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Before We Get Started 9 For firm, fixed-price contracts, the contractor assumes all of the financial risk. The agency assumes all of the financial risk for time and materials contracts. Financial risks are shared in cost-reimbursable contracts. Terms and Conditions Terms and conditions are defined in Step 8 of the Decision Model process. The procurement process is defined by the Federal Acquisition Regulations (FAR). Title 48 of the Code of Federal Regulations Chapter 1 codifies the FAR. The FAR presents policies for acqui- sition of supplies and services by executive agencies. The FAR is available on the internet at www.arnet.gov/far. But the FAR is not the only source of regulations. All state and local govern- ment agencies have their own processes that also must be followed. Systems Engineering as It Relates to Contracting The "V" diagram, shown in Figure 3, has been developed by the systems engineering profes- sion to define the relationship among the phases of the system life cycle. As represented in the figure, the systems engineering process begins with the early planning activities, during which the system's relationship with regional needs and other regional systems is defined. The central "V" shape, which begins with the systems engineering management plan and ends with opera- tions and maintenance, includes the activities specifically associated with the acquisition of the system with which these procurement guidelines are concerned. The arrow in the "V" diagram shows the time sequence of these activities. The oval shapes are known as control gates and iden- tify the points in the process at which specific documentation is required and decisions regard- ing the ongoing development must be made. As indicated in the diagram, the life cycle must consider not only the specific steps associated with the system planning, design, and development, but also the regional context for the system (on the left side of the diagram) and the need for system upgrades and enhancements as shown on the right side of the diagram. Alternative process models can be applied to the system life cycle relationships defined in the "V" diagram to systems engineering. A well-developed model also supports the project man- agement process in that it defines the system acquisition steps and helps convey to the project team and others how a project will be managed. The process model influences the selection of the Figure 3. "V" diagram of systems engineering.

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10 Guide to Contracting ITS Projects procurement approach being used for the system acquisition. The process model must define the pro- curement approach rather than permitting the procurement approach to define the systems engi- neering process. In addition, the model helps communicate with others about the progress being made, it helps assess the risk of alternative paths, and it helps to take advantage of emerging oppor- tunities. The following models can be used as alternative systems engineering processes: Waterfall model--Linear process used for relatively simple projects. Evolutionary model--Incremental approach to systems engineering in which the system is implemented in small pieces. Applicable to complex systems. Spiral model--A model characterized by extensive prototyping and planning. This model is used where a complex system includes new untested concepts and functionality.