by Humphreys & Associates | September 26, 2014 10:08 am
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 Orders typically result in four actions: deleting work and its budget from the PMB, proposing/negotiating the new course of action, implementing the revised approach in the PMB, and proposing/negotiating a Request for Equitable Adjustment.
This article addresses the first of these four actions: deleting the work.
A SWO is a temporary suspension of work enabling the customer to re-evaluate the contracted work. The customer has four reasons to issue a Stop Work Order:
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 could result in a revised work scope approach (technical, schedule, and/or cost) or possibly the cancellation of the contract.
The first step after receiving a Stop Work Order is to issue direction to all affected parties to cease work immediately. Affected parties include Control Account Managers (CAMs), major subcontractors, other team members, and vendors. 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 modification to the purchase order or subcontract.
The next step is to status the schedule and earned value as of the date of 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 is reasonable to wait until that date to perform the status exercise.
The third step is to transfer budgets for all remaining work 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. In other words, the Budget at Completion (BAC) is set equal to the 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. If the control account is closed by setting BCWP to either the Budgeted Cost for Work Scheduled (BCWS) or Actual Cost of Work Performed (ACWP) and unfavorable variances exist, the BCWR that is transferred to Undistributed Budget will be understated. Consequently, the budget for distribution after the resolution of the Stop Work Order is certain to be understated.
Control accounts that are partially affected by the Stop Work Order can be handled in one of two ways:
Any Summary Level Planning Packages affected by the Stop Work Order should also be closed with SOW and its budget transferred to Undistributed Budget (UB).
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 the Budgeted Cost of Work Remaining by the amount of the unfavorable cost variance and certainly leaves inadequate budget when the time comes to replan the remaining work after the Stop Work Order is resolved. The proper approach to deal with the cost variance at the point of the Stop Work Order is to handle that 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 the variance and have the amount added to the Contract Target Cost. Too often the customer succumbs to the contractor’s pleading. However, the cost variance should continue to exist, and the Contract Target Cost should not be changed for the work scope completed up to the Stop Work Order.
In summary, make sure you follow these steps to delete work when responding to a Stop Work Order:
If you have questions on this topic, feel free to contact Humphreys & Associates.
Source URL: https://blog.humphreys-assoc.com/incorporating-stop-work-orders-part-1-deleting-the-work/
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