Material

EVMS compliance: Material Transfers and Loan/Paybacks

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

Last Updated May 22, 2025

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 must ensure they are able to respond to these dynamics while satisfying contractual requirements and continuing to remain compliant with the EIA-748 Standard for Earned Value Management System (EVMS) guidelines. A documented Material Transfer and Borrow and Payback (e.g., TBLP) policy/procedure describing a disciplined, auditable approach is a mandatory prerequisite for project managers in an EVMS contract environment.

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 (DFARS 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.

DFARS.242-7004 Material Management and Accounting System Subpart, paragraph (d) System criteria includes a list of requirements. Selected subparagraphs discuss material transfers and loan/paybacks as follows:

  • Subparagraph 6 (Material Transfers) requires the contractor’s policies and procedures provide detailed descriptions of circumstances that will result in manual or system generated transfers of parts.
  • Subparagraph 7 (Material Costing) requires that the contractor’s system transfer parts and associated costs within the same billing period or use an Administrative Contracting Officer (ACO) approved “Loan/Payback” technique.
  • Subparagraph 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. 2024 costs vs. 2025 costs). Related funding issues may also surface (requesting 2014 funding to ‘build’ a 2024 requirement in 2025).
  • 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 ACO. 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.

A number of Humphreys & Associates earned value consultants have extensive experience in production environments that can assist in guiding your efforts in this complex endeavor to ensure a firm foundation is established that meets or exceeds your material management and EVMS needs. Call us today at (714) 685-1730.

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Aligning ACWP with BCWP for Proper EVM | Earned Value Management

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Last Updated May 22, 2025

ACWP and BCWP by DAU

What is estimated Actual Cost of Work Performed (ACWP)?

Estimated ACWP is an adjustment to the actual cost data imported into the EVM cost tool as the Actual Cost of Work Performed (ACWP) to align ACWP with Budgeted Cost for Work Performed (BCWP).  Estimated ACWP is synonymous with “estimated actuals.”

Why is Estimated ACWP necessary?

Without Estimated ACWP, timing mismatches between ACWP and (BCWP) cause false cost variances to be calculated in the EVM cost tool as well as from the data in the Integrated Program Management Data Analysis Report (IPMDAR) Contract Performance Dataset (CPD).  Typically these variances are favorable and can mask other unfavorable variances.  Additionally, if these variances exceed reporting thresholds, the explanations clutter the IPMDAR Narrative Report with variance explanations that discuss timing problems of the accounting system rather than actual performance issues.

When should Estimated ACWP be used?

Estimated ACWP is most typically required for material costs.  For example, when BCWP is claimed upon receipt of the material, the payment for accrued costs in the accounting system typically occurs one or more months following material receipt, which creates the timing mismatch between BCWP and ACWP in the EVM cost tool.  Other cost element types that may require Estimated ACWP include subcontracts and Other Direct Costs (ODC).  Examples of ODCs that may require Estimated ACWP include staff augmentation, purchased labor, and travel.

How does Estimated ACWP function?

Receipt-type material:

  1. First, a determination must be made whether Estimated ACWP is necessary.  For some categories of material, when a material item is received, the BCWP is claimed in the EVM cost tool.  If actual costs for the materials do not enter the accounting system in the same period that the BCWP was claimed, Estimated ACWP is necessary to ensure ACWP occurs when BCWP occurs.
  2. Second, the Estimated ACWP adjustment is entered into the EVM cost tool as a current period transaction.  The amount of the Estimated ACWP is based on the best information available for the material item (often accrued costs in the accounting system) using the invoice, purchase order, or receiving report.
  3. Third, the Estimated ACWP adjustment transaction is reversed in the EVM cost tool when the actual costs are recorded in the accounting system; this could be the following reporting period or later.  If actual costs were to come in that month and the transactions were not reversed, the ACWP would be double-counted when the actual cost data from the accounting system is imported into the EVM cost tool. Also, the Estimated ACWP transaction should be recorded in a log to maintain traceability. 

Production-type (inventory) material:

For production type materials, or materials that are common to many control accounts or even contracts, that go into inventory, earned value is claimed upon issuance from inventory, sometimes several months after receipt of the material and after the incurrence of actual costs in the accounting system.  In this case, the opposite condition would exist.  The accounting actuals occur before earned value is claimed for material. The EVM rules in the EIA-748 Standard for EVMS Revision D Guideline 21 or Revision E Guideline 14 (and common sense) state that ACWP is not to occur until BCWP takes place.  Therefore, the accounting actual costs have to be “suppressed” from entering the EVM cost tool until material earned value is claimed. Since some companies say they cannot suppress actual costs, they let the actual costs enter the system, but make an off-setting “Negative Estimated ACWP” entry in the EVM cost tool until the material is issued and BCWP can be claimed for the material.

Do you need to implement an Estimated ACWP process in your Earned Value Management System?  Humphreys & Associates has the earned value experts to assess your material management processes and to help you implement the appropriate procedures. Contact us today.

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

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Last Updated May 22, 2025

Another EIA-748 Guideline (Revision D Guideline 21, Revision E Guideline 16) requirement for EVM Systems related to material management is residual material accountability (see related blogs Part 1, Part 2, and Part 3). A project with EVMS contractual requirements 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 (D Guideline 21, E Guidelines 14 and 16) 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 bills of material (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.
  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 purchased for 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 (EVM) System Description to ensure you are providing the necessary material accountability guidance to your project teams?  H&A subject matter experts (SMEs) have years of experience in production environments to assess your current material accountability approach. They can provide recommendations that best fit your business environment and business systems.

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

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

EVM Material Earned Value – Price vs. Usage Variance Analysis – Part 3

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Last Updated May 22, 2025

Earned Value Management (EVM) control account managers (CAMs) with material cost elements are required to conduct price vs. usage material cost variance analysis as a normal part of their root cause analysis.  This analysis is the material counterpart to conducting a labor rate versus hours (efficiency or volume) cost variance analysis.

Material price/usage analysis looks at the two components of a material cost variance:

  • Price.  How much of the cost variance was caused by the unit price paid for the material item differing from the earned value unit price for the material?
  • Usage.  How much of the cost variance was caused by the earned value for the quantity of the material differing from the actual quantity of the material?

A common question is: “How can we do this when we have thousands of material items to account for on a project?”

The answer: Not all material items have to be tracked discretely to conduct an adequate price/usage analysis, with the general rule of thumb of discretely tracking about 80% of the material dollars.

Some contractors set a policy where material will be tracked discretely if it breaks a specific dollar value (for example, anything above a $5,000 unit price).  Other contractors conduct what is called an “80/20” analysis of their estimated bill of materials (BOM).  The concept here is that on most programs, approximately 20% of the material items (larger dollar items) represent about 80% of the material dollars on the program, with the other 80% of the BOM being the smaller dollar items that total about 20% of the material dollars.  In this case, the discretely measured items are any of the items in the top 20% of the BOM.

Some contractors do this segregation by the unit price of each material item.  Others make the division based on the extended price (unit price times the number of units to purchase), sometimes placing a high volume/low price item on the discretely tracked 20% list.  Either method is acceptable.

Even with this discrete material segregation, the price/usage analysis still needs to be performed.  The difference is discrete items are tracked separately (e.g., a $250,000 radar antenna dish) from a commodity grouping (such as all connecting bolts – average planned price of $10 per pound).

The variance analysis method is the same for discretely measured items and for the homogeneous groupings of material items where:

Price Variance = (BCWP Unit Price – ACWP Unit Price) x ACWP Quantity

Usage Variance = (BCWP Quantity – ACWP Quantity) x BCWP Unit Price

Another common question is “Where do I get this sort of information?”

Most material departments or supply chain management teams use software tools to maintain a database of all materials the company receives as well as what particular projects receive.  While the material management system is generally used to identify material deliveries, late deliveries, material availability for transfers or borrow-paybacks, etc., they generally have the unit price and quantity purchased information necessary for the CAMs (or at least the material department) to perform the price/usage analysis required.  It may require special runs, or sorts, of the BOMs or inventories that are maintained, but the information is usually available.

The CAMs can use the material management system data and perform their algorithms to do the price/usage calculations described above.  Generally, these systems contain enough information to discretely measure every part number to the lowest unit price item on the project.  Earned value management, however, does not require reporting price and usage analysis on “connecting bolt #123 with a price of $0.0000134 per unit.”

Also see these related blogs:

Humphreys & Associates is available for EVM consulting, CAM certification and additional information on this topic. Contact us today.

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Earning Value for Material – The Correct Approach – Part 2

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Last Updated May 22, 2025

Earning Value for Material - The Correct Approach

Recall from the previous blog about earning value for material, in which Guideline 21 in the EIA-748-D Standard1 for Earned Value Management Systems (EVMS) states that earned value is measured “…at the point in time most suitable for the category of material involved, but no earlier than the time of actual receipt of material…”

In that previous blog, two high-level types of material categories were discussed for illustration purposes. A common follow on question is “When Guideline 21 mentions category of material, are there pre-set categories of material that companies should use?”

The answer: Material categories are unique to each company, though companies may have general similarities to others in the same line of business. It is also dependent on whether a company has non-production or production type contracts (or both). In the previous blog topic, Engineering Material and Production Material were used as generic examples for material categories assuming a company has some level of production activity.

Even if a company is not a production (or manufacturing) facility, if they have material that sits in inventory for an extended length of time (generally longer than two months), the earned value point should be different from that of engineering (or receipt) type material. Some companies describe their material categories as “receipt type material” and “inventory type material.”

A company’s Earned Value Management (EVM) System Description should describe the various categories of materials that are typical in their line of business.

The easiest type of material category to describe is “tangible” material – objects you can physically touch. This includes items used to build the final product, such as ribs, spars, and bulkheads, wiring harnesses, tubing, pumps, switches, actuators, brakes, hinges, and the like. It can also include major assemblies and subcomponents outsourced to suppliers, like wings, control surfaces, canopies, and doors. Engines are material if purchased under the contract; if they are provided as government-furnished equipment (GFE), they are not part of the material element of cost.

Ancillary materials used during the manufacturing process also fall under the material category. These include items such as paint, caulk, glue, nuts, bolts, rivets and similar components.

All the items listed above fall into a category called “recurring” material. These are materials that are purchased repeatedly and are essential to building the final product.

Another important material category – separate from the components used in the final product – is the tools and fixtures used in the factory to build up the product (excluding capital assets). If purchased under the contract, they are considered part of the material element of cost. Unlike recurring materials, these items are typically purchased once and are used to build many finished products. This type of material is referred to as “non-recurring.”

Some contracts include the acquisition of spares to support the finished product after delivery. If spares are purchased, they count as material. If the spares are manufactured in the contractor’s factory alongside the finished product, the constituent materials that go into the spares also fall under material element of cost.

What about major suppliers? If a major supplier provides a tangible product such as a radar or landing gear, the cost of that subcontract is a material cost. However, the cost of a supplier providing non-tangible products (such as engineering services) is usually classified as a labor expense rather than material. 

When dealing strictly with materials used for engineering and/or production related effort, a number of approaches to claim earned value may be needed. This is based on the products a company typically builds for their government customer. Various materials could also have different handling requirements, including bonded stores, with different rules for use, issue, transfer, borrow/payback and so forth. As a result, the various types of materials may have different methods for planning and use and could all use different earned value techniques.

Another consideration when determining the appropriate earned value techniques for production environments is the approach used to determine what is classified as high value material, critical material, and low value material.

  • High value material and critical material should be planned and earned using discrete earned value techniques
  • Low value material may be planned and earned as apportioned effort or as level of effort (LOE), as well as being discretely measured
  • Low value material may be planned as items in aggregate, or in homogeneous groupings (e.g., lubricants, fastening hardware, bar stock, coatings, etc.).

H&A recommends ensuring your EVM System Description provides the appropriate guidance to project teams on how to properly plan for the various material categories and acceptable earned value techniques that should be used as well as the appropriate earned value points (such as receipt or issue) for the category of material involved.

Also see these related blogs:

Do you need an independent review your EVM System Description to ensure you are providing the necessary guidance to your project teams? Humphreys & Associates has the earned value management experts to assess your EVM System Description and provide recommendations to improve the content. Contact us today.

  1. EIA-748-D Guideline 21 content maps to the EIA-748-E Guidelines 14 and 16 which streamlined the content in D Guideline 21. EIA-748-E Guideline 14 states in part: “Earned value for material items may not be credited earlier than the actual receipt of the material nor later than the consumption of the item.” ↩︎

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Earning Value for Material – The Correct Approach – Part 1

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Earning Value for Material

Last Updated May 22, 2025

A common question that H&A earned value consultants are asked is “What is the most common point to claim earned value (the budgeted cost for work performed or BCWP) for material?”

The answer? There is not one point for earning value for all categories of material.

Guideline 21 in the EIA-748-D Standard1 for Earned Value Management Systems (EVMS) says, “…earned value is measured and at the point in time most suitable for the category of material involved…”  Notice the text “suitable for the category of material.”

Let’s look at the two most common high-level types of material categories for discussion: 1) Engineering and 2) Manufacturing.

Engineering material earned value (EV) is typically claimed at receipt. Manufacturing material EV is typically claimed when issued from inventory (usage or disbursement). Point of usage is also useful for planning major assemblies in the integrated master schedule (IMS) rather than a myriad of smaller items that would be needed for the assemblies. Planning and earning only the major assemblies as they go to final assembly can simplify the IMS and the EVMS process. Claiming BCWP when material is taken into inventory or at final distribution are also valid options.

The most common acceptable points for claiming earned value for the various material categories are illustrated below.

EVM - Cost Exposure Span


For production programs, based on the completion or delivery dates for end products, the M/ERP system creates a detailed set-back schedule for material required within each build station to achieve completion by the required delivery dates to support “just-in-time” processes. Large production or manufacturing facilities maintain inventories of specific materials to ensure their lines continue in operation.

What happens in some facilities, however, is that contractors have placed the emphasis on the next part of Guideline 21 that says “…but no earlier than the time of actual receipt of material” as their authority to earn value for all material at point of receipt.  These contractors are asking for trouble with this misinterpretation.  Contractors should base their plans and EV on the category of material involved.

Whenever contractors earn value at the point of receipt for material they plan to maintain in their inventory bins for several months, they open themselves to have DCMA write Deficiency Reports (DRs) or Corrective Action Requests (CARs) for using inappropriate points in time to earn value for material.

  • Rationale. When you claim EV, you are telling the customer you are a certain percent complete with the program.  For example, if materials represent 70 percent of your contract, earning value for all the material (or a large part of it) up front says (in the performance report to the customer) “I am 70% done with your program.” The customer tends to think in terms of “7 of my 10 airplanes are completed” when in fact none are completed.
  • The result? A very unhappy customer because you indicated incorrectly (in the performance report) you are ahead of schedule. This false lead erodes away until you are late delivering the planes, helicopters, ships, tanks, or other contracted items to the customer.
  • The take away. A number of contractors are incorrect in thinking they can earn value for all material at the point of receipt. The EIA-748 Guidelines have always required the distinction by material category (there are always more than just the two categories discussed above).  DoD and DCMA have always stated there is no one point for claiming material earned value.

Also see these related blogs:

Need help determining the appropriate earned value techniques to use for material?  H&A can assist you with clearly defining the requirements for the different categories in your business environment. Contact us today.

  1. EIA-748-D Guideline 21 content maps to the EIA-748-E Guidelines 14 and 16 which streamlined the content in D Guideline 21. EIA-748-E Guideline 14 states in part: “Earned value for material items may not be credited earlier than the actual receipt of the material nor later than the consumption of the item.” ↩︎

Earning Value for Material – The Correct Approach – Part 1 Read Post »

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