The PARCA EVM Authorities memorandum was signed By Dr. Ashton Carter on 10 AUG 11
To use the colloquial expression, ‘what is good for the goose, is good for the gander’. This memo says that DOD needs to use EVM for themselves. Here are two paragraphs from the 2 page memo that sum it up pretty well:
“This memorandum provides guidance that will improve the effectiveness of EVM across the Department. To be successful, EVM practices and competencies must be integrated into the program manager’s acquisition planning and execution processes; the data provided by EVM must be accurate, reliable, and timely; and EVM must be implemented in a disciplined manner.
The Office of Performance Assessment and Root Cause Analysis (PARCA) was created in December 2009 as the principal DoD office for conducting performance assessments and root cause analyses of Major Defense Acquisition Programs (MDAPs) as statutorily required by the Weapon Systems Acquisition Reform Act (WSARA) of2009, Public Law 111-23. A key element of PARCA’s statutory responsibility entails evaluating the utility of performance metrics for cost, schedule, and performance of MDAPs. The implementation and use of EVM across the Acquisition Community falls within P ARCA’s area of responsibility.”
The memo goes on to say that “The Defense Contract Management Agency will retain responsibility for EVM System Compliance for the Department, with the Defense Contract Audit Agency’s support, except for those DOD Components that are also part of the Intelligence Community and are excluded from the requirement to delegate EVMS authorities to DCMA.“
I see the first impact of this being all the EVM software vendors will be calling on all the program offices. OK, maybe that was a little flippant. I do think that this is a great move.
In my experience, the program offices have fluctuated in the use of EVM for their own activities with the movement of people in and out of those offices. With this memo, and PARCA reviewing what is happening, I expect to see some procedures in the buying commands that will standardize the use of EVM. I personally think this is a great thing.
I have attached the memo (PDF) here: PARCA EVM Authorities Memo 110810
NASA Issued a New Ruling to NOT Use EVM on Firm Fixed Price (FFP) Contracts
In Federal Register Volume 76, Number 131 (Friday, July 8, 2011)
“NASA is issuing a final rule to delete the requirement in the NASA FAR Supplement (NFS) for contractors to establish and maintain an Earned Value Management System (EVMS) for firm-fixed-price (FFP) contracts. The final rule recognizes the reduction in risk associated with FFP contracts and intends to relieve contractors of an unnecessary reporting burden.”
Effective Date: July 8, 2011.
This is interesting in that most agencies do not require EVM on FFP contracts. So this is of interest to NASA contractors primarily.
During the open comment period, NDIA supported this rule but made three suggestions. Only one was partially accepted (you can read about all comments and responses in the article: http://www.gpo.gov/fdsys/pkg/FR-2011-07-08/html/2011-17116.htm)
That one NDIA recommendation was that NASA consider applying the change to existing contracts, NASA said it would not require, but might consider, implementing the change on existing contracts on a case-by-case basis.
How do yo feel about EVM on FFP contracts? I am old school in that if a practice is good, it should be used all the time. But I agree that making a contractor go through a validation and surveillance on a FFP contract is additional cost that is not usually justified.
Should You Plan LOE Tasks In Your CPM Schedule?
I was recently supporting an EPC (engineering, procurement and construction) contractor on a huge project (average over $400 million per year for several years). Their CPM schedule was maintained in one database of approximately 60,000 activities that are fully linked and resource loaded. They can easily create levels of schedule by coding & filtering. This is an excellent approach. There is no way that a lower level schedule does not support higher level milestones as it is all one schedule and they require all activities to be linked (or justified and approved).
While reviewing the EVM system it was clear that they do not include their LOE (level of effort) work in the scheduling system. I struggled with whether this was bad. I concluded that it was not bad, and here is my reasoning.
This project is so large that there is a lot of direct charge work that is usually overhead (e.g., accounting, HR, security, contracts, purchasing, etc.). This work is all direct on this contract and is planned correctly as LOE. None of these activities will add any creditability to the schedule. In fact all LOE activities would have to be planned as start-to-start successors and finish-to-finish successors (a hammock) as they will exist as long as the contract continues. To me this means there is no scheduling reason for these activities to be in the schedule.
Considering the EVM system, there is another side to the story. This company does what many contractors do for EVM. They resource plan in a scheduling tool and electronically transfer that information to an EVM tool. If the LOE activities are not in the schedule, they must be planned in the EVM tool separately. How do they keep things linked? What happens if the schedule stretches out and the LOE task needs to stretch out to support the direct tasks? How do you make sure that the EAC for the LOE task considers that schedule slip?
If you put all activities in the schedule and resource load them, I think it makes the job easier. For several reasons, this contractor does not do that.
What this company has done is write a software routine that runs a series of over 40 checks/tests on the schedule and EVM databases every week. For instance, they check that the start and end date of an activity in the schedule match the start and end dates for the work package it supports in the EVM tool (for both baseline and ETC). If any of these checks/tests fail, the software routine sends an email to the responsible party with the error (with a copy to the scheduler). If that is not fixed by the time the check is run next week, a reminder email is sent with a copy to the person’s supervisor. If it is not fixed the next week, it goes to the PM’s status log for discussion at the regular project status meetings. It will get fixed!
This process is repeated for every one of the checks which include such issues as: resource loading in the schedule does not match BCWS; cost incurred with activity showing 100% complete; activities with no successor; ACWP greater than EAC, etc. But what of the LOE activities that are not in the schedule? Those have a series of checks also.
This company is doing a great job of assuring that all the ANSI Guidelines and all best practice rules are followed, so I think there is no need to include LOE activities in the schedule.
Do you think LOE should be in the CPM Schedule?
Pentagon Set To Withhold Payments Over Contractor Systems Flaws
There is a DFARs change that is likely to have some major impacts in the defense contractor community. Here is the link to the DFAR change;
http://www.gpo.gov/fdsys/pkg/FR-2011-05-18/pdf/2011-11691.pdf
This addresses deficiencies in 6 business systems. The article below does not say but, DoD is defining the 6 major contractor business systems as:
- Accounting systems,
- Estimating systems,
- Purchasing systems,
- Earned value management systems (EVMS),
- Material management and accounting systems (MMAS),
- Property management systems.
Following is an article by Tony Capaccio, Bloomberg News, 19 May 2011
U.S. defense contractors will be subject to having as much as 10 percent of total billings withheld if the government finds major shortcomings in any of six business systems used to track the performance and cost of weapons programs or services.
A regulation published yesterday in the Federal Register and taking effect on Aug. 16 applies to the standard “Earned Value Management” system used to determine whether companies are meeting cost and schedule goals under existing contracts.
The rule, designed to protect taxpayers from overbilling, also would apply to separate systems that companies such as Lockheed Martin Corp. use to make cost estimates for bids, to purchase goods from subcontractors or to manage government property and materials.
“The bottom line is that, if a company has a deficient business system, they better get it corrected and get it corrected quickly,” Shay Assad, the Pentagon’s procurement director, said in a May 17 interview.
“Companies are always talking about cash generation. So potentially withholding up to 10 percent of the cash a company is going to get could be a significant issue,” Assad said. For that reason, the Pentagon “will be very deliberate” about enforcing the rule. “Companies have had plenty of opportunity to comment on the rule,” he said.
Assad last week sponsored a conference of government contracts officers to brief them on how to enforce the withholding rule.
The original rule called for withholding as much as 20 percent of billings at business units with deficient systems. After industry complaints, that was cut to a 10 percent maximum in the fiscal 2011 defense policy bill.
Defense Secretary Robert Gates is trying to sharpen oversight of contractors. Criteria for winning bonuses have been tightened and Gates also wants contractors to assume a greater share of cost overruns in development contracts.
The No. 1 defense contractor, Bethesda, Maryland-based Lockheed Martin, and the No. 1 Afghanistan contractor, DynCorp International Inc., a unit of Cerberus Capital Management LP, have systems that have been deemed deficient by the Defense Contract Management Agency. That may make them candidates for potential withholding from new contracts after Aug. 16.
Based on current statistics, about 3 percent of the 2,500 to 3,000 defense contractors under contract management agency oversight are estimated to have deficient business systems, Assad said.
The rule change resulted from an August 2009 hearing of the congressionally mandated Commission on Wartime Contracting at which major business-system deficiencies were described within companies working in Iraq and Afghanistan.
“This is perhaps the single most powerful government tool for protecting the public purse and getting the contractors’ attention about fixing their all-but-worthless systems,” commissioner Charles Tiefer said in an e-mail.
“Before this regulation, contractors could get full government reimbursement, even with grossly inadequate business systems — systems that estimated upcoming costs wrong, tracked actual costs wrong and then billed wrong, producing outrageous overbilling,” said Tiefer, a University of Baltimore law professor.
“Contractor business systems and internal controls are the first line of defense against waste, fraud and abuse,” said the regulation, which was in the works for at least 15 months. “Weak control systems increase the risk of unallowable and unreasonable costs on government contracts.”
The regulation would cover all defense contracts issued after Aug. 16, including those that reimburse companies for costs, pay incentive fees for hitting cost and schedule targets, or those that base payments on time, materials or labor hours.
Lockheed Martin and Falls Church, Virginia-based DynCorp may be subject to having amounts withheld, according to an e- mail statement by Defense Contract Audit Agency director Patrick Fitzgerald.
The contract management agency in October decertified the Earned Value system used by Lockheed Martin’s Fort Worth, Texas, aircraft unit to track costs and schedules.
The company’s system was deficient in 19 of 32 areas, a Pentagon spokeswoman said at the time.
Lockheed Martin spokesman Joe Stout said in an e-mail the company “is committed to having the best and most highly rated EV system in the industry.”
“We worked with the DCMA last year to develop a comprehensive Corrective Action Plan and we’re now well into implementing the plan,” he said. “We expect to be ready for a re-audit in early 2012, per the timeline laid out by our government customer.”
“We have not been notified of any withholding or plans for withholding,” he said.
Contract management agency spokeswoman Jacqueline Noble said in an e-mail that DynCorp currently has an “inadequate” purchasing system.
“A follow-up review will be scheduled when DynCorp advises” its corrections have been fully implemented and the system has generated enough transactions to examine a sample, she said.
Problems were disclosed in a May 2010 review, citing “the severe and complex weaknesses as well as the sheer number of findings.”
DynCorp spokeswoman Ashley Burke said in an e-mail that “we are working with the DCAA and DCMA to ensure that all issues that have been raised are addressed.”
“We continue to strengthen our processes and procedures, are encouraged by the progress that has been made, and look forward to the next review.”
Updates from the May NDIA PMSC – Things are Changing
This meeting had a lot going on and too much for one post. I have provided a list of key points. The presentations from this meeting have not been posted, but I will make the link available once they are released.
1. The newly created Planning and Scheduling Excellence Guide is out and available
The long term plan is to use it for one year, incorporate comments for that year and then lock it down as a finished document.
2. MIL STD 881 Updates
- DODI 5000.2 is being updated
- Scheduled release date is May 30th, 2011
3. Intent Guide revision
- Guideline 5 & 10 impacted
- 5 – more than one CAP at the RAM intersection is acceptable and is established by scope
- 10 – Defines CA by type of cost, discrete vs. LOE, etc.
- It was approved by the PMSC and is available at:
4. Applications Guide revision
- It was approved by the PMSC and is available at:
5. DCMA Updates
- Gordon Kranz is gone from DCMA and the EV Center still does not have a director
- The EV Center is being redesigned to have 5 locations (should happen by the end of the year). This will provide localized validation reviews.
- Carson, CA
- Tucson, AZ
- Twin Cities, MN
- Ft Worth, TX
- Boston, MA
- Orlando, FL
- Washington, DC
- DCMA EV HQ will be concerned with Policy and Tools only
- CARs level 1&2 will go to the CMO and Levels 3&4 will go to the center
- Compliance review status
- 20 sites reviewed (16 were part of the initial review)
- 4 sites reviewed for cause
- All contractors that will be reviewed this year have been contacted. This means there will be no new contractor validated in 2011 beyond those already on the list
- Compliance review summary
- 134 approved systems
- 43 approved with deficiencies
- 30 systems in the initial validation process
- 1 disapproved
- SSI should be published by the end of summer 2011
6. Performance Assessment & Root Cause Analysis (PARCA) Updates
- PARCA got funded
- Gordon Kranz is the new Deputy Director for EV
- 14 Analyses have started and 10 are complete
- 3 biggest problems found by PARCA (these are reviews of the buying commands, not contractors)
- Establishment of poor cost/schedule estimates (incorrect assumptions in view of current knowledge)
- Failure of status in poorly functioning EVM system
- Failure of Systems Engineering
- Requirements flow down
- Changes in requirements
7. Missile Defense Agency (MDA)
- They have implemented an annual IBR process
8. Air Force
- New EVM Lead – Ms. Shannon House (Bob Loop still works for the AF but is in another position)
- They are trying to develop a checklist to support CDRL Compliance
- Trying to develop contract incentives based n EVM Compliance
- Developing EVM/Schedule training and writing an EVM/Schedule certification white paper
9. NASA
- They have made a final rule to eliminate EVM on FFPO contracts. That should go into effect in July
NDIA EVM Guides – (A terrific and free resource) are being updated
If you are interested in EVM and do not know about the guides produced and maintained by NDIA, you really need to look at these.
The NDIA (National Defense Industrial Association) has several divisions and committees within each division. Of interest to those involved with EVM is the Program management Systems Committee (PMSC). Here is a leading sentence in their mission statement;
“The PMSC is the primary forum for building strong Industry and Government working relationships to promote integrated program management using Earned Value Management (EVM) and related program management processes and broadening the focus and membership of the PMSC through its continuing outreach initiatives and forums.”
This committee is a comprised of industry and government representatives. This group has published a series of guides to assist the EVM community. The guides are so well accepted that the Office of Management and Budget (OMB) Capital programming Guide references the NDIA EVMS Guides for use by agencies in their application of EVMS. What makes these guides good is that they were written by committees of actual users (both government and contractors).
There are two primary guides in my mind. Those are the EVMS Intent Guide and the EVMS Application Guide. Both of these are in the final weeks of updating and will soon be available with revisions.
If you are not aware of the guides, here is the list;
- Earned Value Management Systems Intent Guide to the ANSI/EIA Standard for EVMS (ANSI/EIA 748).
- Earned Value Management System Acceptance Guide.
- Earned Value Management Systems Application Guide.
- Integrated Baseline Review Guide.
- Surveillance Guide.
Here is the link to get these documents and other information;
http://www.ndia.org/Divisions/Divisions/Procurement/Pages/Program_Management_Systems_Committee.aspx
MIL STD-881 for Work Breakdown Structures is coming back
If you did not know it was gone, that is understandable. For the last few years it has been a MIL HDBK or a Defense handbook. A Defense handbook is a guidance document containing standard procedural, technical, engineering, or design information about the materiel, processes, practices, and methods. It is guidance and not requirement.
On the other hand, a Defense Standard is a document that establishes uniform engineering and technical requirements.
What happened? (the following was taken from an NDIA PMSC presentation) In October of 2008, the update of the handbook was started to meet the following goals;
- Update to Incorporate Changes to reflect DoD Acquisition Policy and Guidance (DODI 5000.02)
- Add/Improve upon WBS Definitions
- Clarify How WBS can be used with Newer Terms and Processes
- Ensure the WBS is characterized as an Acquisition tool
- WBS to support budget, cost, schedule, technical, contractual and performance management
- Ensure Industry Participation
Mr. Young’s memorandum of 9 January 2009
- Establishes MIL-HDBK as MIL-STD to ensure consistency in application
- Enforces April 2005 Memorandum and DFARs clause – WBS is consistent for Cost and Software Data Reporting (CSDR), Performance Measurement (EVM), and Scheduling (IMS)
- Supports development/maintenance of Central Repository
So what is the big deal? Well for one, the original MIL STD 881 was created before there were ‘launch vehicles, unmanned maritime systems, automated information systems and the Central Repository’. So it really needed to be updated to be useful in today’s environment.
The major changes in the update are;
- Most appendices have been restructured to account for technology changes and integration changes
- Most appendices have been defined to level 4 or 5 of the WBS vs. level 3
– Reporting level will be determined based on a contract to contract basis – could be 3, 4, or 5
– CSDR reporting vs. CPR reporting level may be different but needs to be consistent at the level reported (i.e., level 4 of the CPR should be the same as level 4 on the CSDR)
– If elements are considered high cost, high risk, or high technology in nature reporting will go to that level for those items only
- Added “other” elements to account for changes in configuration or new technology that is not defined within the MIL-STD at lowest level
- Eliminated Application and System Software – only Software
- Changed definitions for embedded Software in Appendix B
- Added discussion of WBS use with system of systems and family of systems (i.e., take into consideration of common vs. unique WBS elements)
- Added common elements for sustainment activities – Interim Contractor Support or Contractor
- Logistics support
- Expanded discussion on development of WBS to include:
– Prime/Sub relationship
– Elements to include vs. not include
- Added pre-acquisition framework discussion
- Updated Common elements
- Added unique Common commodity areas (Space, Launch Vehicles, AIS)
I personally think this is great. For those of you that have not given a WBS much thought, let me start you thinking.
If you bought billions of dollars of material a year, how would you go about estimating the next acquisition? Most of us would look at the last project(s) to get an idea of the cost. DOD does exactly the same thing. If every project used a different WBS to define the work, it would be difficult to gather cost history easily.
If on the other hand, all projects had common WBS elements to level 3 or 4, pulling the data would be more effective. Also, during the project, additional management analysis of performance can be done if there are common elements used. This brief explanation is too simple but hopefully it will start you thinking.
There is a lot of review going on before this will be issued. Currently, DOD is taking industry comments, and there have been a lot of those. The plan was to have the new MIL STD 881 final publishing on the 15th of April, 2011.
I have seen the number of comments and I am not sure that will happen. I hope to bring you the news of the publication and an link where you can download a copy in the near future.
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