EXAM 2
Advance Payment - ANS-No more than 15%
LEAST perferred
Performance Based Payment - ANS-PREFERRED
Finance payment - ANS-Accepted payment
Delivery payment - ANS-INVOICED payment
Reimburement/Sealed Bidding - ANS-CANNOT do PBP
Cannot have PBP and progress payments on same contract at same time - ANS-PBP
and Progress Payments
Can convert from progress payments to PBP? - ANS-YES
Advance Payments - ANS-Requires approval by Deputy Undersecretary for Finance
WGL (weighted Guidelines) - ANS-can produce higher profit objective with PBPs
Profit reduction - ANS-almost always warranted with PBPs, resulting in reduction in total
contract price
Time Value of Money - ANS-A dollar today is worth more than a dollar a year from now
measured through - ANS-Discounted Cash Flow, Internal Rate of Return (IRR), Net
Present Value (NPV)
Performance Based Payments Basics - ANS-achievement of specific events or
accomplishments
customary form of contract financing
Fully recoverable in case of default
PBP Are NOT - ANS-Payment for accepted goods or services (delivery payments)
Payments for partial deliveries
, PBPs:Can be based on : - ANS-(1) performance measured by objective, quantifiable
methods;
(2) accomplishment of defined events; or
(3) other quantifiable measures of results.
Can be on whole contract or line item basis
Total payments cannot exceed 90% of contract or line item price
Basis of Win-Win Agreement - ANS-Contractor cost of raising funds (expressed as %) is
Weighted Average Cost of Capital (WACC)
Weighted Average Cost of Capital (WACC) - ANS-WACC usually > Treasury Rate
Sets stage for negotiation of lower profit (price) in exchange for accelerated funding
May use Customary Contract Financing when: - ANS-Contract ≥ $2.5M
Deliveries begin NET 6 months after award
Practical to use PBPs when - ANS-FFP Production contract > $50M
Stable, mature program
Period of Performance > 24 months
Consistent expenditure profile history on prior buys
Step 1(PBP Key Steps) - ANS-Establish detailed program schedule
Work with Program Management & technical personnel
What is program critical path?
What are key activities that must be completed to ensure contract delivery?
Are there significant subcontractor activities?
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