Breakout Session # 207 Steven W. Barclay, Sr. Manager Contracts Training - The Boeing Company

2. Awareness of Constructive Changes in a Contractual Environment • Breakout Session #207 • 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: April 24, 2007 • Time: 4:30 PM - 5:30 PM

3. Agenda The nature of constructive changes Scope Creep Implementation Creep Recognizing and managing the “creeps” Question & Answer

4. Why is awareness of constructive change necessary? • Let’s answer this question by looking at a few recent examples… • You decide:Change or No Change?

5. Recent Examples • 50 Hour Rule • Verbal agreement with the Customer to perform change activity up to 50 hours without requesting additional funding. • Trade Studies • E-mail request to continue work on trade studies even though the authority had expired, but pending final approval by management.

6. Recent Examples Other examples… • Control Panel • Requirement is for control panel with 36 switches • Contractor proposed legacy panel with 36 hardwired switches – awarded contract • In execution, Government wants 36 pushbutton switches with two levels

7. Recent Examples Other examples… • 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

8. Focus of this briefing Contract Changes • Contract changes come in two flavors • Formal changes: • Unilateral Changes • Bilateral Changes • Informal changes:* • Scope Creep • Implementation Creep *Aka: Constructive Changes

9. Scope Creep Changes to what 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 Customer’s technical representative requesting workthat’s beyond the scope of the contract

10. Scope Creep Who is responsible for identifying scope creep? • Responsibility*… “Contracts has a fiduciary 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 modification.” • *Typical contractor training manual

11. Scope Creep Why Does Scope Creep Occur? • Disagreement over contractual requirements… • Over-inspection or 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: Identify constructive changes and address them immediately!

12. Scope Creep Analysis of recent examples presented earlier • 50 Hour Rule • Verbal agreement to perform change activity Analysis: Constructive Change = performing work without adequate compensation • Trade Studies • Request to continue work with expired authority Analysis: Constructive Change = performing work without proper authority Performing work without equitable adjustment to the contract

13. Implementation Creep • Changes to “how” a contractor will implement requirements • No change in contract requirements

14. Implementation Creep • Changes during contract implementation can bea constructive change For 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

15. Implementation Creep Analysis of recent examples presented earlier • Control Panel • Difference in types of switches Analysis: Constructive Change = changing negotiated requirements during contract implementation • Aircraft Fuel Tanks • Smooth vs. welded seams Analysis: Constructive Change = negotiatedrequirements should prevail; unless the contractor is not meeting contractual requirements

16. Effect of Constructive Changes • They are known as “Changes that Bite” because... • They destroy a contract’s baseline • They are time consuming to prove • They result in overruns • They result in negative past performance

17. Con’t. Why Do Constructive Changes Occur? • Due to… • Failure to recognize them when they are happening • Not 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, and

18. Why Do Constructive Changes Occur? • Avoid negative past performance evaluations • However, the BESTway to obtain positive past performance evaluations is to do… Guess What? Satisfy all contractual requirements ON TIME and WITHIN BUDGET!

19. Preventative Maintenance What DoesThe Contract Say? • 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 requirements • How the program was bid is part of the baseline • Above all, we must always know…

20. Preventative Maintenance • Implementation Creep… Focus on implementation issues during the business development 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 • Integrated Baseline Review(IBR) – gain mutual understanding of the baseline, including implementation approach • Program Change Control Board(PCCB) – visibility of every contract change • Program Execution Plan(PEP) – establish how the contract will be executed

21. Managing Contract Changes • Change is inevitable– be prepared to deal with unexpected events • Encourage creativity– Government and contractor integrated process team (IPT) members have good ideas - manage them • Be aware of contract baseline– recognize when the baseline is perceived to be lost • Establish a change process– instill discipline for stakeholders to follow the formal change process

22. Summary • Clearly understand all contractual requirements • Implement changes ONLY upon receipt of a written work authorization from an authorized Contracts representative • Notify Contracts for interpretations and/or clarification of the contractual requirements • Above all, remember the GOLDEN RULE… What Does the Contract Say?

23. Questions & Answers