Earned Value Management Systems (EVMS) – Residual Material Accountability – Part 4

by Humphreys & Associates on January 3, 2013 last modified October 22, 2019

Another EVMS  residual material accountability requirement (see part 1, 2 and three) is that an Earned Value Management project must maintain records to show full accountability for material purchased for the contract, including the residual inventory.

What does this mean?  The answer:  Regardless of the size of the contract, the EVMS Guidelines require contractors to maintain accurate records of the materials purchased for a contract, as well as records of performance measurement as the materials are used.  A contractor must show how the material bought for a contract is not only incorporated into the final product, but also how any excess materials are disposed to offset some of the costs to the customer.

How does a contractor do this?  The easier part of material traceability is keeping track of the material that ends up in the final products.  The “as-built” bill of materials (BOM) lists what and how many material items were included in the delivered items.  The more difficult part of traceability is tracking:

  1. The material that did not get into the final product (excess material)
  2. How many units of any one material item it took to deliver one unit of the final product (material attrition)

There are a number of BOMs that a contractor creates as part of the maturity of a contract or project.  While they may have different names, they generally fall in these categories:

  1. As Estimated.  A complexity-based “similar-to” BOM to get an approximate cost
  2. As Designed.  A BOM created as part of the engineering/development phase
  3. As Planned.  The original baseline BOM at contract award for the negotiated configuration(s)
  4. As Modified.  As requirements and/or configurations change, so does the BOM(s)
  5. As Built.  The final BOM that details how the product/configuration was actually built

With the first two categories, material for the build is not yet purchased (not committed), but sets the stage for the subsequent categories.  The “as planned” BOM is the one that is in place at contract award and is used to begin making material purchases.  As changes occur, the BOM changes, and some of the materials already purchased for the contract become obsolete or “designed out” of the product.

These materials become what is known as residual or excess materials that are still actual costs on the books for the contract.  Subject to the customer’s contractual dispositioning instructions, the contractor will:

  • Deliver the material to the customer
  • Seek other purchasers for the material
  • Scrap the material for the best price that can be obtained·

Whatever amount the contractor gets is to be used to offset the actual costs charged to the customer.Excess materials can also result from other project occurrences, such as:

  • Minimum Buys.  For example, the project needs 8 material items, but the vendor only sells packs of 12
  • Material Attrition.  Breakage experienced during the assembly or manufacturing process.  Note there are two types of attrition:
    • Lower than expected attrition – results in higher than expected amounts of material left over
    • Higher than expected attrition – more units required to build the product results in higher unit cost and possibly additional excess materials

Since materials bought to a project belong to the customer, it is the contractor’s responsibility to accurately account for what is being spent to build the product.  This is done by reporting accurate costs for each unit produced, offset by the amount of excess materials disposed of to the best advantage (highest cost recovery possible) for the customer.

Do you need an independent review of your Earned Value Management System Description to ensure you are providing the necessary material accountability guidance to your projects?  H&A has years of experience and EVM experts to assess your current material accountability approach.

Contact us to discuss your current and future EVM project needs.

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