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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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DOE EVMS Videos: Earned Value Management Systems (EVMS) Training Video Snippets

By Humphreys & Associates / March 2, 2015 / CAM, DOE, earned value training, EVM, EVM Training, EVMS, OAPM, PARS, SOP

CAM, DOE, earned value training, EVM, EVM Training, EVMS, OAPM, PARS, SOP

As part of Department of Energy’s (DOE) Office of Project Management’s (OAPM) continuing efforts to further enhance both communication and instruction among DOE and its Earned Value (EVM) Management contractors and EVMS project managers regarding EVMS requirements, OAPM contracted with Humphreys & Associates (H&A) to develop Earned Value Management Systems (EVMS) training videos. These videos, referred to as Snippets, are available as DOE EVMS training resources within the website of the Energy Facility Contractors Group (EFCOG), in a section dedicated to EVMS Training Snippets.

More about OAPM’s mission, from DOE:

“The Office of Acquisition and Project Management (OAPM) is responsible for all contracting, financial assistance and related activities to fulfill the Department’s multitude of missions through its business relationships. As the business organization of the Department, OAPM develops and supports the policies, procedures and procurement operational elements.”

The EVMS Training Snippets:

Additionally, the DOE has provided Project Management Policy and Guidance, Orders and Guides, Standard Operating Procedures (SOP) and Handbooks, Secretarial Memoranda regarding Project Management, Capital Asset Budget Guidance, & Capital Asset Plans within Energy.Gov. Additional information here.

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Humphreys & Associates Joins Project Management Institute’s Registered Consultant Program

By Humphreys & Associates / January 9, 2015 / EVM, EVMS, pmi, project management, project management institute

EVM, EVMS, pmi, project management, project management institute

Humphreys & Associates Joins Project Management Institute’s Registered Consultant Program

Online Project Management resource helps organizations connect with consulting firms

IRVINE, Jan. 09, 2015 — Humphreys & Associates today announces that it has joined the Project Management Institute’s (PMI) Registered Consultant Program, an online resource that provides organizations with the convenience of accessing a PMI-maintained list of consulting firms that are able to improve their project, program and portfolio management practices.

As more organizations adopt project management as a strategic competency for achieving business results, many are seeking the advice of consultants to enhance their project management capabilities. The PMI Consultant Registry is complimentary to organizations, as is the PMI-developed A Guide on How to Select a Project Management Consultant.

The guide walks organizations through the necessary steps to best identify a consultancy that meets their requirements. Each firm listed in the directory provides one case study per area of expertise that highlights its previous consulting engagements.This feature gives organizations insight into the consultancy’s engagement style and its ability to meet the unique needs of a project.

Humphreys & Associates’ project management consultants have worked with all branches of the U.S. Department of Defense (DoD), the Department of Energy (DOE), NASA, other U.S. government agencies, and with foreign governments. “Our associates and teams have great admiration for the Project Management Institute’s global advocacy, education, collaboration, and project management research. As PMI is such a comprehensive resource for project managers Humphreys & Associates therefore is quite pleased to join PMI’s Consultant Registry,” asserted Gary C. Humphreys, President and CEO, Humphreys & Associates.

Humphreys & Associates joins more than 140 consulting companies in more than 35 countries that participate in the Program.

About Humphreys & Associates

Humphreys & Associates, led by Gary Humphreys, is the established leader in earned value management consulting and training. H&A has provided EVMS consulting services to over 850 companies and government agencies worldwide and we have trained over 900,000 individuals at all EVMS functional and management levels.

About Project Management Institute (PMI)
Project Management Institute is the world’s leading not-for-profit professional membership association for the project, program and portfolio management profession. Founded in 1969, PMI delivers value for more than 2.9 million professionals working in nearly every country in the world through global advocacy, collaboration, education and research. PMI advances careers, improves organizational success and further matures the profession of project management through its globally recognized standards, certifications, resources, tools academic research, publications, professional development courses, and networking opportunities. As part of the PMI family, Human Systems International (HSI) provides organizational assessment and benchmarking services to leading businesses and government, while ProjectManagement.com and ProjectsAtWork.com create online global communities that deliver more resources, better tools, larger networks and broader perspectives. Visit us at www.PMI.org, www.facebook.com/PMInstitute, and on Twitter@PMInstitute.

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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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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 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.

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