Breakout Session # 309 Javier E. Porras, Contracts Administration – The Boeing Company

2. Identification and Prevention ofConstructive ChangesIn a Government Contracts Environment • Breakout Session # 309 • Javier E. Porras, Contracts Administration – The Boeing Company • James M. Unland, Contracts Management – The Boeing Company • Michael Elson, Sr. Contracts Manager – The Boeing Company • Date: Wednesday April 16, 2008 • Time: 10:50 am – 11:50 am

3. Objectives • Overview of Gov’t Change Process • Define Constructive Changes • Awareness of “Contract Creeps” • Scope Creep & Implementation Creep • Managing Constructive Changes • Questions & Answers

4. Why are Changes Necessary? • Provide Gov’t and Contractor flexibility during contract performance… • Technological advances • World conditions • National emergencies • Budget constrains • Gov’t regulations authorize formal changes through the Changesclause

5. -1, Fixed Price • FAR 52.243* -2, Cost-Reimbursement • -3, Time & Mat’l or Labor-Hrs Focus of this briefing Contract Changes • Contract changes come in two flavors: • Formal Changes: • Unilateral • Bilateral • Informal Changes: Constructive Changes… • Scope Creep • Implementation Creep *FAR Part 43 provides guidance to the Contracting Officer on formal contract changes

6. What is a Constructive Change? Gov’t action/inaction that results in work beyond the contract requirements without written authorization • Constructive Changes occur when: • Gov’t formally directs Contractor to perform beyond the scope of the contract without a formal change order; • Contractor initiates work from a Gov’t informal order or resulting from Gov’t fault or failure to act timely Note: Gov’t informal change order can be defined as words or conduct, butNOTadvice, comments, suggestions, desires or opinions

7. Constructive Changes Can “Creep” • Scope Creep • Change in contract requirements • The “what and when” of a contract • Implementation Creep • No change in contract requirements • Impacts the “how” not the “what” At Risk:Earnings, Growth Opportunities & Jobs!

8. What is “Scope Creep”? • Changes to the contract’s baseline • Statement of Work, Schedule, Specs, Clauses • Made informally • Initially appear as minor and insignificant • Documentation not seem necessary at the time Goal:Identify “Scope Creep”and address it immediately!

9. Why does “Scope Creep” Occur? • Disagreement over contractual requirements • Over-inspection / unreasonable rejection of work • Discounting reasonable contractor interpretation of requirements • Defective or late Gov’t 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

10. How to minimize “Scope Creep”? • Know your contract well • Understand the statement of work/specs • Clarify assumptions and/or expectations that may exceed the scope of the contract • Establish a baseline of the requirements Above all, we must remember to ask What Does The Contract Say?

11. What is “Implementation Creep”? Changes during implementation of the contract can become a constructive change… • Demanding a more costly implementation plan than what was proposed, negotiated & awarded • Making unreasonable interpretations of requirements resulting in more costly implementation efforts • Hindering performance by demanding unreasonable tasks - active interference • “Wouldn’t it be nice if we could……”

12. Change or No Change? • Control Panel • Requirement is for a control panel with 36 switches • Contractor proposed legacy panel with 36 hardwired switches • During contract execution, Gov’t wants 36 pushbutton switches with two levels • Aircraft fuel tanks • Requirement is for fuel tanks that hold “X” quantity of fuel • Contractor proposed heritage design of welded tanks with seams • Inspector believes they will leak and is requiring tanks with smooth welds

13. Change or No Change? • Gov’t Security Delays • Since 9-11, many Gov't installations have tightened security • Caused some service contractors delays for hours daily waiting for all security measures prior to gaining access • Specification for stainless steel blades • Contractor submitted Dampers with galvanized steel blades • Gov’t. Engineer approved submittal • Discrepancy was not realized until Gov’t noticed the blades were corroding prematurely in a Gov’t facility located near the ocean

14. Change or No Change? • COTS, MOTS, and MIL-STD 210 equivalent • Contractor bid a COTS solution • In pre-contract discussions parties recognized that environmental standards would have to be relaxed • During execution, COTR demanded a environment similar to MIL-STD 210 • The MMI Handbook • Contractor proposed handbook using existing standards (especially GUI) • During execution COTR invited parties to provide updated requirements (“wish list of what should be on screens”)

15. Who Let the Creeps Out? • We all let them out… • Failure to recognize and take action when they are happening • Failure to understand impact on the program’s budget and/or overall schedule requirements • Justify performing additional work to keep the customer happy • Protect award fee, and • Avoid negative past performance evaluations

16. Preventing Implementation Creep… Focus on implementation issues during the‘pre-contract’ phase of the program • Rough Order of Magnitude(ROM)– identify ground rules and assumptions • Basis of Estimate(BOE)– focus not only on tasks and hours but on implementation approach • Fact-finding entrance briefings– full disclosure of reqmt’s • Integrated Baseline Review(IBR)– gain mutual understanding of baseline, including implementation approach • Program Change Control Board(PCCB)– visibility of every contract change to all stakeholders • Program Execution Plan(PEP)– establish how the contract will be executed

17. Know what the Contract says • Results: • Happy Customer • Maximize Award Fee • Positive Past Performance Document all Changes Deliver on Schedule and within Budget Satisfy Contractual Requirements Communications The Anti-Creep Solution

18. Managing Contract Changes • Change is inevitable–be prepared to deal with unexpected events • Encourage creativity–Gov’t and contractor Integrated Process Team (IPT) members have good ideas - manage them • Be aware of contract baseline–recognize when deviations to the baseline are occurring • Establish a change process–instill discipline for stakeholders to follow the formal change process • Document Agreements– keep all correspondences supporting direction/authority to proceed

19. Questions & Answers?

20. Back Up

21. Recent Case… Winter v. CATH-DR/BALTI Joint Venture,497 Fed 3rd 1339 (8/'07) • Issue: Whether a Contractor can rely on the direction from a Contracting Officer's delegated representative? • Facts: Contractor was awarded a fixed-price contract for the renovation of a historic dental research facility. • Analysis: The contract contained three key provisions: 1) FAR 52.243-4 - CO could, at any time, make changes within the general scope of the contract. 2) “Contracting Officer Authority” clause giving only the CO the authority to bind the government to any “contract, modification, change order, letter or verbal direction to the contractor.” 3) “Government Representatives” clause which permitted the CO to designate the Engineer in Charge/Program Manager as his authorized representative responsible for monitoring performance and technical management, but, in no event, allowed anyone other than the CO to bind the government to a modification.

22. Recent Case… Winter v. CATH-DR/BALTI Joint Venture, Lessons Learned: • Case undermines trend in case law that supported the idea that Contractors may rely on a CO's delegation of authority and representations, even if those representations would modify the contract. • Contractor should have included the CO on all correspondences related to the direction from the PM • Contractor should have insisted on the CO's approval of all actions directed by PM • Contractor should have requested the CO to modify the contract terms to reflect the Government's intent to expand the PM's delegated authority. • Contractors must confirm with the CO any technical direction that they receive from any CO's representatives, such as a COTR or an inspector; especially if the contract contains any language limiting the ability of such individuals to modify or change the contract • Contractors must understand the explicit limitation contained within the contract • Establish a process to notify the CO in the event any representative gives or appears to give direction contrary to the contractual limitations

23. Preventive Maintenance Disclaimer used by some Gov’t agencies to prevent the possibility of incurring constructive changes in meetings LIMITATION OF AUTHORITY You are hereby notified that we DO NOT have authority to direct you in any way to alter your contractual obligation. Further, if the Government, as a result of the information obtained from today's discussion desires to alter your requirements, a formal change will be issued in writing and signed by the Contracting Officer. You should take no action on any change discussed today unless and until you receive a contract modification.