Time Saving Electronic Payments Benefit Defense Contractors

By Timothy J. Frank and David K. Guinasso

December 14, 1998

The Defense Contract Management Command (DCMC) has a system that permits contractors to electronically send progress payment requests to the government. That same system reviews, validates and pays the requests, often without human intervention.

More contractors soon will benefit from the rapidly expanding Electronic Data Interchange Progress Payment Program. The program, which DCMC is working on with other Department of Defense agencies, improves the payment process by streamlining invoice submission, reducing manual handling and cutting processing time.

Itís a Time Saver

Initially rolled out in 1995, the program has been working successfully for the last three years. DCMC and the Defense Finance and Accounting Service are now aggressively developing enhancements to make it attractive to virtually every progress payment contractor. "EDI will significantly improve the whole payment process," said Maj. Gen. Timothy P. Malishenko, DCMC commander. "With EDI, invoice submission to payment receipt can take as little as four days, and has taken only two in some instances."

"In order to maximize reduction in payment processing time, DoD and industry need to ensure that payment-related documents are designed so that they can be processed automatically without any manual intervention," added Ken Sweitzer, deputy director for Contract Pay and Disbursing, DFAS.

How the Electronic Data Interchange Works

The EDI process begins when transaction data travels from the contractor through the Value Added Network to the Defense Information Systems Agency Regional Services Activity in Columbus, Ohio. The system then determines whether the transaction can go directly to the Mechanization of Contract Administration Services system for processing and payment, or whether it needs prior review by the DCMC contracting administrative officer.

If prior review is necessary, the transaction data is conveyed via the Standard Electronic Processing System to the contract administration office, where the contracting officer reviews and approves it, all online. The approval is then transmitted back to Columbus, where the data is released to the Mechanization of Contract Administration system services for processing and payment. The system includes safeguards and notifications in the event that a transaction is rejected during processing.

Customer Response Is Good

"We have had an excellent experience using the progress payment program," said Jan Wilhelm, director of Business Operations for Northrop Grummanís Worthington, Ohio, office. "The federal employees we work with are very responsive, and weíve had very few problems. Soon more of our invoice payments can go through EDI."

DCMC and its partners quickly realized that EDI was an improvement over manual processing. The most obvious benefit is the speed with which transaction data can travel from the contractor to the government, avoiding mail time.

Itís Not Only Fast, Itís Also Accurate and Paperless

Accuracy is another benefit because the contractor prepares a request and inputs it as a transaction, which avoids input errors at the payment office. Secondly, the Standard Electronic Processing System program performs several validations, and will reject the payment request early in the process if there are problems. This provides earlier notification to the contractor so the transaction can be corrected. EDI also eliminates paper, and, importantly to contractors, improves cash flow.

Improvements Continue

DCMC and the Fleet Management Support Office in Mechanicsburg, Pa., continue to improve the EDI process. Although DCMC initially deployed EDI progress payments in a DOS version, the Fleet Management Support Office subsequently developed an enhanced version. The new version not only operates in a Windows environment, but also can process payments on complex contracts, which couldnít be handled in the DOS version. Just about any progress payment request can now be transmitted via EDI. Carrying the improvements even further, DCMC will soon deploy a streamlined approval process, reducing processing time even further.

Currently, about 75 different contractor locations are submitting EDI progress payments. They account for 40 percent of progress payment requests and 53 percent of progress payment dollars.

New Web Invoicing System Allows Contractors to Sign On to a Secure Web Page

DCMC is working aggressively to increase the use of EDI, and is supporting the Defense Finance and Accounting Service and the Defense Contract Audit Agency in the use of other EDI invoicing methods for public vouchers and commercial invoices. DFAS recently unveiled the Web Invoicing System, which is a World Wide Web based application for invoicing. WInS allows contractors to sign on to a secure web page, enter the invoice data and send it off, via an EDI transaction, to DFAS Columbus.

Although WInS cannot yet handle progress payments, DCMC is working with DFAS to change that. DCMC expects to have progress payment functionality in WinS relatively soon. A Web-based progress payment method will offer quick and inexpensive entry for contractors into EDI invoicing. It particularly offers advantages to contractors that submit a small number of progress payments each month, since minimal up front investment is needed.

Soon Electronic Data Interchange for Invoicing Will Be the Norm

The use of EDI is expanding, and DCMC expects that it very soon will be the normal way of submitting an invoice because EDI transactions are so much faster, more accurate and easier to process than paper. They have fewer errors, and those errors that do occur are caught sooner. DCMC contends EDI is a business process that efficient contractors will find hard to resist.

For More Information

Contractors interested in the EDI progress payment process can contact Kevin Carroll or Esy Dunn at the Defense Contract Management Command Economic Commerce Program Office, (617) 753-3092 or (617) 753-3360. Their homepage is http://www.dcmde.dla.mil/ediec.htm.

About the Authors

Timothy J. Frank and David K. Guinasso are Contract Specialists at the Defense Contract Management Command at Fort Belvoir, VA. You may reach Tim Frank at tim_frank@hq.dla.mil or (703) 767-3431. You may reach Dave Guinasso at david_guinasso@hq.dla.mil or (703) 767-2354.