Home' Army Acquisition Logistics and Technology Magazine : Army ALT April-June 2018 Contents Reference Guide mentions anything about using a probable cost
estimate as a contract administration tool or funding baseline.
The MPC is not a cost-control panacea. It requires the proper
staff, with the right training and clear lines of accountability, to
achieve the desired benefits. Applied with the necessary support
processes in place, however, the MPC can succeed in bringing
ongoing costs under control, even in a post-award environment.
CASE IN POINT
I saw the difference the MPC can make when I was the com-
mander of the National Training Center (NTC) Acquisition
Command at Fort Irwin, California, from June 2002 to May
2005. Faced with spiraling cost overruns on our multimillion-
dollar, multiyear, cost-reimbursement base operations contract,
we used the MPC and the process of developing it as a contract
administration tool and funding baseline and brought the con-
tract costs under control. The experience was a case study of
sorts in making the most of the MPC.
The contract in question covered everything from minor con-
struction to crossing guards at the installation. Approximately
80 percent of the work performed on this installation was done
by the contractor who held this contract.
The contractor at the time regularly overran the estimated cost
of our cost-plus-award-fee contract for base operations and hit
the contract price ceiling by the fourth quarter, when fiscal con-
straints take hold and additional funding is limited. The money
for base operations contracts normally comes from operations
and maintenance (O&M) funds. DOD’s Financial Manage-
ment Regulation says that O&M appropriations are considered
expenses that cannot cross accounting periods or fiscal years.
Thus, O&M funds used to pay for services under a base opera-
tions contract are good for one fiscal year, or through Sept. 30.
After this date, these funds expire and are no longer available for
new awards or new contract actions.
The question was whether the contractor couldn’t manage its
costs, or whether there was a problem in the MPC that the
command had developed and used as a funding baseline. Even
though the FAR and Contract Pricing Reference Guide did not
require using the MPC process to create a probable cost estimate
after the contract award, doing so was an avenue that we had
found worthy of exploration.
If using the MPC before the contract award could help the
government determine whether the offeror’s cost proposal was
realistic, why not use the MPC after the award to determine
if the contractor’s actual cost was still in line with what was
proposed? If not, then the government would investigate the cir-
cumstances and take the appropriate actions.
We needed to take into consideration the characteristics of the
contract, as well as the context surrounding it, when determin-
ing how best to address cost overruns.
The FAR calls for the government to “ensure timely notification
by the contractor of any anticipated overrun or underrun of the
estimated cost under cost-reimbursement contracts.” Depend-
ing on whether the contract is funded in a lump sum or paid
out in increments, the FAR requires the contractor to notify the
government when there’s reason to believe that costs will exceed
75 percent of the estimated cost of the contract. The regulation
further says that under cost-reimbursement contracts, the gov-
ernment is not obligated to reimburse the contractor for costs
incurred in excess of the estimated cost specified in the schedule.
Unfortunately, the contractor was not notifying us of over-
runs in a timely fashion, nor were we proactively monitoring
the situation to determine the root cause of the overruns. The
NTC director of resource management was funding the con-
tract at the MPC amount, as opposed to the estimated contract
Now, instead of the CORs explaining
cost overruns to the contracting
officer at the Acquisition Command
organization, they and their directors
would have to explain them to the chief
of staff (who in many cases was the
directors’ senior rater), in the presence
of the garrison commander (who in
many cases was the directors’ rater).
120 Army AL&T Magazine
January - March 2018
AN UNEXPECTED ANGLE ON COST CONTROL
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