“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 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.

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?

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:

1. Accounting systems,
2. Estimating systems,
3. Purchasing systems, 
4. Earned value management systems (EVMS),
5. Material management and accounting systems (MMAS),
6. 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.”

1. The newly created Planning and Scheduling Excellence Guide is out and available

http://www.ndia.org/Divisions/IndustrialWorkingGroups/IndustrialCommitteeForProgramManagement/Documents/PASEG/Planning_and_Scheduling_Excellence_Guide_PASEG_v1_1b_Final.pdf

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 30^th, 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:

http://www.ndia.org/Divisions/Divisions/Procurement/Documents/PMSCommittee/CommitteeDocuments/ComplementsANSI/NDIA_PMSC_Intent_Guide_May_2011.pdf

4.  Applications Guide revision

• It was approved by the PMSC and is available at:

http://www.ndia.org/Divisions/Divisions/Procurement/Documents/PMSCommittee/CommitteeDocuments/ComplementsANSI/NDIA_PMSC_Application_Guide_Rev_050411.pdf

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

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

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 15^th 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.

This memo is only a 2 pages.  But I think it has some real consequences.  The subject is;

 “Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending; Align Defense Contract Management Agency (DCMA) and Defense Contract Audit Agency (DCAA) Processes to Ensure Work is Complementary”. 

This memo went out to all the services, defense agencies and DOD field activities.  What it says is there are some new guidelines about who does what to whom.  There is mention that with redirection of DCAA tasks there will be additional workload on DCMA.  This should be handled by the additional 215 cost/price analysts hired in the last year and the 85 more planned to hire in 2011.

The areas addressed in this memo are;

• Increased threshold for cost/price proposal audits
  • DCAA will no longer perform field pricing audits on cost-type proposals less than $ 100M and fixed-type proposals less than $IOM per change to DoD Policy Guidance and Information (PGI) 215.404-2 effective September 17,2010.
• Forward Pricing Rate Agreements (FPRAs)/Forward Pricing Rate Recommendations (FPRRs)
  • DCMA will be the single Agency responsible for issuing all Forward Pricing Rate Agreements and Forward Pricing Rate Recommendations for contractors where DCMA is the cognizant contract administration office.
• Financial Capability Reviews
  • DCAA plans to withdraw from performing Financial Capability Reviews and Audits.
• Purchasing System Reviews
  • DCAA plans to withdraw from performing regularly scheduled Purchasing System Audits.
• Contractor Business Systems Rule
  • “A proposed rule is out for public comment. When implemented, the revised policy will clearly define DCMA/DCAA responsibility with respect to each Agency’s role in assessing and determining status of the contractor’s Accounting, Estimating, Earned Value Management, Material Management and Accounting, Purchasing and Property systems.”

Although all areas are important to any DOD contractor, it is the last element that is of most interest to us in the EVM world. 

That is all this memo says about the last point.  I can tell you that part of what is out for review is the issue around EVM.  NDIA (National Defense/Industrial Association) PMSC (Program Management Systems Committee) recently drafted an extremely clear comment on the DFARS Case 2009-D038 and delivered it yesterday (Jan 3^rd).

If you are not familiar with the case, it is proposing a major Defense Federal Acquisition Regulations (DFARS) change that will establish unreasonable penalties for contractors who have a deficiency in any one of their of six (6) major business systems.   These systems include: accounting, estimating, purchasing, government property management, material management and accounting, and earned value management.   The proposed rule establishes that payment withholds be established for systems with deficiencies and mandates a 10% withhold on all receivables for each system with an identified deficiency.   The withhold amount can grow up to 50% for delays in corrective actions, and if the unacceptable risk continues could grow to 100% of all payments until the identified deficiencies are corrected.

In the NDIA 7 page response, the first issue will give you an idea of what is at stake.  It reads;

“The proposed rule requires the contracting officer to disapprove a supplier’s EVMS when the initial validation is not completed within a 16-month period from contract award [252.234-7002, paragraph (j) (1), System Disapproval], However, the DCMA Earned Value Management Center, which is responsible for EVMS validation has not successfully demonstrated the ability to complete a system validation within this timeframe since refocusing its efforts beginning in October 2006.”

I hope that what this says is making sense to you.  In essence, if you are required to get an EVMS validation in 16 months and you are ready, but the DCMA cannot get to you on time, you could have your progress payments withheld.  Oh yea, there is no process in the proposed rule for contractors to seek dispute resolution in connection with actions taken by the government under this rule.

I will attempt to keep you up to date on what happens.

Lately I have had the opportunity to see a couple of new products on the market.  With all the products out there, I wouldn’t think there would be a big demand.  I think that may be a little naive. There are a lot of small to medium size companies or projects that want something that doesn’t cost too much or require a dedicated staff to operate. 

I have heard for a while that Oracle will stop supporting Primavera P3 and SureTrack.  I have not validated this, but it is a persistent enough rumor that it is having an effect.   This rumor is disturbing to a lot of users.  If those are tools that you have used and wish to replace, or are looking for a fully capable scheduling tool, check out Phoenix Project Manager (http://www.phoenixcpm.com/).  This is a very handsome product with the look and feel of P3 for a lot less money. If you have to support an enterprise Primavera database, Phoenix PM supports the Primavera import and export formats.  If it is of interest to you, it will work on Windows or Mac OS.   The only downside to me is that it does not do EV at all.

If you want to do EVM with an integrated CPM scheduling tool, you should look at PMPlan (http://www.pmplan.com/). This is a tool that was developed for use at Battelle Memorial Institute.  The rights were released to the company that now produces that software in a commercial version.  Here is a desktop or enterprise application that can do resource loaded schedules with what appears to be (I have not tested it yet) full ANSI 748 compliant capabilities.  PMPlan has standard integration tools (for linking to financial systems, other products [for subcontractor reporting to prime with another tool] and shortly to support the UN/CEFACT XML).

I do not have any financial, business or personal interest in either of these products.  I find them interesting and mention them in that light. 

If you are interested in scheduling, want to learn more about scheduling and/or want to learn about a number of scheduling products, you should attend the Construction CPM Conference (http://www.constructioncpm.com/) January 12-15, 2011 in Walt Disney World, Florida.

At SM&A we are currently supporting customer proposals worth over $51 billion.  That means we help with strategy, team leadership, technical support, cost support, project management support as well as actual proposal production.  We often support these customers with project planning and control services.  So we have a vested interest in making sure the proposal team does a few things to help out the project management team.

We recommend several things to our customers.  One recommendation is to put the key project and technical management team members on the proposal team.  These people are the primary link between the proposal and the project plan.  This helps the proposal and the project planning process.

Another recommendation is to document all identified risks, and what level of risk probability was used to bid these items.  This becomes essential to understand how to plan management reserve.

The proposal team also needs to document any limitations in the bid process.  For instance, did the RFP (request for proposal) require cost estimates to a specified level of the WBS (work breakdown structure) or to a different structure?  Did the cost estimate include subcontractor estimates, make any promises we need to support or forget anything that is in the contract?

All of this supports the project team doing a good job of planning the PMB (performance measurement baseline).  Since a well planned baseline is essential to measuring the work correctly, I think this is pretty important.  This is important enough that SM&A will present a free webcast on the subject on December 15, 2010.  If that is of interest to you, registration is available here http://www.smawins.com/lp/registration.aspx?Category=PMB