Government Contracting and Earned Value Management (EVM)

Government Contracting and Earned Value Management (EVM) Ida Davis, EVP, PMP, MBA Earned Value Manager DynPort Vaccine Company LLC, A CSC Company Note: This presentation is the property of DynPort Vaccine Company, LLC a CSC company, and may not be reproduced in any form without express written consent. 1

What is Earned Value Management? A project management methodology that integrates scope, cost and schedule Objective measure of progress against the PMB (Performance Measurement Baseline) Traditional way of determining if you are over or under budget is to compare Budget versus Actual Earned Value asks the missing question: What did I get done? Compares Performance against Budget to identify Schedule Variances Compares Performance against Actuals to identify Cost Variances Also identifies Variances at Completion 2

Benefits of Earned Value Management Quantifies and objectively measures work accomplished Early warning system regarding deviations from the baseline Use of common metrics and performance indicators Mitigation of risks associated with cost and schedule overruns Analysis of variances Means to forecast final cost and schedule outcomes Provides and improves the accuracy of revenue, profit and billing plans 3

History of Earned Value Management Late 1800s: Planned, earned and actual standards terminology used in manufacturing industry 1950s: Cost Variance used by industrial engineers 1962: - Implementation of PERT resulted in 11 reporting formats, including cost of work report PERT = program evaluation and review technique 1967: Cost/Schedule Control Systems Criteria (C/SCSC) Effort led by U.S. Air Force; Department of Defense (DoD) implemented 35 Criteria for work over certain funding thresholds Poor feedback, refusal of private industry to adopt the C/SCSC system 1996 present: Criteria was revised down to 32 and ANSI/EIA-748 officially issued in 1998 Adopted by DoD in 1999 4

What is ANSI/EIA-748? American National Standards Institute/Electronic Industries Alliance It is an industry standard published by the GEIA (Government Electronics and Information Technology Association) Recognized by the DoD since 1999, for use on defense acquisition programs 32 management control guidelines or criteria for an EVMS Best business practices at a high level Each EVMS has to be tailored to the organization s business environment and management style Must still meet the intent of each guideline ANSI clearly states that it is a guide 5

EVM vs. EVMS? Earned Value Management (EVM) The methodology of integrating scope, schedule and cost Example: Our company utilizes Earned Value Management. Earned Value Management System (EVMS) Integrated Management System that is compliant with the 32 EVMS Guidelines per ANSI/EIA-748 Processes and procedures, software tools, databases Example: We have a validated EVMS. 6

What are the 32 EVMS Guidelines? They fit into five subsystems or processes: Organization Define the contractual scope of work Identify work within the framework of a Work Breakdown Structure (WBS) Authorize the work Planning, Scheduling and Budgeting Plan, schedule and budget the work Authorize the work (can fit into more than one process) Establish the performance measurement baseline (PMB) Manage the control account Accounting Considerations Accumulate costs of work and materials 7

What are the 32 EVMS Guidelines? They fit into five subsystems or processes: (Cont d) Analysis and Management Reports Compare planned and actual costs to accomplishments and analyze variances Act on variance analysis Prepare explanations/supporting rationale for variances to management Revisions and Data Maintenance Prepare plans to achieve workarounds due to variances Baseline changes as applicable Update Estimate to Complete (ETC) Incorporate changes and develop an Estimate at Completion (EAC) Note: Some guidelines fit into more than one process! 8

How does EVM relate to Project Management? Project Management Cycle: Earned Value Management Processes: Initiate Plan Execute Control Close out Organizing and Authorization Planning, Scheduling and Budgeting Accounting Considerations Analysis and Management Reports EARNED VALUE MANAGEMENT Revisions and Data Maintenance This makes sense since EVM is a project management methodology! 9

When and Why is Earned Value Required? When: Dictated by contract, or Could be an internal requirement (management or internal policy) Why: OMB Circular No. A-11 (2004, last updated 09), Part 7 Section 300 Office of Management and Budget (Executive Office of the President of the United States) Policy applies to ALL federal agencies of the Executive Branch of the Government subject to the Executive Branch Review all major acquisitions with development effort (not just DoD) Part of their annual budget submission Section 300-8: Agencies must use a performance-based acquisition management or earned value management system, based on the ANSI/EIA Standard 748, to obtain timely information regarding the process of capital investments 10

How do You Know if it s in the Contract? DFARS vs. FAR Clauses Department of Defense: DFARS clauses Notice of Earned Value Management System DFARS 252.234-7001 Earned Value Management System DFARS 252.234-7002 Federal Government Agencies: FAR clauses FAR Rule effective July 5, 2006 implement EVMS policy in accordance with OMB Circular A-11 (from 2004) Notice of Earned Value Management System FAR 52.234-2 & FAR 52.234-3 Earned Value Management System FAR 52.234-4 Note: OMB states Agencies can develop own provisions and clauses for their own use as long as they are substantially the same as in the FAR (example, HHS has its own clauses) 11

Earned Value Management Application (DoD) Thresholds Thresholds revised 2005 Applies to both Contractor and Subcontractor (Per DoD Instruction 5000.02, Dec 8, 2008, Page 44 EVM Implementation Policy, regarding Operation of the Defense Acquisition System): Cost/incentive contracts > $50M Compliance with EVM guidelines in ANSI/EIA-748 Formally validated and accepted EVMS CPR (Contract Performance Report) Monthly IMS (Integrated Master Schedule) Monthly CFSR (Contract Funds Status Report) Quarterly CWBS Data Item per DiD DI-MGMT-81334C Subcontractor EVMS Flowdown IBR (Integrated Baseline Review) Within 180 days of Contract Award, exercise of options, and major modifications 12

Earned Value Management Application (DoD) Thresholds (cont d) Cost/incentive contracts <$50M but >$20M Compliance with the EVM guidelines in ANSI/EIA-748 but no formal EVM System Validation required CPR, IMS both tailored CFSR and CWBS Subcontractor EVMS flow-down IBRs (same as above) Cost/incentive contracts <$20M Discretion of the government Program Manager (PM) FFP Contracts regardless of $ value Discouraged, limited use Except developmental work where cost/schedule visibility is required, and contract is >$20M Need a waiver from government PM 13

EVMS Flowdown to Subcontractors (DoD) DFARS 252.234-7001 Notice of EVMS Section (c): The offeror shall identify the subcontractors (or the subcontracted effort if subcontractors have not been selected) to whom the EVMS requirements will apply. The offeror and the Government shall agree to the subcontractors or the subcontracted effort selected for application of the EVMS requirements. The offeror shall be responsible for ensuring that the selected subcontractors comply with the requirements of the Earned Value Management System clause of the contract. 14

EVMS Flowdown to Subs (DoD) (cont d) DFARS 252.234-7002 EVMS Section (h): The Contractor shall require its subcontractors to comply with EVMS requirements as follows: (1) For subcontracts valued at $50,000,000 or more, the following subcontractors shall comply with the requirements of this clause: [Contracting Officer to insert names of subcontractors (or subcontracted effort if subcontractors have not been selected) designated for application of the EVMS requirements of this clause.] (2) For subcontracts valued at less than $50,000,000, the following subcontractors shall comply with the requirements of this clause, excluding the requirements of paragraph (b) of this clause: [Contracting Officer to insert names of subcontractors (or subcontracted effort if subcontractors have not been selected) designated for application of the EVMS requirements of this clause.] 15

HHS Clauses and Thresholds Acquisition Policy Memorandum No. 2008-02, October 1, 2008: Interim acquisition guidance.specific implementation parameters for the application of EVM to contracts issued by HHS, consistent with the flexibility and discretion allowed by the FAR. Strengthened the existing HHSAR clauses Health and Human Services Acquisition Regulation The EVMS clauses are HHSAR 352.234-1, 2, 3 & 4 Not yet formally incorporated into the HHSAR (as of April 26, 2010) 16

Earned Value Management Application Thresholds (HHS) HHS Policy 352.234-3&4 (Full & Partial EVMS): (For major acquisitions per the OMB Circular A-11) Cost reimbursement/fixed Price Incentive Contracts: >$25M: Full EVM required Contractor s EVMS must be validated and accepted by the CFA (Cognizant Federal Agency) = DCMA >$10M: Full EVM required Contractor s EVMS must comply with ANSI/EIA-748 Firm Fixed Price & Time and Material: >$25M: Partial EVM required (Schedule only) Contractor s EVMS must be validated and accepted by the CFA (Cognizant Federal Agency) >$10M: Partial EVM required (Schedule only) Contractor s EVMS must comply with ANSI/EIA-748 Any type contract <$10M: Optional with HCA prior approval (Head of the Contracting Activity) 17

HHS Thresholds (cont d) Note that HHS thresholds requiring a validated EVMS are less than the DoD s! $25M versus $50M Look to see which policy or clause is referenced in the RFP Might reference HHS Policy Document Number HHS-OCIO- 2007-0001.001 dated 6/11/07 instead of HHSR clauses For HHS IT Contracts (originally established in 2005) Established three (3) tiers for EVMS Tier 1 was >$10M Compliant EVMS (needs to be certified as compliant) but not validated States that when changes occur to the HHSAR, HHS will apply EVM requirements in accordance with the most recent HHSAR rule Reminder: the EVMS HHSAR clauses are not yet formally incorporated into the HHSAR (as of 4/26/10), yet they are official interim acquisition guidance. 18

For any RFP and/or Contract from any Government Agency. You need to ensure You understand the government Request for Proposal (RFP) and what is being asked You understand the subcontractor EVMS flowdown requirements Make sure potential subcontractors understand and bid accordingly If the cumulative value over the life of the subcontract breaches a threshold, they automatically fall under those threshold requirements. Final Blanket Ordering Agreements (BOAs) and other subcontractor agreements are worded correctly Incorporate language that indicates the threshold levels for different types of reporting and the requirements 19

For any RFP and/or Contract from any Government Agency. (cont d) If an organization does not have a compliant or validated EVMS at the time they bid on an RFP, they need to include a plan for becoming compliant/validated Government may not pay for this expense You also want to ensure the final government contract reads correctly (all clauses are there, etc.) 20

Who is responsible for reporting Earned Value? The Contractor Program Manager manages and reports program performance based on input from resources managing the detailed program work Program Manager s name is on the official CDRLs CDRL = Contract Data Requirement List per the contract CAMs are responsible for Cost and Schedule for their assigned Control Accounts CAM = Control Account Manager CAMs are typically assisted by Financial Analysts and/or Project Control Analysts in maintaining the EVMS tool and generate the CDRL s to the government Other organizational functions that have a hand in the Earned Value data? Includes at a minimum: Functional groups Project manager Technical lead 21

Government Roles and Responsibilities DoD Contracts: Office of the Under Secretary of Defense Develop, publish and maintain DoD policy and guidance on EVM Changes to the DFARS Oversee DCMA enforcement of EVMS compliance Work with Defense Acquisition University (DAU) regarding training needs and course curricula DCMA Defense Contracting Management Agency Conduct EVMS Surveillance reviews for initial and continued compliance with the ANSI/EIA-748 Formally accept (validate) a compliant EVMS on behalf of DoD Also involved in audits on HHS Contracts (CFA = Cognizant Federal Agency) 22

Government Roles and Responsibilities (cont d) DCAA Defense Contracting Audit Agency Periodic reviews of supplier s Accounting Systems and EVMS in support of DCMA EVMS Surveillance Audits 14 of the 32 EVMS Guidelines in the ANSI have to do with indirect cost/accounting, and therefore fall under DCAA Note: The DCMA surveillance audit cannot be completed unless DCAA performs their portion of the audit Other government agencies: Seem to rely on DoD a lot regarding policy, guidance and training DoD has many more years experience with EVMS requirements DAU (Defense Acquisition University) courses Rely on the CFA = Cognizant Federal Agency for compliance validation of Contractors DCMA and DCAA 23

System Description Validation System Description explains how an organization interprets and adheres to the 32 EVMS guidelines For a new contract: Contractor develops a draft/preliminary System Description DCMA performs a Pre-Assessment Visit (PAV) approximately 6-8 months after contract start DCMA follows up with a Validation Review (VR) of the System Description During this time, an updated System Description may be issued by the Contractor, and any recommendations/corrective actions are also addressed by the Contractor When a VR has been performed, DCMA issues a letter to the Contractor stating the system is validated DCMA provides an Advance Agreement which identifies which System Description is validated, and establishes the Joint Surveillance Review process Subsequent successful DCMA Surveillance Audits result in a follow-up letter from DCMA stating that the Contractor s EVMS is compliant and valid. 24

System Description Validation (cont d) DCMA Surveillance Audit end-of year assessments: Contractor is found to be one of the following: Compliant: The contractor s EVMS is compliant with their System Description on all 32 Guidelines Non-compliant: The contractor s EVMS is non-compliant with their System Description on any of the 32 Guidelines Non-compliance can lead to losing the contract Unassessed: The contractors EVMS is unassessed This means that at least one of the 32 guidelines may not have been audited, resulting in the entire EVMS being considered unassessed Does not mean that the contractor is non-compliant or that there are any issues with the EVMS 25

Policies, Processes and Procedures Highly recommended that the organization develop formal processes and procedures for their EVMS System Description can be detailed and contain these processes and procedures, but any change to a small process may then result in a need to update the entire System Description Changes to the System Description require DCMA approval It is recommended that the organization develop Policies and SOPs outside of the System Description Internal change control Quicker and easier to implement Also desktop procedures for step-by-step procedures All processes and procedures are subject to Auditor review DCMA & DCAA Customer review (Joint surveillance involves the customer) 26

DynPort s Experience with Biotech Government Contracting and an EVMS Prime contractor since 1997 on a DoD Biotechnology vaccine program requiring a validated EVMS DVC s EVMS was validated in 1999 then again in 2004 In-house EVMS expertise totaling more than 40 years in Earned Value Management Two EVP certified employees EVP: Earned Value Professional Certification issued by AACEI (the Association for the Advancement of Cost Engineering International) Seven-hour, four-part exam On average, only 50% of students pass Total of five DCMA Surveillance Audits on this prime contract and two DCAA System and Surveillance Audits Generation of audit requests for information (RFIs) and data packages 27

DynPort s Experience with Biotech Government Contracting and an EVMS (cont d) Ongoing internal Surveillance Audits by the Corporate EVM group System Description generation and updates Internal Policies and Procedures directly related to EVMS processes 10 years experience with the EVMS Software tool MPM (owned by Deltek) Expert knowledge of the 32 Guidelines as described in the ANSI/EIA-748 Industry Standard DVC can assist with financial reporting and requirements for the DoD or other government agencies, including EVMS. 28

EVMS: We Can Help DVC can assist with your financial reporting/requirements for government contracts, including EVMS. Ask us how! www.csc.com/dvc DVC Communications (we ll connect you with the right person) afinnen@csc.com 301.607.5004 (April Finnen) Main phone: 301.607.5000 29