EVM Terminology Archives - Page 8 of 16

DoD Earned Value Management System Interpretation Guide | EVMSIG

By Humphreys & Associates / April 2, 2015 / ACAT, DoD EVMS, EVM, EVMSIG, GAO, IPMR

The updated DoD Earned Value Management System Interpretation Guide (EVMSIG), dated February 18, 2015 was released in March, 2015.

This DoD update, per the GAO, focuses on “(1) problems facing the cost/schedule control system (CS2) process; (2) progress DOD has made with reforms; and (3) challenges DOD faces in fostering and managing potentially significant changes”.

The update commences with:

EVMSIG INTRODUCTION

1.1 Purpose of Guide

Earned Value Management (EVM) is a widely accepted industry best practice for program management that is used across the Department of Defense (DoD), the Federal government, and the commercial sector. Government and industry program managers use EVM as a program management tool to provide joint situational awareness of program status and to assess the cost, schedule, and technical performance of programs for proactive course correction. An EVM System (EVMS) is the management control system that integrates a program’s work scope, schedule, and cost parameters for optimum program planning and control. To be useful as a program management tool, program managers must incorporate EVM into their acquisition decision-making processes; the EVM performance data generated by the EVMS must be timely, accurate, reliable, and auditable; and the EVMS must be implemented in a disciplined manner consistent with the 32 EVMS Guidelines prescribed in Section 2 of the Electronic Industries Alliance Standard-748 EVMS (EIA-748) (Reference (a)), hereafter referred to as “the 32 Guidelines.”

The DoD EVMS Interpretation Guide (EVMSIG), hereafter referred to as “the Guide”, provides the overarching DoD interpretation of the 32 Guidelines where an EVMS requirement is applied. It serves as the authoritative source for EVMS interpretive guidance and is used as the basis for the DoD to assess EVMS compliance to the 32 Guidelines in accordance with Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 234.2 and 234.201 (References (b) and (c)). The Guide provides the DoD Strategic Intent behind each guideline as well as the specific attributes required in a compliant EVMS. Those attributes are the general qualities of effective implementation that are tested in support of determining EVMS compliance as it relates to the 32 Guidelines. As applicable, the DoD Strategic Intent section may clarify where differences in guideline interpretation exist for development and production type work. DoD agencies and organizations charged with conducting initial and continuing EVMS compliance activities will establish amplifying agency procedures and/or guidance to clarify how they are implementing this Guide to include the development of evaluation methods for the attributes associated with each of the 32 Guidelines.

1.2 EVM Policy

The Office of Management and Budget Circular No. A-11 (Reference (d)), the Federal Acquisition Regulation (FAR) Subpart 34.2 and Part 52 (References (e) through (h)) require federal government agency contractors to establish, maintain, and use an EVMS that is compliant with the 32 Guidelines on all major capital asset acquisitions. Based on these federal regulations and the DoD Instruction 5000.02 (DoDI 5000.02) (Reference (i)), the DoD established the Defense Federal Acquisition Regulation Supplement (DFARS) 234.201 (Reference (c)), which prescribes application of an EVMS, via the DFARS 252.234-7002 EVMS clause (Reference (j)). When EVM reporting is contractually required, the contractor must submit to the government an Integrated Program Management Report (IPMR) (DI-MGMT-81861) (Reference (k)) to report program cost and schedule performance data. The IPMR is being phased in to replace the Contract Performance Report (CPR) (DI-MGMT-81466) and the Integrated Master Schedule (IMS) (DI-MGMT-81650). Hereafter, for simplicity purposes, the term “IPMR” is used to reference legacy or current CPR/IMS DIDs. There are times in this Guide when the IMS reference is to an output of the contractor’s internal management system, i.e., a work product, which may not be referred to in the same context as the IPMR. [The full EVMSIG update is found here.]

Furthermore, also in March, 2015 the GAO released its “Report to the Committee on Armed Services, House of Representatives: Defense Acquisition | Better Approach Needed to Account for Number, Cost, and Performance of Non-Major Programs”.

An overview:

The Department of Defense (DOD) could not provide sufficiently reliable data for GAO to determine the number, total cost, or performance of DOD’s current acquisition category (ACAT) II and III programs (GAO-15-188 “Better Approach Needed to Account for Number, Cost, and Performance of Non-Major Programs” overview). These non-major programs range from a multibillion dollar aircraft radar modernization program to soldier clothing and protective equipment programs in the tens of millions of dollars. GAO found that the accuracy, completeness, and consistency of DOD’s data on these programs were undermined by widespread data entry issues, missing data, and inconsistent identification of current ACAT II and III programs. See the figure below for selected data reliability issues GAO identified. [The full GAO-15-188 document is found here.]

DoD Earned Value Management System Interpretation Guide | EVMSIG Read Post »

EVMS compliance: Material Transfers and Loan/Paybacks

By Humphreys & Associates / March 25, 2015 / ACO, ACWP, BCWP, DCAA, EVMS, Loan, MMAS, payback, TBLP

ACO, ACWP, BCWP, DCAA, EVMS, Loan, MMAS, payback, TBLP

Earned Value Management System (EVMS) compliance | Material Transfers and Loans/Paybacks

In a high rate production environment, it is not unusual for different Contract Lot Buys to have demands for the same required parts. Circumstances driven by delivery schedules, fee incentives, national priorities, or quality issues will prioritize the demand for these common parts. Companies will be challenged to respond to these dynamics while satisfying contractual requirements and continuing to remain Earned Value Management System (EVMS) compliant. A documented Material Transfer and Borrow and Payback (e.g., TBLP) policy/procedure describing a disciplined, auditable approach is a mandatory prerequisite for EVMS project managers.

Material Management and Accounting System (MMAS)

There are a number of applicable Government documents that come into play but none more important than the Material Management and Accounting System (MMAS). It is a DoD Policy (242.7202) that contractors have a MMAS that:

(1) Reasonably forecasts material requirements
(2) Ensures the cost of purchased and fabricated material charged or allocated to a contract are based on valid time-phased requirements
(3) Maintains a consistent, equitable, and unbiased logic for costing of material transactions.

MMAS Standards 6, 7 and 8 are especially apropos to material transfers and loan/paybacks:

• MMAS Standard 6 (Material Transfers) requires that the contractor’s policies and procedures provide detailed descriptions of circumstances which will result in manual or system generated transfers of parts.
• MMAS Standard 7 (Material Costing) requires that the contractor’s system transfer parts and associated costs within the same billing period or use an ACO approved “Loan/Payback” technique.
• MMAS Standard 8 (Inventory Allocations) requires that the contractor’s system handle allocations of common inventory in such a manner as to preclude improper allocation and costing of allocations.

Material Transfer versus Loan/Payback

For a number of reasons, a material transfer involves the most problematic issues for accommodating changing demands and priorities for common parts:
• Transfer costs are based on labor, material and applicable burdens when originally incurred and not based on the year when they are physically transferred (i.e. 2010 costs vs. 2014 costs). Related funding issues may also surface (requesting 2014 funding to ‘build’ a 2010 requirement in 2014).
• Replacement costs will, in most cases, be at a higher value and there may be a potential schedule impact; both represent negative impacts to the customer.
• Previously reported Budgeted Cost for Work Performed (BCWP) and Actual Cost of Work Performed (ACWP) for work already accomplished will be impacted.
• Potential for inadvertently gaining a cost benefit when transfers are made between a Cost Plus and Fixed Price contract.
A transfer approach should only be considered when there is no replenishment currently in the procurement system. If there is a replenishment currently in the ‘pipeline’ then a loan/payback approach should be used as this will result in no cost transfer.
Under a loan/payback scenario, a part is moved temporarily from the contract but the cost of the part remains on the contract. As noted earlier, contractor procedures for the loan/pay-back technique must be approved by the Administrative Contracting Officer (ACO). Per Defense Contract Audit Agency (DCAA), when the technique is used, the contractor must have controls to ensure that:
• Parts are paid back expeditiously.
• Procedures and controls are in place to correct any over-billing that might occur.
• Monthly, at a minimum, identify the borrowing contract and the date the part was borrowed.
• The cost of the replacement part is charged to the borrowing contract.
Material Management and planning within an EVMS environment is quite challenging. Thankfully, there are a number of Earned Value Management Systems software programs available to assist contractors in meeting and managing this challenge.

Consider Humphreys & Associates to assist you in guiding your efforts in this complex endeavor, to ensure a firm foundation is established that meets or exceeds your material management needs.

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Building a Comprehensive EVMS Program Value Transaction Log

By Humphreys & Associates / November 19, 2014 / EVM, EVMS, EVSR, IBR, PVTL

EVM, EVMS, EVSR, IBR, PVTL

EVM Program Managers are subject to change requests and direction in the internal scope, schedule, and budget baselines from a number of sources. Integrated Baseline Reviews (IBRs), Program Reviews with customers, Earned Value Surveillance Reviews (EVSRs), and Control Account Manager (CAM) requests via Baseline Change Requests (BCRs) are some of the ways that can result in changes to the baseline. The Earned Value Management System (EVMS) Guidelines require detailed, accurate, and current reporting of contract budgets, earned value, and actual costs, including incorporation of baseline changes.A Program Value Transaction Log is one way to ensure reports containing budget information that are submitted to both internal and external customers are always reconcilable to contract documentation. It is more than the standard EVMS Contract Budget Base (CBB) Log or a Performance Measurement Baseline (PMB) Log, because while this log incorporates both of those logs, it can also contain more information on two levels; the contract price and the internal distribution of budget.

The Earned Value budget traceability starts with the Negotiated Contract Price, and then reduces for any appropriate fees to derive the Contract Target Cost (CTC). The cost value of any Authorized Unpriced Work (AUW), or the contractor proposed cost of customer authorized scope that has not yet been negotiated, is added to equal the Contract Budget Base (CBB). When the value of the Management Reserve (MR) budget is identified by the Program Manager, that amount is subtracted from the CBB to yield the Performance Measurement Baseline (PMB); Undistributed Budget (UB) is then subtracted from the PMB, with the remainder being budget that will be distributed to Control Accounts (CA) and Summary Level Planning Packages (SLPPs). The graphic below illustrates this process.

An example from a sample excerpt of a Program Value Transaction Log (PVTL) is shown below (first as an EVMS PVTL Excel spreadsheet and then also as an EVMS PVTL screen-shot). It stops at the “Distributed Budget Total $” column, but the shaded columns show that the actual distribution of budget can be very detailed, even down to the overhead costs and the elements of cost, if EVMS program management so desires.

Or, it can be the abbreviated version shown below, or even abbreviated further by beginning with the “Contract Target Cost column”, and going through Column 7, “Total Distributed”.

The utility of the Program Value Transaction Log (PVTL, or any other name) is that one can keep track of contract changes and internal changes. By going to the monthly summaries at the end of each accounting month, the amounts that should be reported in the Integrated Program Management and Data Analysis Report (IPMDAR) database are traceable.

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EVM: The IPMR and Subcontract Flowdown

By Humphreys & Associates / November 12, 2014 / EVM, EVM Contractor, EVM Contracts, EVM Flowdown, EVM Subcontractors, EVMS Contractors, IPMR

EVM, EVM Contractor, EVM Contracts, EVM Flowdown, EVM Subcontractors, EVMS Contractors, IPMR

EVM Contractors, EVM Subcontractors, IPMR & Flowdown

For decades government EVM project managers performed the task of integration of all prime and subcontractor performance and the associated data on a project. In the late 1960s things changed. The U.S. Federal Government mandated that the prime contractor become the integrator of the performance and the data. Many contractors undertook this responsibility nicely. However, for many contractors in this new role their subcontract management expertise and data accumulation capabilities were lacking on large R&D, SDD, and LRIP subcontract efforts in particular. The primes needed to include all of the data from their subcontractors that comprised as much as 80% of the contract effort. The timing of subcontractor reports became very important. However, software was “what it was” in the 1960s and ‘70s, and many EVM subcontractors were unable to meet the required delivery dates.

In the early 1980s the National Security Industrial Association [now the NDIA] conducted a survey and found that 40% of the subcontractor data was delayed by a month [additional reference, 2008 – NDIA.org source]. Consequently, January data from subcontractors would not be entered into the prime contractor’s performance reports [now IPMR or CPR] until the prime’s February report which may be delivered around 15 March. Today’s software has improved extensively and many EVM subcontractors recognize the importance of timeliness of data; they are also prime contractors on other EVM projects.

Many companies have not yet begun delivering performance data using the new Integrated Program Management Report (IPMR). Companies that are using the IPMR appear to be adapting well to the new requirements, specifically in regards to the submission date and successful retrieval of subcontractor data. The new IPMR Data Item Description, DI-MGMT-81861, specifically requires that “Formats 1-6 shall be submitted to the procuring activity no later than 12 working days following the contractor’s accounting period cutoff date. This requirement may be tailored through contract negotiations to allow submission as late as 17 working days, provided the contractor and Government agree that contract complexity and/or integration of subcontractor and vendor performance data warrant additional time and will yield more accurate performance.”

The table below illustrates the results of a survey H&A conducted of fifteen major contractors. While the sample size is small, the survey found that five prime contractors had an IPMR requirement flowdown to a subcontractor with NTE 12 working days submission CDRL requirement. In all five cases, the prime contractors were able to successfully incorporate subcontract data in time to meet the submission requirement.

While it has taken over 40 years, it is now recognized by both the government and contractors that timely incorporation of subcontractor performance data in the prime’s performance report helps validate the project data–the purpose of early visibility and prompt decision making.

Our survey found that those contractors submitting the IPMR are successfully incorporating subcontractors’ performance data in their IPMRs as the DID Instructions stipulate. It is hoped that the era of the “one-month lag” with subcontractor performance data has ended; and the government will be receiving accurate, timely IPMR performance data from its prime contractors.

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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.

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Incorporating Stop Work Orders Part 3 – The Role of the Claims Process

By Humphreys & Associates / October 31, 2014 / EVM, FAR, SWO, SWO Claims Process

EVM, FAR, SWO, SWO Claims Process

Revised December, 2020

Recap of Stop Work Orders (SWOs)

An 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 of Stop Work Orders is that they are temporary. The Federal Acquisition Regulations (FAR) 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 could result in a revised work scope approach (technical, schedule, and/or cost) or possibly the cancellation of the contract.

With respect to a Stop Work Order (SWO), a contractor may file a legal Claim and/ or make a Request For Equitable Adjustment (REA) to cover the impacts of the SWO.

While the Claims and REA processes are not typically considered part of Earned Value Management (EVM), they certainly occur simultaneously with EVM actions, and are critical to a contractor’s administration of the contract. Asserting the right to submit a Claim or REA for a Stop Work Order must be timely, and appropriate supporting data must be generated for both actions to ensure the contractor receives fair consideration for the customer’s interruption of contract execution.

A Claim vs. a Request for Equitable Adjustment (REA)

Even though some people often use the terms interchangeably, it is important to know that they are two different actions, and that either or both can be filed as a result of a Stop Work Order (SWO).

What is a Claim?

Per FAR 2.101, a claim is a “written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract.”

When the customer issues a Stop Work Order, this action prevents the contractor from performing activities that fulfill contract requirements (e.g., meeting a delivery milestone, etc.) and may well cause the contractor to incur costs that would not have occurred had the Stop Work Order not been instituted. In Part 2 of this article on SWOs we addressed some of the typical costs that might be cited in a Claim. Those are cited here, along with a couple others:

Termination costs for subcontractors/ vendors
Line shutdown / Startup costs
Retooling costs
Personnel costs (severance pay for lay-off/ rehiring costs)
Inventory/ storage costs
Payment for Deleted Work that was Already Performed – actually a recognized government term called DWAP (if not already paid under the contract)
Interest on any amount that becomes due on a claim

A Claim is the vehicle to provide specific monetary compensation (payment of money) to the contractor for those incurred costs. A Claim is a legal action (i.e., a dispute covered under the Contract Disputes Act) that requires a prompt response from the government (usually 60 days). Unlike a REA, a Claim is a legal action in which the contractor must prove monetary damage caused by the SWO action. There is no proposal to the customer for a Claim, but the contractor must be able to show evidence to substantiate their Claim of a monetary impact.

What is a Request for Equitable Adjustment (REA)?

Per FAR 52.242-15 “The Contracting Officer shall make an equitable adjustment in the delivery schedule or contract price, or both, and the contract shall be modified, in writing, accordingly, if— … (2) The Contractor asserts its right to the adjustment within 30 days after the end of the period of work stoppage; …”

An REA seeks contractual relief for schedule and/ or contract price (and thus budgets) that were impacted by the SWO, for example:

90 or more days of schedule impact while the SWO decision was being made
Budget impacts (i.e., higher costs), including rates changes, caused by the SWO decision period
Increased costs for subcontractor/ vendor work delayed/ canceled because of the SWO
The need to adjust remaining delivery milestones
Contract Administration costs incurred in preparing and submitting the REA (legal and consultant fees, etc.)

The contractor typically has 30 days following the SWO decision to assert its right to submit a REA to the contracting officer. As evidenced in the name, the REA is a “request” to the Government to adjust the schedule and/ or the contract price driven by the SWO action. This “request” is in the form of a proposal to the government identifying those schedule and cost/ price impacts. The word “equitable” (in REA) also means that the adjustment should be fair to both sides, so in theory, an REA is typically a collaborative effort between the contractor and the customer.

Unlike a Claim, however, the government has no deadline to respond to the REA, meaning that the negotiations for an REA could drag on for months (or longer). A contractor may decide at any time to convert the REA to a formal Claim (usually if the government doesn’t respond to the REA or if the negotiations on the REA breakdown). If this conversion is made, the contractor’s Claim may not be allowed to include the “Contract Administration Costs” allowed under the REA (see above list). A Claim, on the other hand cannot be converted to a REA. If a Claim is denied, or the contractor is not satisfied with the government’s decision, the contractor can present its case to a board of contract appeals or to the U.S. Federal Claims Court.

How do SWO-related REAs and Claims Get Started?

When a Stop Work Order is issued, the contractor follows EVM procedures to stop the affected work and move budgets from affected control accounts to Undistributed Budget to await the final SWO decision.

Simultaneously, the contractor should establish budgets and charge numbers to measure progress and collect costs for any work tasks required by the Stop Work Order. These tasks could include responding to customer requests for information related to a revised technical or funding approach as well as preparation of a proposal for the revised contract work scope. These costs would be part of a Request for Equitable Adjustment (REA).
At the same time, the contractor should also establish charge numbers to collect costs for any other expenditures that result specifically from the Stop Work Order, but are not part of the Authorized Unpriced Work described in the Stop Work Order. These “other” expenditures become the basis for a formal Claim. As described in the previous paragraph, good examples of “other” costs would be termination costs, severance pay for furloughed workers caused by the Stop Work Order, and rehiring expenses when the stopped work is restarted.

When are Claims and proposals for REAs submitted and how do they impact EVMS?

REA: Every effort should be made to submit the REA proposal within the 30 days after the work stoppage ends. If this is not possible, at the very least, notify the customer’s contracting officer in writing that your company asserts its right to submit the REA and provide a target date for the REA proposal submission. The intersection of an REA with the EVM System is in the fact that the schedule and cost terms of the contract are being modified. These changes would alter the Performance Measurement Baseline (PMB), the total budget, and the planned end date of the contract.

Claim: A Claim may be submitted by the contractor as soon as they have collected all the unique costs incurred as a result of the SWO action, which can include Claims and/or REAs filed by subcontractors and vendors. Formal filing of the Claim initiates the 60 day deadline for the government to respond. A Claim really has no intersection with EVMS since it is a request by the contractor (not the program) for reimbursement of unique expenditures, paid by the contractor, that were caused by the SWO, and payment for these expenditures will not show up in the contract as ACWP. [It would make no sense to increase a contract’s ACWP with no budget identified for those expenditures – causing the appearance of an “overrun” for work that is not part of the contract.]

Regardless of the approach used, the contractor must segregate and substantiate costs for both the Stop Work Order AUW (for the REA) and “other” costs incurred as a result of the SWO (for the Claim).

The graphic below illustrates the components and timing of the steps in handling a Stop Work Order and a claim submission and asserting the right for an REA.

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