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Breakout Session #Breakout Session # 207207• Steven W. Barclay, Sr. Manager Contracts Training - The Boeing Company

• Javier E. Porras, Contracts Instructor - The Boeing Company

• James M. Unland, Contracts Management - The Boeing Company

Date:Date: April 24, 2007

Time:Time: 4:30 PM - 5:30 PM

Awareness of Constructive Awareness of Constructive Changes in a Contractual Changes in a Contractual

EnvironmentEnvironment

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The nature of constructive changes

Scope Creep

Implementation Creep

Recognizing and managing the “creeps”

Question & Answer

AgendaAgenda

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• Let’s answer this question by looking at a few recent examples…

You decide:You decide: Change or No Change?

Why is awareness of Why is awareness of constructive change necessary?constructive change necessary?

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• 50 Hour Rule50 Hour RuleVerbal agreement with the Customer to perform

change activity up to 50 hours without requesting additional funding.

• Trade StudiesTrade StudiesE-mail request to continue work on trade studies

even though the authority had expired, but pending final approval by management.

Recent ExamplesRecent Examples

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• Control PanelControl PanelRequirement is for control panel with 36

switchesContractor proposed legacy panel with 36

hardwired switches – awarded contract In execution, Government wants 36

pushbutton switches with two levels

Other examples…Other examples…

Recent ExamplesRecent Examples

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• Aircraft fuel tanksAircraft fuel tanksRequirement is for fuel tanks that hold “X”

quantity of fuelContractor proposed heritage design of

welded tanks with seams Inspector believes they will leak and is

requiring tanks with smooth welds

Recent ExamplesRecent Examples

Other examples…Other examples…

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• Contract changes come in two flavors

Formal changes:Formal changes:Unilateral ChangesBilateral Changes

Informal changes:Informal changes:**Scope Creep Implementation Creep

Contract ChangesContract Changes

Focus of thisFocus of thisbriefingbriefing

**Aka: Aka: Constructive Changes

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Customer’s technical representative requesting workthat’s beyond the scope of the contract

Changes to whatwhat a contractor does… Changes to the contract’s baseline requirements

Statement of Work, Schedule, Specs, Clauses Made informally Initially appear as minor and insignificant Generally does not seem necessary to document

at that time

Scope CreepScope Creep

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• ResponsibilityResponsibility*……“Contracts has a fiduciary responsibilityfiduciary responsibility when attending program reviews, configuration management, or control change board meetings, etc. to assist the programs with identifying scope creep, managing changes to contractual requirements, and translating those changes into contract modificationcontract modification.”

**Typical contractor training manualTypical contractor training manual

Who is responsible for identifying scope creep?

Scope CreepScope Creep

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Why Does Scope Creep Occur?Why Does Scope Creep Occur?• Disagreement over contractual requirements…

Over-inspection oror unreasonable rejection of work Discounting reasonable contractor interpretation of

requirements • Defective or late Customer-furnished data or property• Delay or disruption of work• Acceleration of delivery and/or test schedules• Requesting or expecting tougher specification• Directing the use of different processes or materials

Goal:Goal: Identify constructive changesconstructive changes and address them immediately!

Scope CreepScope Creep

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• 50 Hour Rule 50 Hour Rule Verbal agreement to perform change activity

AnalysisAnalysis:: Constructive Change == performing work without adequate compensation

• Trade Studies Trade Studies Request to continue work with expired authority

AnalysisAnalysis:: Constructive Change == performing work without proper authority

Analysis of recent examples presented earlierAnalysis of recent examples presented earlierScope CreepScope Creep

Performing work without equitable adjustment to the contract

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• Changes to “how”“how” a contractor will implement requirements

• No change in contract requirements

Implementation CreepImplementation Creep

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• Changes during contract implementation can bea constructive change

For ExampleFor Example:: Customer demanding a more costly implementation

than bid Customer’s unreasonable interpretations result in

more costly implementation than bid Customer hindering performance by demanding

unreasonable tasks Active interference

Implementation CreepImplementation Creep

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• Control PanelControl Panel Difference in types of switches

AnalysisAnalysis:: Constructive Change == changing negotiated requirements during contract implementation

• Aircraft Fuel TanksAircraft Fuel Tanks Smooth vs. welded seams

AnalysisAnalysis:: Constructive Change == negotiatedrequirements should prevail; unless the contractor is not meeting contractual requirements

Analysis of recent examples presented earlierAnalysis of recent examples presented earlier

Implementation CreepImplementation Creep

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Effect of Constructive ChangesEffect of Constructive Changes

• They are known as “Changes that Bite”“Changes that Bite” because...

They destroy a contract’s baselineThey are time consuming to prove They result in overrunsThey result in negative past performance

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• Due to…Due to…Failure to recognize them when they are

happeningNot understand the impact they’ll have on the

program’s budget and/or overall schedule requirements

Justify performing the additional work in order to keep the customer satisfied/happy

Obtain higher award fees, andand

Why Do Constructive Changes Occur?Why Do Constructive Changes Occur?

Con’t.

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• Avoid negative past performance evaluationsAvoid negative past performance evaluations However, the BESTBEST way to obtain positive past

performance evaluations is to do…

Guess What?Guess What?

Satisfy all contractual requirementsSatisfy all contractual requirements

ON TIMEON TIMEandand

WITHIN BUDGET!WITHIN BUDGET!

Why Do Constructive Changes Occur?Why Do Constructive Changes Occur?

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What DoesWhat DoesThe Contract Say?The Contract Say?

Preventative MaintenancePreventative Maintenance• Scope Creep…Scope Creep…

Understand the contractual requirements pursuant to the Statement of Work or Statement of Objectives

Clarify assumptions and/or expectations that may exceed the scope of the contract

Establish a baseline of the requirementsHow the program was bid is part of the baseline

Above all, we must always know…

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• Implementation Creep…Implementation Creep… Focus on implementation issues during the business

development phase of the program Rough Order of MagnitudeRough Order of Magnitude (ROM) –– identify ground rules and

assumptions Basis of EstimateBasis of Estimate (BOE) –– focus not only on tasks and hours

but on implementation approach Fact-finding entrance briefingsFact-finding entrance briefings Integrated Baseline ReviewIntegrated Baseline Review (IBR) – – gain mutual understanding

of the baseline, including implementation approach Program Change Control BoardProgram Change Control Board (PCCB) –– visibility of every

contract change Program Execution PlanProgram Execution Plan (PEP) – – establish how the contract will

be executed

Preventative MaintenancePreventative Maintenance

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• Change is inevitableChange is inevitable –– be prepared to deal with unexpected events

• Encourage creativityEncourage creativity –– Government and contractor integrated process team (IPT) members have good ideas - manage them

• Be aware of contract baselineBe aware of contract baseline –– recognize when the baseline is perceived to be lost

• Establish a change processEstablish a change process –– instill discipline for stakeholders to follow the formal change process

Managing Contract ChangesManaging Contract Changes

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SummarySummary•Clearly understand all contractual requirements

• Implement changes ONLYONLY upon receipt of a written work authorization from an authorizedauthorized Contracts representative

•Notify Contracts for interpretations and/or clarification of the contractual requirements

• Above all, remember the Above all, remember the GOLDEN RULE…GOLDEN RULE…

What Does the What Does the Contract Say?Contract Say?

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Questions & AnswersQuestions & Answers