Budgeted Cost of Work Performed (BCWP) Archives

EVMS Guidelines and Required Elements

By Humphreys & Associates / February 2, 2022 / Cost Variance, earned value training, EVM Training, EVMS Guidelines, Schedule Variance, Variance At Completion

Cost Variance, earned value training, EVM Training, EVMS Guidelines, Schedule Variance, Variance At Completion

Video Contents

This video reviews the data points that an Earned Value Management System provides and how variances can be calculated from those data points. Timely analysis of performance data and variances assists contractors to proactively resolve issues and effectively manage the remaining work on a project.

You can use the links below to jump to a specific part of the video.

Earned Value Contractors’ Internal Systems must be able to provide the following:
00:06 – Budgeted Cost for Work Scheduled (BCWS)
00:26 – Budgeted Cost for Work Performed (BCWP)
00:38 – Actual Cost of Work Performed (ACWP)
00:47 – Buget At Completion (BAC)
00:52 – Estimate At Completion (EAC)

Variances can be calculated using the BCWS, BCWP, ACWP, BAC and EAC.
00:58 – Variances Explanations
01:03 – Schedule Variance (SV)
01:19 – Cost Variance (CV)
01:31 – Variance at Completion (VAC)
01:45 – Why do we calculate Variances?

01:54 – EAC and BAC Comparison
2:06 – What does Variance at Completion (VAC) indicate?
2:18 – Structure your Earned Value Management System so that Variances can be traced to their source.
2:32 – Use your existing project management systems.

We also have additional free resources for learning about

You can also find Earned Value Definitions as well as additional free resources for learning more about EVMS concepts like Budgeted Cost for Work Performed (BCWP), Actual Cost of Work Performed (ACWP), Buget At Completion (BAC), and Estimate At Completion (EAC) in our EVMS Education Center and in other posts on this blog.

More EVMS Training

If you liked this video you can purchase the entire course below. This video is an excerpt from the Department of Defense (DOD) version of this eLearning module. We also offer the same course customized for the Department of Energy’s (DOE) specific Earned Value Management (EVM) implementation/requirements, as well as a version of the course customized for NASA’s EVM implementation/requirements.

— Purchase This Course —
EVMS DOD Virtual Learning Lab

— Purchase the DOE Version of this Course —
EVMS DOE Virtual Learning Lab

— Purchase the NASA Version of this Course —
EVMS NASA Virtual Learning Lab

EVMS Document Matrix

Not sure what the different requirements are between the DOE and NASA? Can’t remember if Cost and Software Data Reporting (CSDR) is required for an NSA contract? Check out our easy to read Earned Value Management Systems Document Matrix

All Online Courses

All Online Courses Available from Humphreys & Associates

EVMS Guidelines and Required Elements Read Post »

Planning and Managing EVM by Elements of Cost (EOC) – Use a New EOC – Part 3

By Humphreys & Associates / May 1, 2019 / ACWP, BCWP, CAM, earned value training, Elements of Cost, EOC, EVM Training

ACWP, BCWP, CAM, earned value training, Elements of Cost, EOC, EVM Training

<< Review Part 2

In Part 2 we talked about the over-application of EOCs at or below the Work Package level and how a CAR assuming that a charge against an Element Of Cost (EOC) equals a charge against a “zero-budgeted WP” was inaccurate.

Use a New EOC

Both of the examples from part 2 were over-applications of the EOC requirement. The point here was that the work (it was to design a circuit card), was planned as labor and was also accomplished (earned) in the month it was planned; so the value would be “earned” as planned. In that period, however, it happened that the planned resource was not available, so the work was actually accomplished using a different EOC such as a subcontractor engineer. The contractor’s system properly showed that the design had been completed and the value earned and that the ACWP for that completion was also in the system (i.e. consistent with the BCWP). However, it just happened to be the Subcontract EOC instead of the Labor EOC originally planned, and the CAM addressed the cost difference in the VAR for the Control Account. The team’s comments on the CARs were that the CAM should have replanned the effort using the new EOC instead of the original one. The problem with this is that in many cases the CAM does not know the original resource is not going to be available until the day it happens. There would (1) be no time to process the change and (2) the change would occur in the “freeze period” (actually in the current month), and (3) this could result in unnecessarily large numbers of Change Requests since these types of events commonly occur in the industry.

Noted instances:

Work planned and earned as internal labor (Labor EOC) had to be performed by contract support (subcontract EOC) in that period because of the non-availability of the planned resource.
[Some Contractors consider each labor grade a separate EOC within labor] Work planned and earned for an Engineer 2. However, the period the work was performed used an Engineer 3 (higher cost).
The plan was to build sub-assemblies in-house (Labor EOC), but a machine breakdown necessitated having a vendor provide substitute off-the-shelf assemblies (Material EOC) that month.

In each of these cases, the “EOC ACWP substitution” was temporary, and the work resumed the next period as planned, using the originally planned Element of Cost. The key here is that in each case, the work was performed, and so it was earned; as it should have been. The only difference was that a different EOC was used to accomplish the work – a simple Cost Variance. While it is certainly true that each WP (and PP) should be planned and WPs earned using a single EOC, the misinterpretation here was that every EOC then is a Work package and they are not. In other words, temporarily using a different Engineer category than planned, or using contract support instead of internal labor, or substituting a purchased material item instead of fabricating internally, etc. simply represents a Cost Variances, and should not be cited as a violation of the EVMS Guidelines.

The “consistency” required by the Guideline and the sub-question is that the EOC actually used was expended in the same period in which the work was completed and the Earned Value claimed (i.e. consistent with the BCWP). The variance analysis would show BCWS, BCWP, and ACWP at the CA level with the EOC details at lower levels.

Now for the big “HOWEVER”!

If the switch in use of the alternate EOC is short term, then the differences should be addressed as a Cost Variance (which could be higher or lower than with the planned EOC); HOWEVER, if the change is expected to be permanent or long term, then the CAM should replan the remainder of the work package using the new EOC, and the EAC should be updated, as well, to reflect the new anticipated total cost using that revised EOC.

Note: Some contractors have what is called a “gray badge” environment, whereby a subcontractor charges their labor directly into the Prime contractor’s labor system. Under this arrangement, for this subcontractor, there would be no difference in EOC if the subcontractor performed the work instead of the prime contractor.

Humphreys & Associates is available for consulting and information on this topic. Give us a call!

Planning and Managing EVM by Elements of Cost (EOC) – Use a New EOC – Part 3 Read Post »

Planning and Managing EVM by Elements of Cost (EOC) – Over-Application of EOCs – Part 2

By Humphreys & Associates / April 1, 2019 / CAR, Corrective Action Requests, earned value training, EIA-748-C, Elements of Cost, EOC, EVM Standard 748, EVM Training

CAR, Corrective Action Requests, earned value training, EIA-748-C, Elements of Cost, EOC, EVM Standard 748, EVM Training

<< Review Part 1

In part one of our series on Elements of Cost (EOC), we explained what EOCs are and gave an analogy of how EOCs would relate to building a patio. We also reviewed how EOCs can be “over thought” and emphasized the importance of properly applying indirect cost rates. This post is going to be focused on the Over-Application of EOCs.

Over-Application of EOCs

During some government reviews, the teams issued Corrective Action Requests (CARs) citing multiple examples of ACWP occurring on “zero-budgeted” Work Packages within Control Accounts. On the surface, this sounds pretty serious, but there were several “over-applications” in play here.

First, the review was being performed at (and in some cases below) the Work Package (WP) level, when the intent of the Guidelines has always been for variance analysis to be performed at the Control Account (CA) Level;
Second, the CAR assumption was that a charge against an Element Of Cost (EOC) equals a charge against a “zero-budgeted WP”.

For the first point we’ll look at Guideline 22 in the EVM Standard 748:

GL 22. At least on a monthly basis, generate the following information at the Control Account and other levels as necessary for management control using actual cost data from, or reconcilable with, the accounting system:

1) Comparison of the amount of planned budget and the amount of budget earned for work accomplished. This comparison provides the schedule variance.

2) Comparison of the amount of the budget earned and the actual direct costs for the same work. This comparison provides the cost variance.

Even the government’s sub-question e. under GL 22 reiterates this requirement:

e. Are the following elements for measuring performance available at the levels selected for control and analysis (at a minimum at the control account level):

1) Budgeted Cost for Work Scheduled (BCWS)?

2) Budgeted Cost for Work Performed (BCWP)?

3) Actual Cost of Work Performed (ACWP)?

While the intent of the words “and other levels” and “at a minimum” was to ensure that contractors did not only perform analysis at some higher, summary level, the government’s choice of those sub-question words also opens up the application of the analysis at lower levels. Be that as it may, the over-application still exists where it should not. Variance Analysis is supposed to be at the CA level and rolled up to higher levels for analysis. The bottom line for each of the CARs written is that BCWS, BCWP, and ACWP existed at the Control Account level, and the EOC visibility was available for variance analysis explanations at the lower levels in the contractors’ systems.

For the second point, let’s look at all the EVM Standard 748 Guidelines, specifically Guideline 16.

There is no Guideline that specifically requires BCWP to be claimed the exact same way BCWS was planned; however, it is intuitive that this has to be true in order for cumulative values for BCWP and BCWS to equal BAC so that the work can be considered complete. [While the government’s sub-question b. under Guideline 22 expects BCWP to be calculated “consistent with the way the work is planned”, GL 22 itself (above) is silent on that inferred expectation.] The Guideline 16 and its sub-question b. also require consistency of the direct costs:

GL 16. Record direct costs in a manner consistent with the budgets in a formal system controlled by the general books of account.

Are elements of direct cost (labor, material, subcontractor, and other direct costs) accumulated within control accounts in a manner consistent with budgets using recognized acceptable costing techniques and controlled by the general books of account?

In the examples noted for the CAR referenced above, the work package task was a specific Element Of Cost (EOC) and was planned and completed in the same period, but no ACWP was accumulated for that specific EOC because the work was accomplished using another resource that fell into another EOC category. When the team looked at that EOC containing the ACWP, they interpreted the finding as a “zero-budgeted Work Package” with ACWP against it. [They also cited the original Work Package itself for having BCWP with no ACWP for the element of cost that was planned and earned.]

Humphreys & Associates is available for consulting and information on this topic. Give us a call!

Planning and Managing EVM by Elements of Cost (EOC) – Over-Application of EOCs – Part 2 Read Post »

Using the Same Rate for BCWS and BCWP

By Humphreys & Associates / November 6, 2014 / ANSI, BAC, BCWP, BCWS, EVM, EVMS, NDIA

ANSI, BAC, BCWP, BCWS, EVM, EVMS, NDIA

There is often an EVMS project managers debate regarding which rates to use for common budget costing EVMS data elements. For Actual Cost of Work Performed (ACWP), it is fairly obvious as the most recently approved actual rates are applied. A planning rate is generally used for BCWS and BCWP, but many in the EVM project management industry use incorrect rate application for the BCWP calculation. In some cases EVM contractors use a weighted average rate; the percent complete in hours multiplied by the dollarized BAC to derive the BCWP in dollars. This method is noncompliant with the EIA-748 Guideline 22 which states that if work is planned on a measured basis, then the BCWP must be calculated on a measured basis using the same rates and values. In other words, the rate and methods used to calculate BCWS and BCWP must be the same. As shown in Example #1, it can be seen that work planned in hours (BCWS) was performed as scheduled (BCWP) each month. Each hour was planned at a rate of $100/hour until the end of the calendar year when the rate increased to $105/hour. In this example, the rates used to calculate BCWS and BCWP are the same.

Example #2 below illustrates a very common scenario. In this example work that was planned in November and December was not completed until the next year. In January, the rate increased from $100 to $105. What should the BCWP in dollars be for both January and February?

For both January and February, the original 10 hours planned was earned at $105/hour equaling $1,050. The work that was planned in November and December, but completed late in January and February, was earned at its planned rate of $100/hour resulting in $1,000 of BCWP. The sum ($1,050 + $1,000) equals the BCWP of $2,050 in each month. See the Example #3 graphic below:

Even though the rate was escalated in the new year, the BCWP that should have been earned in the prior year is calculated using the rate that was originally planned. The same approach would be logical if the work planned at $105 per hour were performed ahead of schedule in let us say, December of the prior year. It would be earned at $105 per hour even though it was performed in a time frame where the planning rate is $100 per hour. In some instances, business systems are programmed to earn as a percent of the entire Budget at Completion (BAC). This could result in an inaccurate BCWP dollar value. As an example, let us assume 10 hours are earned in September. If those 10 hours were 1/8 of the total BAC, then the BCWP dollars associated with this 10 hours would be $102.50 per hour and the contractor would be earning too much for those 10 hours. They must earn at the planned $100 per hour! Thus the rate used for BCWP is the same as for BCWS and is compliant with Guideline 22; one earns in the same manner as they plan to earn.

In summary, EVM concepts require that in order for the work to be complete, cumulative values of BCWS and BCWP must equal the BAC. So, from a common-sense standpoint, if BCWP is earned at a different rate than that used for planning the BCWS, the Control Account (or even the Contract) cannot be closed properly. Examples:

If BCWP earns at a lower rate, the BCWP would be, say, 98% of the BAC when the actual work is done.
Likewise, if BCWP earns at a higher rate, the BCWP would be, say, 105% of the BAC when the actual work is concluded.

Both of these scenarios violate the EVM concepts.

Using the Same Rate for BCWS and BCWP Read Post »

Incorporating Stop Work Orders Part 2 – Restarting the Work

By Humphreys & Associates / October 20, 2014 / AWU, EVMS, PMB, SWO

AWU, EVMS, PMB, SWO

Updated December, 2020

Stop Work Order (SWO) – Recap of Part 1

A SWO is a temporary suspension of work enabling the customer to re-evaluate the contracted work. The customer has a number of reasons to issue a Stop Work Order:

A change in mission requirements eliminating the need for some or all of the contract scope,
A need to complete some or all the work scope within funding limitations.
Advancement in the state-of-the-art that alters the contract requirements.
Production or engineering breakthroughs that change the current contractual approach.
Realignment of programs that changes the emphasis on the current contract.

A Stop Work Order could affect the entire contract or could be focused on a specific deliverable item, component, or function. A key concept about Stop Work Orders is that they are temporary. The Federal Acquisition Regulations envision that Stop Work Orders are resolved within 90 days but allow that the timeframe can be different subject to customer and contractor agreement. The resolution of a Stop Work Order will result in a new contractual direction (a new contractual work order) to:

Resume the contract (restart the stopped work – unchanged);
Resume the contract with a revised work approach (technical, schedule, and/or cost);
Delete a portion of the currently stopped work scope (Delete Work Order); or possibly
Canceling the entire contract (contract termination order).

Besides Deleting Work Scope, What Else Can Happen with a Stop Work Order (SWO)?

Stop Work Orders, in addition to disrupting contract execution, create much administrative confusion and affect the Performance Measurement Baseline (PMB) in the Earned Value Management System (EVMS). Stop Work Orders typically result in one or more actions:

Deleting work and its budget from the contract (covered in Part 1 of this article),
Proposing/negotiating the new course of action,
Implementing the revised approach in the PMB,
Proposing/negotiating a Request for Equitable Adjustment, and/ or
Preparing a framework for making a Claim against the customer.

Part 1 of this SWO article addressed the deleting of work scope and budget from the contract (partial deletion or contract cancelation). This Part 2 of the SWO article addresses the remaining actions involved in restarting the work (either existing or modified scope/ budget).

Stop Work Order (SWO) Decision – Resume Work

The SWO decision by the customer may be to resume the work on the contract – either with the existing scope or with a modified scope (reflecting deleted work or a reworking of the remainder of the contractual effort). Such starting and stopping of work on any contract will have cost impacts on the contractor and any involved subcontractors and vendors, such as:

Termination costs
Line shutdown / Startup costs
Retooling costs
Personnel costs (lay-off/ rehire)
Inventory/ storage costs
etc.

As discussed in Part 1, these costs should be isolated and accumulated by all affected parties in order to establish and justify any Claim or Request for Equitable Adjustment (REA) that may be required as part of the restarting of work.

Treat the Stop Work Order as Authorized Unpriced Work (AUW).

The letter from the customer’s contracting officer that initiates the Stop Work Order typically contains direction to take several actions in addition to stopping the effort on some or all of the work scope. First, as indicated above, the customer is engaged in an evaluation exercise to plot a different course for the remaining contracted work. The customer usually requires assistance of the contractor to develop the following:

Costs associated with what-if studies.
Addressing revised technical parameters of the end item(s).
Alternate technical approaches.
Deliverable item quantity changes, deletions, additions, alternate schedules.
Alternate funding profiles.

Even if the decision is to restart the work with no change in scope, a 90 day (or longer) delay in the work will likely have an impact on the schedule, cost, and even the technical approach required to complete the work. Since this information is directed by the customer in the Stop Work Order letter, it constitutes Authorized Unpriced Work. Second, the Stop Work Order letter, or a subsequent letter, will likely include a request for a proposal for the revised approach. Production of this proposal is directed by the contracting officer as a result of the Stop Work Order and also constitutes AUW. [NOTE: Contractors often establish a charge number to collect proposal preparation costs, but fail to treat the proposal as a work scope item and establish a budget for the proposal.] Once the contractor has established estimates for the work scope associated with the Stop Work Order, the Contract Budget Base Log should be updated for the Authorized Unpriced Work and included in Undistributed Budget, separately identified from the “stopped work” currently in UB. Alternatively, these costs could be included as part of a Request for Equitable Adjustment (REA) or as part of a legal Claim associated with costs of the SWO action.

Budgets should be distributed for any work associated with, or as a result of, the Stop Work Order.

The contractor should follow its EVMS procedures for authorizing and issuing work scope and budgets for any tasks that result from the Stop Work Order decision. It may be most effective to have a single control account assigned to the contractor program office with multiple work packages/charge numbers for the various tasks.

At various points in the Stop Work Order process, the contractor must wait for the customer.

Upon receipt of the information requested from the contractor, the customer evaluates the information, makes decisions about the contract path forward and/or additional funding, executes contractual actions which could include terminating, modifying, or restructuring the contract. The contractor should continue to track costs of these additional delays and contractual actions for any subsequent REA or Claim actions.

Replanning after Stop Work Order resolution follows the contractor’s EVMS procedures, just as done for the initial planning of the Performance Measurement Baseline (PMB).

In effect, because the contract work was closed out at the cumulative Budgeted Cost For Work Performed (BCWP) value, the Stop Work Order has wiped the slate clean for all future work. In the best case, the customer issues a fully negotiated contract modification when lifting the Stop Work Order; however, the reality is that the customer usually issues an Authorization to Proceed and sets the proposal negotiations for a later date. In either case, EVMS procedures should be followed, whether or not the authorization is unpriced work or a negotiated contract change. The contractor must perform at least the following steps:

Revise the CWBS, its associated dictionary, and control account structure as necessary,
Reissue Work Authorizations based on the modified contract,
Develop the schedule and critical path,
Plan the control account budgets,
Issue budgets to Control Accounts for near term work until negotiations for the AUW conclude,
Establish Management Reserve (as applicable),
Update logs (CBB, MR, UB).

In summary, responding to the Stop Work Order and restarting the work, the contractor is to follow their EVMS procedures for planning and budgeting. The graphic below provides a roadmap for implementing a Stop Work Order.

EVMS & PMB: Stop Work Order Roadmap — Stop Work Order (SWO) Roadmap for Performance Measurement Baseline (PMB)
within Earned Value Management Systems (EVMS)

The final steps are to continue on with the contract as negotiated through the SWO, and file any required REA for budget/ schedule consideration, or Claims for costs incurred associated with the SWO actions.

Incorporating Stop Work Orders Part 2 – Restarting the Work Read Post »

Incorporating Stop Work Orders Part 1 – Deleting the Work

By Humphreys & Associates / September 26, 2014 / Statement of Work (SoW), Stop Work Order, SWO

Statement of Work (SoW), Stop Work Order, SWO

Updated December, 2020

Are you confronted with a Stop Work Order and wondering what to do? Stop Work Orders (SWOs), in addition to disrupting contract execution, create much administrative confusion and affect the Performance Measurement Baseline (PMB) in the Earned Value Management System (EVMS).

Stop Work Order (SWO)

A SWO is a temporary suspension of work enabling the customer to re-evaluate the contracted work. The customer has a number of reasons to issue a Stop Work Order:

A change in mission requirements eliminating the need for some or all of the contract scope,
A need to complete some or all the work scope within funding limitations.
Advancement in the state-of-the-art that alters the contract requirements.
Production or engineering breakthroughs that change the current contractual approach.
Realignment of programs that changes the emphasis on the current contract.

A Stop Work Order could affect the entire contract or could be focused on a specific deliverable item, component, or function. A key concept about Stop Work Orders is that they are temporary. The Federal Acquisition Regulations envision that Stop Work Orders are resolved within 90 days, but allow that the timeframe can be different subject to customer and contractor agreement. The resolution of a Stop Work Order will result in a new contractual direction (a new contractual work order) to:

Resume the contract (restart the stopped work unchanged);
Resume the contract with a revised work approach (technical, schedule, and/or cost);
Delete a portion of the currently stopped work scope (Delete Work Order); or possibly
Canceling the entire contract (contract termination order).

Stop Work Orders typically result in one or more actions:

deleting work and its budget from the Contract,
proposing/negotiating the new course of action,
implementing the revised approach in the PMB,
proposing/negotiating a Request for Equitable Adjustment, and or
preparing a framework for making a Claim against the customer.

Deleting the Work

This article addresses the first of these actions: deleting the work.

Issue Direction

The first step after receiving any Stop Work Order is to issue directions to all affected parties to cease work immediately. Affected parties include Control Account Managers (CAMs), major subcontractors, other team members, and vendors. Your direction should be issued in writing. For CAMs, documents described in the EVM System Description should be used. Typically these documents are revised Work Authorization Documents (WADs) or program directives. For other parties where a subcontract or purchase order exists, the contractor’s authorized representative should issue a formal Stop Work Order (SWO) for the purchase order or subcontract. The SWO process should also provide instructions for the collection of costs related to the stoppage/ delay of work.

Status the Schedule and Earned Value

Inherent in the stoppage of the work is the statusing the schedule and earned value as of the effective date specified in the Stop Work Order. Statusing the schedule and earned value at the Stop Work Order effective date provides the basis for all subsequent actions. If the fiscal period ends within a few days of the Stop Work effective date, it may be reasonable to wait until that date to perform the status exercise (subject to customer approval).

Close the charge number associated with the Work designated by the SWO and Transfer Budgets

The next step is to close the charge number associated with the work designated by the SWO and transfer associated budgets to Undistributed Budget. Following the company EVMS procedures, Baseline Change Requests (BCRs) must be executed to transfer all Budgeted Cost of Work Remaining (BCWR). Unopened control accounts affected by the Stop Work Order are easy; just transfer the entire amount of the control account budget and its associated Statement of Work (SOW).

Difficulties arise for open control accounts (i.e. work-in-process) or control accounts that are partially affected by the Stop Work Order. Work-in-process control accounts should be closed at the cumulative earned value as of the Stop Work Order date determined in the previous step. [NOTE: In extreme cases where the customer is considering deleting an entire scope of work, the SWO may direct all budget associated with that work scope be transferred to UB for possible subsequent deletion from the contract. In this case, the contractor should include in the Claim framework the capturing of costs for any work already accomplished.]

In other words, in order to close any account under normal SWO actions, the Budget at Completion (BAC) and the cumulative Budgeted Cost For Work Scheduled (BCWS) are set equal to the cumulative Budgeted Cost for Work Performed (BCWP). The remaining budget (the BAC prior to closing the control account less the BCWP) should then be transferred to Undistributed Budget. It is important to close the control accounts at the cumulative BCWP value and retain the Cost Variance for the work that is closed.

If the control account were to be closed by setting BAC and cumulative BCWP to either the cumulative Budgeted Cost For Work Scheduled (BCWS) or to the cumulative Actual Cost of Work Performed (ACWP) where cost variances exist, the BCWR transferred to Undistributed Budget would not be representative of the original work left to be done (understated if an overrun existed; overstated if an underrun existed). Consequently, if the SWO decision were to be “restart the work with no changes”, the budget for distribution to complete the remaining work would also be incorrect, because the close-out was not set to the work that was completed (cumulative BCWP).

Partially Affected Accounts

Control accounts that are partially affected by the Stop Work Order can be handled in one of two ways:

The first is to close the control account to UB entirely by following the process described above and then issue the remaining scope and budget for the work unaffected by the Stop Work Order to a new control account.
The second method is to process Baseline Change Requests to remove the BCWR for specific work packages and/or planning packages and leave the control account open for the unaffected work scope. [Unless, of course, the entire contract must stop work until the SWO decision is made.]

Any Summary Level Planning Packages (SLPP) affected by the Stop Work Order should also be closed with scope of work (SOW) and its budget transferred to Undistributed Budget (UB).

All the above work closure actions are to help ensure that no further work is performed on the stopped work (or on the contract, as appropriate).

SWO does not Eliminate Cost Variance

Implementing a Stop Work Order is not an opportunity to wipe out existing cost variances. Contractors and customer program offices often believe that a Stop Work Order presents a great opportunity to wipe the slate clean and start over. In implementing this desire, they set BCWS and BCWP equal to ACWP which erases all cumulative variances. As indicated above, this approach also understates or overstates (i.e., a two-way street) the Budgeted Cost of Work Remaining by the amount of the cost variance that exists at the time. When the time comes to replan the remaining work after the SWO is resolved, there might be too much or too little budget remaining to cover the work because the work was not closed out at the true amount of work accomplished (cumulative BCWP).

The proper approach to deal with the cost variance at the point of the Stop Work Order is to show the variances at the time of the close out of the work, and as necessary, handle the variance issue in the negotiations of the contract modification for the revised work scope or the Request for Equitable Adjustment. Naturally, the contractor wants to erase any unfavorable variances and have the amount added to the Contract Target Cost (CTC)/Negotiated Contract Cost (NCC). Too often the customer succumbs to the contractor’s pleading. The cost variance, however, should continue to exist, and the Contract Target Cost should not be changed for the work scope completed up to the Stop Work Order.

Deleting the Work from the Contract

All the above simply sets the stage for the SWO decision – simply moving the remaining work to UB does NOT delete any work. This article assumes the SWO decision is to delete stopped work, so the customer will typically issue a Delete Work Order (contractual direction of some sort) with instructions to the contractor about what is to be deleted. This could be:

Delete the remaining work that was not already accomplished;
Delete ALL the specified scope of work – even if some portion of the work is already done;
Delete the entire contract (contract termination)

To complete the deletion of work, the contractor would reduce the PMB, UB, and the CBB by the amount specified, thus reducing the Contract Target Cost (CTC) by that amount. The contract itself would be reduced by this CTC amount and the associated profit/ fee for that work.

It is important to follow the customer direction exactly! For example, say the customer is deleting an entire scope of work worth $5Million, but since you already accomplished $2Million worth of that effort, you only put $3Million in UB. When the customer removes the entire scope of work and reduces the CTC (and so the CBB, PMB, and UB) by $5Million, you could end up in a $2Million “Negative UB” condition – which is not allowed under EVMS rules. The proper way to handle this is through the legal Claims process for you to be reimbursed the costs for the work you accomplished (which includes costs for subcontractors and vendors , etc. who will likely be filing Claims against your company). [NOTE: Remember also that under the original contract, you were probably already paid for some portion, if not all, of the accomplished work.] You would also have to store and eventually dispose of items already produced for the customer – that they no longer want. All these should be included in your establishment of a Claims framework.

[NOTE: A Request for Equitable Adjustment (REA) is typically not appropriate for deleted work. This is because the work and budget are no longer on the contract, so there is no budget or schedule to “equitably adjust.” REAs are appropriate for work resumption decisions that will be discussed in Part 2 of this article.]

In summary, make sure you follow these steps to Delete Work when responding to a Stop Work Order:

Stop the existing work by issuing official written documents.
Status the schedule and earned value as of the Stop Work Order effective date.
Execute EVMS procedures to move the scope and the associated Budgeted Cost of Work Remaining (BCWR) from control accounts to Undistributed Budget.
When the Delete Work Order is received, remove the scope and budget specified by the customer from UB, PMB, CBB, and the CTC as the customer deletes the scope from the contract itself (including associated fee/ profit).

If you have questions on this topic, feel free to contact Humphreys & Associates.

Incorporating Stop Work Orders Part 1 – Deleting the Work Read Post »