Breakout Session #509 Elton Beldock , Manager Procurement Compliance, Honeywell Engines, Systems and Services

1. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

2. The Benefits of Implementing Commercial Items In the Supply Chain • Breakout Session #509 • Elton Beldock, Manager Procurement Compliance, Honeywell Engines, Systems and Services • Rhonda Jacobs, Manager, Ernst & Young LLP, Government Contract Services • Date April 28, 2004 • Time 10:30 – 11:30 a.m. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

3. QUESTION • Can you reduce contracting and subcontracting administrative costs related to Government contracts? • Can your primarily commercial business preserve its structure, strategies, and systems and still do business with the Government ? YES, YOU CAN! NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

4. Introduction • About Honeywell Engines, Systems & Services • Phoenix-based leading global provider of integrated propulsion engines, systems, auxiliary power units and service solutions for aircraft manufacturers, airlines, business aviation, and military application “Of a type” products for both Commercial and Government Customers NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

5. The New Process Improvement • Decision to Implement Commodity Team • Enter into Long Term Agreements (LTA) • leverage commodity purchases across the businesses • Centralize procurement activities • Develop supplier long term partnerships • An unimpeachable commercial process Sound commercial practices . . . . NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

6. The Issues • Our Government Customers were not happy: • Thresholds exceeded for Contractor Purchasing Systems Review (CPSR) • Contract pegging? • LTAs meant higher levels of documentation • Initial Corrective Action Attempts • Joint CPSR Reviews of LTAs • Repeated failures • Band-aid fixes • Increased process complexity and inefficiencies . . . . burdened by Government Regulatory Requirements. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

7. Simultaneous Government Acquisition Revisions • FASA – The first step • Clinger-Cohen - Clarifications • Commercial Item Handbook – Guidance • CI decisions vs. price reasonableness • Who makes the decision? • Market research • Commercial Item Checklist • Alternative approaches to determinations • SARA, others Government Dealing with Same Issues NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

8. Commercial Unique 49% Dual Use 40% Government Unique 11% The Idea • Can the Government’s Acquisition Revisions Help Us? • Reviewed active purchased parts: • Split the Processes: Commercial/Govt. It’s a GO! NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

9. Say It,... • Bring the customer into the process.. NOW • Gain process consensus • Bi-monthly meetings • Conversion from LTA to LTC • Stratification and classification A Dynamic Empowered Team and a Winning Strategy NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

10. Do It,…. • Establish diverse, innovative team • Knowledge of products acquired • Training in Commercial Item criteria • Review Process: • Obtain customer agreement that commercial only and dual use applications are Commercial Items • Review balance by Alternative Approaches • Modifications of a type – retain function • Same industry processes • Commercial Facilities Mirrored the Government’s Market Research NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

11. Prove It,... • Basis for Purchasing System Reviews • Separate commercial decision from price reasonableness • Provide DCMA with Commercial Item Checklist that validates the decision • Retain the Price Reasonableness analysis in the LTC file • Code CID in MRP for future buys • No re-review unless component is significantly modified (CIH) K.I.S.S. It ! NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

12. The Results • MOU defined specifics of the processes and responsibilities • Mitigates misunderstandings • Provides guidance to CPSR • CPSR after full deployment results in NO recommendations Teaming with Customer = SUCCESS NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

13. Sharing the Benefits • Government • Framework for successful/streamlined system review • Audit process in less time with fewer auditors • Use of electronic files and on-line systems • New technologies, broader supplier base • Honeywell (and all Contractors) and Suppliers • Price analyses supported by other than cost andpricing information on non-competed procurements • Documentation requirements more manageable • Flowdown limited basically to those at 52.244-6 It’s a WIN - WIN Solution! NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

14. QUESTIONS Commercial Item Handbookhttp://www.acq.osd.mil/dpap/Docs/cihandbooks.pdf FAR Web Sitehttp://www.arnet.gov/far/current/html/FARMTOC.html Contact Rhonda at rhonda.jacobs@ey.com or (949) 437-0317 Contact Elton at elton.beldock@honeywell.com or (480) 592-3854 NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”