Corrective Action Request (CAR)

Formal Reprogramming: OTB or OTS Best Practice Tips

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Formal Reprogramming: OTB or OTS Best Practice Tips

As a result of an Earned Value Management System (EVMS) compliance or surveillance review, the Defense Contract Management Agency (DCMA) or DOE Office of Project Management (PM-30) may issue a corrective action request (CAR) to a contractor. H&A earned value consultants frequently assist clients with developing and implementing corrective action plans (CAPs) to quickly resolve EVMS issues with a government customer.

A recent trend our earned value management consultants have observed is an uptick in the number of CARs being issued related to over target baselines (OTB) and/or over target schedules (OTS). On further analysis, a common root cause for the CAR was the contractors lacked approval from the contracting officer to implement the OTB and/or OTS even though they had approval from the government program manager (PM).

So why was a CAR issued?  It boils down to knowing the government agency’s contractual requirements and EVMS compliance requirements.

What is an OTB/OTS and when it is used?

During the life of a contract, significant performance or technical problems may develop that impact schedule and cost performance. The schedule to complete the remaining work may become unachievable. The available budget for the remaining work may become decidedly inadequate for effective control and insufficient to ensure valid performance measurement. When performance measurement against the baseline schedule and/or budgets becomes unrealistic, reprogramming for effective control may require a planned completion date beyond the contract completion date, an OTS condition, and/or a performance measurement baseline (PMB) that exceeds the recognized contract budget base (CBB), an OTB condition.

An OTB or OTS is a formal reprogramming process that requires customer notification and approval. The primary purpose of formal reprogramming is to establish an executable schedule and budget plan for the remaining work. It is limited to situations where it is needed to improve the quality of future schedule and cost performance measurement. Formal reprogramming may be isolated to a small set of WBS elements, or it may be required for a broad scope of work that impacts the majority of WBS elements.

Formal reprogramming should be a rare occurrence on a project and should be the last recourse – all other management corrective actions have already been taken. Typically, an OTB/OTS is only considered when:

  • The contract is at least 35% complete with percent complete defined as the budgeted cost for work performed (BCWP) divided by the budget at completion (BAC);
  • Has more than six months of substantial work to go;
  • Is less than 85 percent complete; and
  • The remaining management reserve (MR) is near or equal to zero.

A significant determining factor before considering to proceed with a formal reprogramming process is the result from conducting a comprehensive estimate at completion (CEAC) where there is an anticipated overrun of at least 15 percent for the remaining work.

When an OTB is approved, the total allocated budget (TAB) exceeds the CBB, this value referred to as the over target budget. Figure 1 illustrates this.

Before Over Target Baseline
Figure 1 – Over Target Baseline Illustration

When an OTS is approved, the same rationale and requirements for an OTB apply. The planned completion date for all remaining contract work is a date beyond the contract completion date. The purpose of the OTS is to continue to measure the schedule and cost performance against a realistic baseline. The process must include a PMB associated with the revised baseline schedule. Once implemented, the OTS facilitates continued performance measurement against a realistic timeline.

Contractual Obligations

An OTB does not change any contractual parameters or supersede contract values and schedules. An OTS does not relieve either party of any contractual obligations concerning schedule deliveries and attendant incentive loss or penalties. An OTB and/or OTS are implemented solely for planning, controlling, and measuring performance on already authorized work.

Should you encounter a situation where it appears your best option is to request an OTB and/or OTS, the DoD and DOE EVMS policy and compliance documents provide the necessary guidance for contractors. It is imperative that you follow agency specific guidance to prevent being issued a CAR or your OTB/OTS request being rejected.

DoD and DOE both clearly state prior customer notification and contracting officer approval is required to implement an OTB and/or OTS. These requirements are summarized the following table.

Reference DoD/DCMA1 DOE
Regulatory DFARS 252.234-7002 Earned Value Management System
“(h) When indicated by contract performance, the Contractor shall submit a request for approval to initiate an over-target baseline or over-target schedule to the Contracting Officer.”		 Guide 413.3-10B Integrated Project Management Using the EV Management System
6.1.2 Contractual Requirements.
“…if the contractor concludes the PB TPC and CD-4 date no longer represents a realistic plan, and an over-target baseline (OTB) and/or over-target schedule (OTS) action is necessary. Contracting officer approval is required before implementing such restructuring actions…”
Attachment 1, Contractor Requirements Document
“Submit a request for an Over-Target Baseline (OTB) or Over-Target Schedule (OTS) to the Contracting Officer, when indicated by performance.”
EVMS Compliance2 Earned Value Management System Interpretation Guide (EVMSIG)3
Guideline 31, Prevent Unauthorized Revisions, Intent of Guideline
“A thorough analysis of program status is necessary before the consideration of the implementation of an OTB or OTS. Requests for establishing an OTB or an OTS must be initiated by the contractor and approved by the customer contracting authority.		 EVMS Compliance Review Standard Operating Procedure (ECRSOP), Appendix A, Compliance Assessment Governance (CAG)
Subprocess G. Change Control
G.6 Over Target Baseline/Over Target Schedule Authorization
“An OTB/OTS is performed with prior customer notification and approval.”
See Section G.6 for a complete discussion on the process.
Contractor EVM SD4 DCMA Business Process 2  Attachment, EVMS Cross Reference Checklist (CRC), Guideline 31.
“b. Are procedures established for authorization of budget in excess of the Contract Budget Base (CBB) controlled with requests for establishing an OTB or an OTS initiated by the contractor, and approved by the customer contracting authority?”		 DOE ESCRSOP Compliance Review Crosswalk (CRC), Subprocess Area and Attribute G.6
“Requests for establishing an OTB or an OTS are initiated by the contractor and approved by the customer contracting authority.”

Notes:

  1. When DoD is the Cognizant Federal Agency (CFA), DCMA is responsible for determining EVMS compliance and performing surveillance. DCMA also performs this function when requested for NASA.
  2. Along with the related Cross Reference Checklist or Compliance Review Crosswalk, these are the governing documents the government agency will use to conduct compliance and surveillance reviews.
  3. For additional guidance, also see the DoD EVM Implementation Guide (EVMIG) , Section 2.5 Other Post-Award Activities, 2.5.2.4 Over Target Baseline (OTB) and Over Target Schedule (OTS). The EVMIG provides more discussion on the process followed including the contractor, government PM, and the contracting authority responsibilities.
  4. Your EVM System Description (SD) should include a discussion on the process used to request an OTB/OTS. The EVM SD content should be mapped to the detailed DCMA EVMS guideline checklist or the DOE Compliance Review Crosswalk (subprocess areas and attributes) line items.

Best Practice Tips

The best way to avoid getting a CAR from a government agency related to any OTB or OTS action is to ensure you have done your homework.

  • Verify your EVM SD, related procedures, and training clearly defines how to handle this situation. These artifacts should align with your government customer’s EVMS policy and regulations as well as compliance review guides, procedures, and checklists. Be sure your EVM SD or procedures include the requirement to notify and gain approval from the government PM and contracting officer, as well as what to do when the customer does not approve the OTB or OTS. Also discuss how to handle approving and managing subcontractor OTB/OTS situations; the prime contractor is responsible for these actions. Your EVMS training should also cover how to handle OTB/OTS situations. Project personnel should be aware of contractual requirements as well as your EVMS requirements and be able to demonstrate they are following them.
  • Maintain open communication with the customer. This includes the government PM as well as the contracting officer and any other parties involved such as subcontractors. Requesting an OTB or OTS should not be a surprise to them. Verify a common agreement has been reached with the government PM and contracting officer that implementing an OTB or OTS is the best option to provide visibility and control for the remaining work effort.
  • Verify you have written authorization from the government PM and the contracting officer before you proceed with implementing an OTB or OTS. You will need this documentation for any government customer EVMS compliance or surveillance review. Your baseline change requests (BCRs) and work authorization documents should provide full traceability for all schedule and budget changes required for the formal reprogramming action.

Does your EVM SD or training materials need a refresh to include sufficient direction for project personnel to determine whether requesting an OTB or OTS makes sense or how to handle OTB/OTS situations? H&A earned value consultants frequently help clients with EVM SD content enhancements as well as creating specific procedures or work instructions to handle unique EVMS situations. We also offer a workshop on how to implement an OTB or OTS .  Call us today at (714) 685-1730 to get started.

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EVM Consulting | Corrective Action Response

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Corrective Action Response

How do I respond to a Corrective Action Request?

In EVM Consulting, we deal with Corrective Action Requests (CARs) on a regular basis, so we have plenty of real-world experience. We created an outline of valuable information about DRs / CARs based on our collective experience. Part 1 of the guide is designed to inform you of why CARs are received and who issues them, so you can work to prevent them. Part 2 will prepare you to respond to a CAR in an effective and efficient way.

Corrective Action Response: Sources – Part 1 of 2

In Part 1 of the series we illuminated the varied sources of Corrective Action Requests:
1) Standard Surveillance Instruction (SSI)
2) Agencies that do not use the DCMA for surveillance, such as the Department of Energy.
3) Integrated Baseline Review (IBR)
4) Procedures that are compliant with the EIA-748 Guidelines
5) Contract Performance Report (CPR)
6) Integrated Project Management Report (IPMR)
7) Integrated Master Schedule (IMS)
8) Discrepancy Reports (Levels I-IV)

 

Corrective Action Response: Planning and Closure – Part 2 of 2

In part 2 of the series, we addressed responding to a Corrective Action Request (CAR):
1) Review the DRs/CARs with the customer
2) Organize for successful CAP management
3) Begin a thorough Root Cause Analysis
4) Develop and evaluate Corrective Action Plans
5) Develop verification closure steps
6) Develop a detailed Integrated Master Schedule for CAP implementation
7) Submit CAP and CAP IMS to the customer for approval prior to implementing the Corrective Actions
8) Implement Corrective Action Plans and track progress to successful completion
9) CAR closure and follow-up

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Project Management: Earned Value Consulting; Could You Use Some?

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Failed Projects

A recent article discussed the results of a survey on the reasons that projects failed. The definition of failure was that the project was abandoned. Abandonment does not occur frequently in the world of government projects; especially defense projects where there should be strong “must have” needs driving the project. These projects tend to persist until completed even though the outcomes are not satisfactory. But there is a lot to learn from the list of reasons for failure.

Of the sixteen reasons listed, the top four had to do with changes to the environment that had given rise to the project. For example, changes in the company priorities was the most often cited reason for abandonment. In that same vein were issues with changing objectives and inaccurate definition of requirements. These types of failures are not topics for this blog since they do not immediately involve execution of the project.

Execution Problems

Lower on the list of those environment related reasons for failure were the ones more related to execution problems. These are of significant interest to a project management using an earned value consulting company such as Humphreys & Associates (H&A). These reasons related more to issues of poor project management that could have been corrected. In this area were reasons like “poor change management,” “inaccurate cost estimates,” “inaccurate time estimates,” and “inexperienced project management.”

The answers given in a survey situation depend very much on the mindset of the person responding. Is the reason really “inaccurate cost estimates” or should it have been “failure to execute to the estimate”? How many times have you seen a problem in execution “swept under the carpet” as being an inaccurate estimate or plan? One of these two answers points to the estimating system and process while the other points to project management. The estimates were generated; and, at some point, they were deemed to be sufficiently detailed to launch the project. If a scrubbed and blessed estimate is “inaccurate” that would still be a failure of project management. If the problem were really a failure to execute, then how easy would it be to blame the problem on poor estimates? This blog will discuss the cited failures as if they were execution failures.

Earned Value Management (EVM) Consultant Specialists

There are situations in life where the need for specialized advice is common and well accepted by us all. When your doctor is unsure of the medical issues, the doctor will send you to a specialist. The reason is obvious. The specialist has learned so much more about a specific problem and has so much experience diagnosing and treating the problem that it would be foolish not to secure the services of that specialist. In fact, it might be malpractice. A project management consultant can be thought of much like a medical specialist.

There are similar situations in business where the need for specialized knowledge is critical. Large companies tend to have in-house legal departments to cover the day-to-day legal issues and tasks that are central to their businesses. However, the need to go to outside counsel for large or unusual issues is accepted. Companies do not hesitate to engage the services of outside law firms to help them through troubled times. Project management consultants are like outside counsel.

What if there were a project management or earned value management situation you have never encountered before? A good example would be the times that H&A has been called in to help clients navigate the unhappy circumstances of needing to go over-target. Going through the over-target-baseline (OTB) or over-target-schedule (OTS) process is not a common experience. It is a tense time when careers can be on the line and the company reputation might also be at risk. It takes specialized knowledge to get it right. In some cases, it even takes the objective view of an outsider to help make the right decisions.

Specialized Knowledge

Another example of specialized knowledge being crucial is when the customer has deemed some issue on the project to be deficient. In some situations, a customer’s Corrective Action Request (CAR) can result in cost penalties and damaged reputations; possibly even worse consequences could result. Engaging the services of an EVM consultant with experience in identifying problems, building Corrective Action Plans (CAP)s, and leading or helping implementing the corrective actions is often a valuable and necessary action. Ask yourself how smart it would be to assume that those who were involved in causing the issue would be capable of creating a satisfactory solution.

These scenarios are aligned with the idea of project management consulting being something you only need in a crisis. There are other non-crisis needs for specialized support. Often H&A is engaged simply to help a client prepare a proposal. A proposal situation puts heavy demands on the company staffing levels and can require areas of specialized knowledge not available in the company. What if the company has never created a fully compliant Integrated Master Schedule (IMS) and they could use help the first time? What if there are not enough trained and experienced schedulers to work on the proposal? What if the company does not have a documented project management system?

Make or Break Opportunities

Projects can be huge and risky. They can be make-or-break opportunities to a company. Where so much can depend on good project management, smart companies recognize the need for an outside opinion and outside talent. Just like the internal legal department, the internal project management group sometimes needs to call on outside subject matter experts. While it might be obvious, let’s look at some reasons why this is true.

There are more ordinary everyday reasons to engage a project management consultant. Perhaps an organization just managed to win a new project bigger than any they have won before. In this case, they may not be ready to handle the project in terms of experience, systems, and even just talented headcount. A project management consulting company such as H&A can bring solutions to your earned value woes. It can also provide temporary training staff to get things going until the client is ready to take over.

Poor Communication

Let’s get back to the survey of reasons that projects failed. Are there issues on the list where project management consulting could have made a difference? Imagine an improved project management process and staff after a period of consulting to support creating or improving systems and training personnel?

The fifth most frequent reason for failure is “poor communication.” A good project management system with trained personnel is all about communication. Communication of plans, communication of progress, communication of issues, and communication of corrective actions are all actions required in a project management system. Quite often the problem of “poor change management,” cited as the sixth most common reason for failure, is reduced or eliminated after using the consulting services of a specialist?

What about the twelfth cited problem of “inadequate resource forecasting”? Would a well built and maintained resource-loaded Integrated Master Schedule (IMS) go a long way in providing forecasts of resource needs and the impacts of not having the resources? In fact, a proper IMS would help with several of the cited reasons for failure, such as inaccurate duration estimates. In fact, the application of a process, such as Schedule Risk Analysis (SRA), with the help of an experienced consultant can identify such issues in advance while there is still time to take action.

Earned Value Training

Disregarding the threat of failure as a motivator, the need for constant improvement should be enough reason to consider a project management consultant. We can all laugh at the time-worn clichés of “not-invented-here” or “we’ve never done it that way;” however, these are clichés for a reason. There is resistance to outside help and there is resistance to change. But outside help can be a great logjam breaker. An experienced and knowledgeable consultant can be your voice when you need someone who has, to use another cliché, “been there and done that.”

In fact, our consultants can laugh when they say they have “been there” and they have more than a T-shirt to prove it.

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Common Problems Found in EVMS and Recommended Corrective Actions – Part 5

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This is the last of a five part series regarding common findings discovered in contractors’ Earned Value Management Systems (EVMS), and the recommended corrective actions to mitigate those findings.

The previous articles discussed: 

Part 1 

Part 2 

Part 3

Part 4

Common Errors and CA part 4

Part 5 of this series includes:  Inappropriate use of PERT and LOE; Misuse of Management Reserve; Administrative Control Account Managers.

1)  Inappropriate use of PERT and LOE

The Program Evaluation and Review Technique (PERT) earned value method is a simple method for calculating the BCWP, where:  BCWP = (ACWP/EAC) X BAC.  In this method, the earned value is completely contingent upon cumulative expenditures (ACWP) divided by an estimate of total expenditures.  Because the results of this formula often have little to do with actual progress, its use is limited to non-critical work, and generally is applied only to high volume, low dollar fixed price material.  The PERT method should never be used for any critical path task, labor, or high dollar value material.  Guideline 7 of the EIA-748-C Standard requires that an EVMS “Identify physical products, milestones, technical performance goals, or other indicators that will be used to measure performance”. The primary condition that must be satisfied in a review of earned value techniques is the application of “meaningful indicators” for use in measuring the status of cost and schedule performance.

Level of effort (LOE) tasks consist of management or sustaining type activities that have no identifiable end products or an established relationship to other measurable effort.  The standard for the control of LOE is documented in Guideline 12, which requires that “Only that effort which is immeasurable or for which measurement is impractical may be classified as level of effort”.  There is no standard threshold for a contract or WBS level that would signify “too much” LOE. However, a common practice during review discussions with the control account managers is to challenge any LOE to assess its appropriateness.  There is always pressure on a contractor to minimize the LOE as the nature of LOE can easily mask or distort the performance of discrete work.

Most Common Corrective Action Plans

The most common response to findings regarding both PERT and LOE is to establish a screening/approval process, with thresholds, during the budgeting process.  For PERT, most Earned Value Management System Description Documents (EVM SDD) will specify the limited use of the technique for high volume, low dollar fixed price material.  Many also take the next step and create a threshold for what is considered “low dollar” and short duration.  This is dependent on the nature of the work, but it is not unusual for an SDD to require that any material extended value (quantity of parts times budgeted unit value) or part number greater than $10,000 (or some other threshold) must be tracked discretely in the IMS and may not use the PERT method.  Some also establish a a duration threshold like no greater than 3 months when there are many parts of low value. One of the signs that PERT is being used inappropriately is when variance analysis included in the Integrated Program Management Report (IPMR) or Contract Performance Report (CPR) Format 5 consistently refers to PERT accounts as drivers, or a schedule variance explanation that refers to material not being tracked in the IMS.

Level of Effort should be justified on a case-by-case basis.  A common strategy for setting the appropriate level of LOE is to require the Program Manager’s approval on all LOE accounts.  While control accounts may contain a mixture of LOE and Discrete Effort, many organizations establish rules concerning the maximum allowable LOE in a control account to prevent the distortion of status; often a threshold of 20% is established.  Above that threshold, a separate control account would be required for LOE work.  While it is a goal to have no more LOE than is required, care must be taken not to measure work that is truly LOE.  CAMs have been known to say that they were required to establish a discrete account even though the nature of the work is impractical to measure.  This type of discovery by a review team can also result in a finding for use of an inappropriate earned value technique.

2)  Misuse of Management Reserve

Management Reserve (MR) is a portion of the overall contract budget held for management control purposes and unplanned events that are within the scope of the contract.  H&A has often heard in the course of our consulting or training that there are few rules regarding MR, and the restrictions are unclear.  This is not quite accurate.  The Integrated Program Management Report Data Item Description (IPMR DID, DI-MGMT-81861) lists four restrictions on the use of MR:

  • MR shall not be used to offset cost variances.
  • MR shall never be a negative value.
  • If MR includes the contractor and subcontractor amounts together, the breakout shall be discussed in Format 5.
  • Amounts from MR applied to WBS elements during the reporting period shall be listed in Block 6.b of Format 3 and explained in Format 5.
    • Format 5:  Identify the sources and uses of MR changes during the reporting period.  Identify the WBS elements to which MR was applied and the reasons for its application.

The EIA-748-C Standard adds a few more caveats for MR:

  • Held for unexpected growth within the currently authorized work scope, rate changes, risk and opportunity handling, and other program unknowns.
  • May be held at the total program level or distributed and controlled at lower management levels.
  • Held for current and future needs and is not used to offset accumulated overruns or under runs.
  • Is not a contingency that can be eliminated from prices during subsequent negotiations or used to absorb the cost of program changes.
  • Must not be viewed by a customer as a source of funding for added work scope. This is especially important to understand that it is a budget item and that it is not for added work scope.

In addition, the Defense Acquisition University Evaluation Guide (EIA 748 Guideline Attributes & Verification Data Traces) requires that the internal MR Log be reconciled with the IPMR (or CPR).

The specific nature of the above requirements reflects the types of abuse experienced with the MR budgets.  The EVM SDD should establish specific organizational guidelines for the application of MR; however, those rules and the organization’s practices must fall within the bounds established by the EIA-748-C and the appropriate Data Item Description (DID).

The discrepancies found in recent reviews take two primary forms: inappropriate application of MR in the current accounting period and poor reporting and discussion involving MR use in the IPMR/CPR Formats 3 and 5.  With the exception of rate or process changes, all applications of MR must be made in association with additional work scope authorized to control accounts.  Because of the prohibition in the requirements regarding the offset of overruns or underruns, applications in the current period can be far more suspicious than in future periods.  Care must be taken to fully justify the timing and use of MR in terms of additional scope.  All applications of MR must have a full accounting in Formats 3 and 5 of the IPMR (or CPR).

Most Common Corrective Action Plans

Response to these discrepancies is usually a matter of policy, training, and discipline.  The EVM SDD must contain a policy that enforces the rules in the guidance documents mentioned above, as well as document who has the authority for approval of MR application (generally the Program Manager).  Those responsible for authorization of MR must be familiar with the approval policies, and their support staff must ensure there is complete visibility in the customer reporting and reconciliation to the program logs.  One of the more common corrective actions is to structure the IPMR (or CPR) Format 5 so that reporting of MR transactions meets the intent of the guidance cited above.

3)  Administrative Control Account Managers (CAMs)

The role of the CAM can change across organizations, and there is no standard set of criteria that defines the CAM’s duties.  The National Defense Industrial Association (NDIA) Integrated Program Management Division (IPMD) Earned Value Management Systems Intent Guide states that “The control account manager is responsible for ensuring the accomplishment of work in his or her control account and is the focal point for management control”.  The requirements for management control can be defined as having three essential attributes for the role of the CAM: responsibility, authority, and accountability.  These attributes assume ownership of the technical, schedule and cost aspects of the scope authorized to a Control Account Manager (CAM).  It is not always the case that the CAM must be the technical expert over the scope of the control account; sometimes that is the role of the “performing organization” rather than the “responsible organization”.

Primarily through discussion with the CAMs, it is easy to assess if they fail in performing any or all three of the above essential attributes.  Because being a CAM brings a set of duties that are over and above those of a technical manager or engineer, the CAM’s role is often not a welcomed addition and some organizations hand it over to employees who have little knowledge of, or responsibility for, the effort.  A comment on a Corrective Action Request (CAR) for an organization that was employing Administrative CAMs was “CAM does not stand for ‘Control Account Monitor’”.  The role of the CAM does include necessary administrative responsibilities; such as, reporting status, maintaining records, and developing analysis for the control accounts.  However, these cannot be the only functions the CAM performs.

A CAM should be active in the development of the control account plans in the IMS and EVM Systems, including being the primary architect for defining the tasks, logic for the schedule and the adequacy of the budget.  The CAM should be the primary contact for the Program Manager regarding the control account, including risk management and corrective action planning.  The CAM should also have the authority to assign and coordinate work performed by other organizations.  The CAM should have enough knowledge of the scope and the executing environment to develop a realistic forecast of costs beyond that of mathematical extrapolation.  If control accounts contain subcontracted work, the CAM is also responsible for management of that subcontractor effort.

Most Common Corrective Action Plans

Choosing the right personnel to fulfill the requirements of the CAM role can be difficult.  One of the first considerations is the appropriateness of the organization that is given the responsibility for management.  An example is for material control accounts where the organization responsible during a program’s development phase may not be appropriate for the production phase.  It is very important for the contractor when submitting the corrective action plan (CAP) to treat the job of the CAM as being critical to project success, and not one relegated to people in the organization who do not have responsibility, authority, or accountability.

The Correction Action Plan should also include a list of essential CAM attributes, and be very clear on the responsibilities and authority of the CAM role.  Companies should make a commitment to ensure that the position is considered critical and not just created to fulfill the requirements of earned value.  This can be demonstrated by not only choosing the right individuals to perform the functions, but also providing the necessary resources, training, and support to function successfully.

This completes our 5 part series. Thank you for your readership.

If you have any questions or would like to inquire about our services, please feel free to contact us. 

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