Themes: Delivery and Performance, Inspection, Acceptance, Warranty
The Federal Acquisition Regulation (FAR) http://farsite.hill.af.mil/vffara.htm
Part 46 Quality Assurance
Supplier Inspection System http://www.dcma.mil/policy/312/DCMA-INST-312.pdf
Week 6 Notes
Understanding the Specifications and Details of the Work
If you are the vendor or seller of the item or provider of the requested service, your first concern is ensuring that the contract’s statement of work (SOW) can be accomplished. Assuming your technical experts are reliable, your attention must be directed to how the work definition or design is originated and the schedule for performing the job.
The origination of the design is very important because, if you are the originator of a design specification, you may be held responsible for the performance of the item. If the design comes from the customer or buyer of the item or service, your proposal and the resulting contract most likely will create a program that fulfills the design. Should you satisfy the customer’s work standard and the product, service, or program does not function as the customer thought it should, then the fault rests with the customer. However, had you designed the product and implemented it through this contract, the fault rests with you. These contrasting responsibilities of design vs. performance specifications are so significant to everything else that will happen—from payment, to ownership rights, to warranty, etc.—that you must pay extreme attention to this detail of the contract (and anticipate all its ramifications).
Delivery and Inspection
How the product or service will be delivered and inspected is usually defined in the contract, and the timing of these events is critical to avoiding penalties or default. Inspection may occur during manufacturing, before or after shipping, or during installation; similarly, delivery may be understood to have different meanings and may occur at different times. Both parties to a contract must understand how they wish these terms to apply to them.
Delivery identifies when, where, and how a product or service is to arrive at the customer’s desired location. The customer may require strict adherence to a schedule, due to its reliance on related deliveries; a delay in one area may result in delays in deliveries in other contracts. Also, the customer may have assigned its personnel to a specific location in order to receive the delivery and may have reserved space or transport services, and your failure in this area may cost the customer in terms of expenses and time.
Inspection is an often misunderstood contract criterion because it suggests that the contractor has passed a critical milestone that he may have to pass again in a slightly more rigorous fashion at acceptance. Typically, a customer requires inspection at some time prior to shipment to a work site, but it rarely connotes terminal or final acceptance that triggers a final payment.
Inspection rights for both government and commercial arenas may include the right to inspect a production facility, to sample a semi-finished or finished product, to test the operational look and feel in order to confirm that the contractor has been moving down the right path in completing the project. Whatever type of inspection is desired, it amounts to a sort of “kicking the tires” that does not constitute acceptance of this work performed to date. Especially in commercial contracts, inspection is a negotiable topic that often draws a lot of attention between the contractor and the customer. An eager buyer is excited about the opportunity to test its new acquisition, while a seller may be focusing his attention on maintaining momentum and maintaining the schedule without any midcourse distractions. A bargain is usually struck so that an adequate inspection can be conducted without undue impedance to the overall schedule.
Perhaps the most important definition the contracts professional will establish is the one that addresses when the work will be completed. Here it is important that all parties recognize what standard is to be applied, what testing will be done, and what reports or documents must be submitted to mark this most major milestone.
Ideally, the parties want to define the standard—one that is either objectively recognized by the industry or one that is defined specifically by the contract itself. In a turnkey project, acceptance usually also determines when title to the goods will pass and when the goods will be turned over to the customer. This is the moment when responsibility for insurance and risk of loss pass to the buyer and when the contractor’s liability for protecting, maintaining, and safeguarding the goods is relinquished to the customer. Also, this moment marks when final invoicing usually occurs—unless payment is to be withheld pending other activities (e.g., the determination for and assessment of any damages).
Warranty is another key concept in contracting. The idea is that the seller shall provide support and assurances to the customer after the acceptance of the goods or services. Many commercial customers will delay the final payment until the warranty period has expired to ensure compliance with its terms. Another common commercial practice is to determine a fair sharing of the shipping and insurance costs to return defective goods to the manufacturer. The decision regarding this issue may also be tied to the levels of spare parts the buyer is acquiring, and the parties may haggle over these details to reach an agreement. As you can see, in the negotiations that define the contract, the parties can trade off their desires, their risks, and their costs in order to reach the bargain they desire.
The key concept in warranty to the supplier or seller is that it represents an ongoing liability and responsibility that it wishes to limit. Warranty-related costs are invariably reflected in the price to the customer; consequently, a reduction in this responsibility may result in a reduction to the price. Buyers and sellers recognize this and can negotiate an acceptable arrangement.
The FAR and the UCC also perceive warranty in unique ways, aside from the express warranties negotiated by the parties. We shall examine the UCC warranty provision for goods and the various forms of warranty found in the FAR in the course of completing this module. Focus your attention on the concepts of (1) express warranties, (2) implied warranties, (3) merchantability for a particular purpose, and (4) repair and replacement of parts.
Participate in week 6 learning activities – Initial response due by Thursday, 2 classmates follow up response due by Sunday.
Learning Activity #1
When determining the level of inspections required by the Government what are some of the the things the CO should take into consideration?
Learning Activity #2
What are some of the contractor’s responsibilities in establishing a quality assurance program? What are some of the issues that may impact the type and level of quality inspections they conduct?