Humphreys & Associates

Building a Comprehensive EVMS Program Value Transaction Log

By Humphreys & Associates / November 19, 2014 / 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.

Building a Comprehensive EVMS Program Value Transaction Log Read Post »

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.

EVM: The IPMR and Subcontract Flowdown 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 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.

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