4,501,009

Sheet2

Front Loaded PBP



Month


Sheet3

Cum PBP


Real Cum Cost (Expenditures)


Month






Month



How to Value Events

65Unclassified

• Generally, most proposed PBP “values” are based on an expenditure profile– Contract financing assists contractor in

payment of cost related to performance– Events should be significant and reflect true

performance on contract– Unrealistic to “cost” out events such as,

“completion of fabrication of forward fuselage”– Due to this reality, it is critical to ensure that the

expenditure profile is analyzed to ensure it is not front loaded


How to Value Events

66Unclassified

• PBP Key Step #4 – Determine/Evaluate Monthly Expenditure Profile– Obtain Contractor Expenditure Profile– Validate Expenditure Profile

• Should reflect same profile as contract proposal• Should not be front loaded• Should not include termination liability• Defense Contract Audit Agency (DCAA) can help• Consider contract history (very important, especially

in a recurring production program situation)

PresenterPresentation NotesHighlight how to compare the cost expenditure profile to the proposal as a sanity check to make sure that they run in parallel.


Importance of Expenditure Profile

67Unclassified


$-$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000

1 3 5 7 9 11 13 15 17 19

Thou

sand

s

Month

Cum PBP

Front Loaded CumCost Real Cum Cost (ActualExpenditures)Cum Prog Pay (80%Cost)

Due to front loaded expenditure profile, cumulative PBPs are well in excess of actual cumulative cost

Chart2

999001000002032616260.8

4995005000006069148552.8

9990001000000186326149060.8

17982001800000452311361848.8

29970003000000850967680773.6

3896100390000013765991101279.2

4661212.122466587821791621743329.6

5260612.122526587831024202481936

5760112.122576587838047853043828

6084787.122609087845033503602680

6384487.122639087849557153964572

6584287.12265908785313553.843043644250843.07443491

6709162.12267158785707324.34752374565859.47801896

6809062.12268158786117473.396168844893978.71693507

6873997.12268808786497016.922675415197613.53814033

6923947.12269308786791102.023519435432881.61881554

6963907.12269708786939254.023519435551403.21881554

6993877.12270008786976140.023519435580912.01881554

7013857.12270208787007278.023519435605822.41881554

7023847.12270308787030878.023519435624702.41881554

Cum PBP


Real Cum Cost (Actual Expenditures)


Month


Sheet1

0.150.80.15



1$ 10,000.00$ 11,500$ 10,000$ 8,000$ 11,50010,350.00$ 10,350

2$ 50,000.00$ 57,500$ 60,000$ 48,000$ 69,00051,750.00$ 62,100

3$ 100,000.00$ 115,000$ 160,000$ 128,000$ 184,000103,500.00$ 165,600

4$ 250,000.00$ 287,500$ 410,000$ 328,000$ 471,500258,750.00$ 424,350

5$ 500,000.00$ 575,000$ 910,000$ 728,000$ 1,046,500517,500.00$ 941,850

6$ 250,000.00$ 287,500$ 1,160,000$ 928,000$ 1,334,000258,750.00$ 1,200,600

7$ 100,000.00$ 115,000$ 1,260,000$ 1,008,000$ 1,449,000103,500.00$ 1,304,100

8$ 50,000.00$ 57,500$ 1,310,000$ 1,048,000$ 1,506,50051,750.00$ 1,355,850

9$ 10,000.00$ 11,500$ 1,320,000$ 1,056,000$ 1,518,00010,350.00$ 1,366,200

$ 1,320,000.00


$ 10,000$ 10,350$ 8,000

$ 60,000$ 62,100$ 48,000

$ 160,000$ 165,600$ 128,000

$ 410,000$ 424,350$ 328,000

$ 910,000$ 941,850$ 728,000

$ 1,160,000$ 1,200,600$ 928,000

$ 1,260,000$ 1,304,100$ 1,008,000

$ 1,310,000$ 1,355,850$ 1,048,000

$ 1,320,000$ 1,366,200$ 1,056,000

Sheet2

profit0.180.08

0.90.8

mocumcumcumcum

costcostPBPPBPPP

1$ 8,125$ 8,125$ 8,629$ 7,898$ 6,500

2$ 12,236$ 20,361$ 21,623$ 19,791$ 16,289

3$ 21,674$ 42,035$ 44,642$ 40,858$ 33,628

4$ 77,896$ 119,931$ 127,367$ 116,573$ 95,945

5$ 97,662$ 217,593$ 231,083$ 211,500$ 174,074

6$ 98,364$ 315,956$ 335,545$ 307,109$ 252,765

7$ 102,676$ 418,632$ 444,587$ 406,910$ 334,906

8$ 336,839$ 755,471$ 802,311$ 734,318$ 604,377

9$ 1,051,730$ 1,807,201$ 1,919,248$ 1,756,599$ 1,445,761

10$ 313,202$ 2,120,403$ 2,251,868$ 2,061,032$ 1,696,322

11$ 305,443$ 2,425,846$ 2,576,249$ 2,357,922$ 1,940,677

12$ 357,839$ 2,783,685$ 2,956,273$ 2,705,742$ 2,226,948

13$ 393,771$ 3,177,455$ 3,374,458$ 3,088,487$ 2,541,964

14$ 410,149$ 3,587,605$ 3,810,036$ 3,487,152$ 2,870,084

15$ 379,544$ 3,967,148$ 4,213,111$ 3,856,068$ 3,173,718

16$ 294,085$ 4,261,233$ 4,525,430$ 4,141,919$ 3,408,987

17$ 148,152$ 4,409,385$ 4,682,767$ 4,285,922$ 3,527,508

18$ 36,886$ 4,446,271$ 4,721,940$ 4,321,776$ 3,557,017

19$ 31,138$ 4,477,409$ 4,755,009$ 4,352,042$ 3,581,927

20$ 23,600$ 4,501,009$ 4,780,072$ 4,374,981$ 3,600,807

$ 4,501,009

1

Front Loaded

mocumcumcum

PBPcostcostPBPPP

$ 50,0001$ 8,125$ 8,125$ 50,000$ 6,500

$ 100,0002$ 12,236$ 20,361$ 150,000$ 16,289

$ 300,0003$ 21,674$ 42,035$ 450,000$ 33,628

$ 783,0354$ 77,896$ 119,931$ 1,233,035$ 95,945

$ 1,000,0005$ 97,662$ 217,593$ 2,233,035$ 174,074

$ 600,0006$ 98,364$ 315,956$ 2,833,035$ 252,765

$ 500,0007$ 102,676$ 418,632$ 3,333,035$ 334,906

$ 400,0008$ 336,839$ 755,471$ 3,733,035$ 604,377

$ 200,0009$ 1,051,730$ 1,807,201$ 3,933,035$ 1,445,761

$ 100,00010$ 313,202$ 2,120,403$ 4,033,035$ 1,696,322

$ 150,00011$ 305,443$ 2,425,846$ 4,183,035$ 1,940,677

$ 125,00012$ 357,839$ 2,783,685$ 4,308,035$ 2,226,948

$ 100,00013$ 393,771$ 3,177,455$ 4,408,035$ 2,541,964

7500014$ 410,149$ 3,587,605$ 4,483,035$ 2,870,084

5000015$ 379,544$ 3,967,148$ 4,533,035$ 3,173,718

3500016$ 294,085$ 4,261,233$ 4,568,035$ 3,408,987

2000017$ 148,152$ 4,409,385$ 4,588,035$ 3,527,508

1500018$ 36,886$ 4,446,271$ 4,603,035$ 3,557,017

1000019$ 31,138$ 4,477,409$ 4,613,035$ 3,581,927

500020$ 23,600$ 4,501,009$ 4,618,035$ 3,600,807

$ 4,618,035$ 4,501,009

Price5,311,190.81

profit0.11

0.90.8

real



$ 100,0001$ 20,326$ 100,000$ 99,900$ 16,261$ 20,326

$ 400,0002$ 40,365$ 500,000$ 499,500$ 48,553$ 60,691

$ 500,0003$ 125,635$ 1,000,000$ 999,000$ 149,061$ 186,326

$ 800,0004$ 265,985$ 1,800,000$ 1,798,200$ 361,849$ 452,311

$ 1,200,0005$ 398,656$ 3,000,000$ 2,997,000$ 680,774$ 850,967

$ 900,0006$ 525,632$ 3,900,000$ 3,896,100$ 1,101,279$ 1,376,599

$ 765,8787$ 802,563$ 4,665,878$ 4,661,212$ 1,743,330$ 2,179,162

$ 600,0008$ 923,258$ 5,265,878$ 5,260,612$ 2,481,936$ 3,102,420

$ 500,0009$ 702,365$ 5,765,878$ 5,760,112$ 3,043,828$ 3,804,785

$ 325,00010$ 698,565$ 6,090,878$ 6,084,787$ 3,602,680$ 4,503,350

$ 300,00011$ 452,365$ 6,390,878$ 6,384,487$ 3,964,572$ 4,955,715

$ 200,00012$ 357,839$ 6,590,878$ 6,584,287$ 4,250,843$ 5,313,554

$ 125,00013$ 393,771$ 6,715,878$ 6,709,162$ 4,565,859$ 5,707,324

10000014$ 410,149$ 6,815,878$ 6,809,062$ 4,893,979$ 6,117,473

6500015$ 379,544$ 6,880,878$ 6,873,997$ 5,197,614$ 6,497,017

5000016$ 294,085$ 6,930,878$ 6,923,947$ 5,432,882$ 6,791,102

4000017$ 148,152$ 6,970,878$ 6,963,907$ 5,551,403$ 6,939,254

3000018$ 36,886$ 7,000,878$ 6,993,877$ 5,580,912$ 6,976,140

2000019$ 31,138$ 7,020,878$ 7,013,857$ 5,605,822$ 7,007,278

1000020$ 23,600$ 7,030,878$ 7,023,847$ 5,624,702$ 7,030,878

$ 7,030,878$ 7,030,878

Sheet2

Front Loaded PBP



Month


Sheet3

Cum PBP


Real Cum Cost (Actual Expenditures)


Month






Month



Valuing Events & Get to Win-Win

68Unclassified

• PBP Key Step #5 – Establish Event Values and Create Win-Win Scenario– Compare proposed event values to expenditure

profile• What is relationship between PBP values and

expenditure profile?• Will PBPs result in Advance Payments?• Does contractor have an investment in contract?

– Evaluation Tool = PBP Analysis Model


Ensuring Win-Win Scenario

69Unclassified

•PBP Trade-offs– Holding costs as fixed, trade-offs can be made

between profit and financing that benefit both Contractor and Government

– Since its cheaper for the Government to borrow dollars than for a company to do so• The Government can provide more financing (benefiting

Contractor)• The Contractor can accept a lesser contract price

(benefiting Government)• Both entities are better off from a Time Value of Money

Standpoint!



70Unclassified

•PBPs & Weighted Guidelines (WGL)– No working capital adjustment– Increased contract type risk range for contracts

w/PBPs (over those with progress payments)• Adjust contract type risk based on

– Frequency of payments– Total amount of payments compared to max allowable– Risk of payment schedule to contractor

– However…• Use of the PBP Tool is still mandatory, meaning:

– a WGLs position must be developed using progress payments to establish the baseline for input into the tool

– the tool will establish the objective profit rate/dollars for a PBP scenario



71Unclassified

• DFARS 232.1004 Procedures.

– (b) Establishing performance-based finance payment amounts

• (ii) The contracting officer shall analyze the performance-based payment schedule using the performance-based payments (PBP) analysis tool. The PBP analysis tool is on the DPC website in the Cost, Pricing & Finance section, Performance Based Payments - Guide Book & Analysis Tool tab, at https://www.acq.osd.mil/dpap/cpic/cp/Performance_based_payments.html

PresenterPresentation NotesThe two step process has been eliminated by this update to the rule. Expect to see an increase in contractors requesting PBPs due to the elimination of this process.

Note that the use of the PBP tool is still mandatory though and that this tool still compares the cash flow that the contractor would be receiving in a progress payments scenario versus a PBP scenario.

https://www.acq.osd.mil/dpap/cpic/cp/Performance_based_payments.html



72Unclassified

• PBP Analysis Model– Calculates Internal Rate of Return (IRR) to contractor– Calculates the Net Present Value (NPV) of cash flows to the

contractor under both progress payment and PBP scenarios– Calculates Cost to Government under both scenarios– Provides “win-win” solution(s)– Provides a means to convert from a progress payment

situation to PBPs (including an undefinitized contract situation)

– Model results are only as good as the inputs– A non-scrutinized or lightly scrutinized cost expenditure profile can

lead to advanced payments– Model does not account for unintended consequences of making

events severable that should be cumulative (or vice versa)

PresenterPresentation NotesDFARS still requires the contracting officer to document how they received consideration for an improvement in the contractor’s cash flow from receiving improved financing terms.


DFARs Update Inclusions

73Unclassified

• DFARS additional instructions:– The contracting officer should include in a solicitation

both the progress payments and performance-based payments provisions and clauses prescribed in this part, when considering both types of payments methods (can only have one in resultant contract)

– The contracting officer shall document adequate consideration received in the contracting file


PBP Clauses

74Unclassified


PBP Special Contract Provision

75Unclassified

• PBP Key Step #6 Develop Special Contract Provisions

– Provides Schedule of Events, Criteria, Amounts– Helpful to include projected completion dates– Identifies cumulative versus severable events– Identifies line item basis (or whole contract lot)– Provides instructions to Government payment office

for multiple appropriations– Specifies the liquidation of the PBP– Reminder: May require adjustment for contract

modifications

PresenterPresentation NotesHere is a list of other issues to be aware of. You should provide clear instructions to the payment office addressing multiple appropriations. DFAS will want to know how the PBPs are to be liquidated. Finally, keep in mind that you will need to adjust the PBP clause when the contract gets modified.


PBP “I” DFARS Clause

76Unclassified

• Section I, 252.232-7012/7013 PBPs – Whole-Contract Basis / PBPs – Deliverable-Item Basis

• Table showing how contractors request payments –includes reporting of incurred costs

• Requires contractor to provide access to accounting books and records to verify incurred costs (upon Contracting Officer request)

• Although Title is still the preferred form of security, allows Contracting Officers to accept alternate forms of security sufficient to constitute adequate security for the PBPs (in lieu of Title to the assets associated with all work up to and including the specific PBP event)

PresenterPresentation NotesThere are some items that you should be aware of in the Section I clause for PBPs. The contractor cannot request PBPs more frequently than monthly. DFAS will make only one payment in a given month, so keep that in mind as you are determining the number of payments.

The contractor will not be entitled to a payment prior to successfully completion of the event. If there is a government caused delay, the CO can break down the event into pieces and pay for those portions that have been successfully completed.

PBPs must be liquidated by deducting a percentage or designated dollar amount from the delivery payment.

The CO may reduce or suspend PBPs if the contractor fails to comply with a material contractual requirements, fails to make progress, or is delinquent in the payment of a sub.

Finally, title (or an alternate form of security as determined by the PCO) vests with the government upon the date of the first PBP for property acquired produced before that date.


PBP “I” FAR Clause

77Unclassified

• Section I, 52.232-32 Performance-Based Payments

– Contractor requests for PBPs not more frequently than monthly

– Not entitled to a payment prior to successful completion of the event

– Liquidate by deducting % or designated dollar amount from delivery payment

– May reduce or suspend PBPs– Title (or an alternate form of security approved by the

Contracting Officer) vests with the Government upon the date of the first PBP

PresenterPresentation NotesThere are some items that you should be aware of in the Section I clause for PBPs. The contractor cannot request PBPs more frequently than monthly. DFAS will make only one payment in a given month, so keep that in mind as you are determining the number of payments.

The contractor will not be entitled to a payment prior to successfully completion of the event. If there is a government caused delay, the CO can break down the event into pieces and pay for those portions that have been successfully completed.

PBPs must be liquidated by deducting a percentage or designated dollar amount from the delivery payment.

The CO may reduce or suspend PBPs if the contractor fails to comply with a material contractual requirements, fails to make progress, or is delinquent in the payment of a sub.

Finally, title (or an alternate form of security as determined by the PCO) vests with the government upon the date of the first PBP for property acquired produced before that date.


PBP Benefits

78Unclassified

Government• Paying for actual, meaningful performance (not presumed progress)• Potential for less administration• PBPs are self-policing • Less oversight of contractor’s accounting system necessary

PresenterPresentation Notes The upfront work to propose/evaluate/negotiate is much greater with PBPs The validation of events can be more burdensome than progress payments

(oversight of system still needed if Ktr has progress pay or cost type contracts.

What are some of the benefits associated with using PBPs? For the government, we are paying for actual performance. There is the potential for less administration, and less oversight of contractors accounting system.


PBP Benefits

79Unclassified

Contractor• Potential for more favorable cash flow (than is available with Progress Payments)• Greater incentive for underrunning a contract• Does not require approved accounting system• Potential for less Government oversight

PresenterPresentation NotesPBP benefits for the contractor include the potential for an increased cash flow over what they would experience with progress payments. They have a greater incentive for under-running a contract, in that that they will still get paid the full PBP amounts even if they are under-running. PBPs do not require an approved accounting system, and of course, there is the potential for less government oversight.


Conclusion

80Unclassified

By following the “Six PBP Key Steps,” teams can establish win-win PBPs that are well worth the payoff for both Government and contractor.

Financing POCDerek Kuba, AFMC/PKF [email protected]

PERFORMANCE BASED PAYMENTS (PBPs)PBP ContentsPBP OverviewBasic Terms/ConceptsBasic Terms/ConceptsBasic Terms/ConceptsBasic Terms/ConceptsMethodsConditions for Customary FinancingPBP Definition FAR PBP PolicyPBP Criteria For UseDFARs 2020 Changes & ImpactsPlanning for PBPPlanning for PBPPlanning for PBPPBP Key StepsDeveloping PBP Events & Completion CriteriaFAR Requirements for PBP EventsFAR Requirements for PBP EventsFAR Guidelines for PBP EventsFAR Guidelines for PBP EventsHow to Develop Events/CriteriaHow to Develop Events/CriteriaHow to Develop Events/CriteriaHow to Develop Events/CriteriaPBP ExercisePBP Example 1PBP Example 1PBP Example 2PBP Example 2PBP Example 3PBP Example 3PBP Example 4PBP Example 4PBP Example 5PBP Example 5PBP Example 6PBP Example 6PBP Example 7PBP Example 7PBP Example 8PBP Example 8PBP Example 9PBP Example 9PBP Example 10PBP Example 10PBP Example 11PBP Example 11PBP Example 12PBP Example 12PBP Example 13PBP Example 13PBP Example 14PBP Example 14Cumulative versus Severable DeterminationCumulative vs Severable DeterminationCumulative vs Severable DeterminationCumulative vs Severable DeterminationValuing PBP Events & Creating a Win-Win ScenarioFAR Requirements for Valuing EventsFAR Requirements for Valuing EventsNegative Contractor Investment in the ContractWhen does Contractor Investment Become Negative or Unreasonably Low?How to Value EventsHow to Value EventsImportance of Expenditure ProfileValuing Events & Get to Win-WinEnsuring Win-Win ScenarioEnsuring Win-Win ScenarioEnsuring Win-Win ScenarioEnsuring Win-Win ScenarioDFARs Update InclusionsPBP ClausesPBP Special Contract ProvisionPBP “I” DFARS ClausePBP “I” FAR ClausePBP BenefitsPBP BenefitsConclusion

performance based payments (pbps) webcast 8.2… · \⠀搀尩 liquidating performance-based...

Documents