The organizers of the annual Integrated Program Management Conference (IPMC) have rescheduled the event after its cancellation due to hurricane “Sandy”
The Conference will be held December 10-12, 2012 at the Bethesda North Marriott Conference Center. This is the same location as planned for November’s cancelled event.
If you can make these new dates, here is your chance to mingle with some of the brightest in the EVM community. I hope to see you there.
More information and registration can be found here.
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
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.
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;
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.”
Happy New Year. Well we are starting off with some interesting items. I suspect that will hear about a lot more interesting items this year.
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 3rd).
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.
In many companies the proposal or business development team bids on a project using a lot of factors in their bids. When the contact is won, the project management team has to plan the project in detail. Many times they do not have the benefit of knowing what the proposal team was thinking when they created the bid. There must be a better way to do this.
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
Dr. Ashton Carter, DoD AT&L issued Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending on Nov 3rd, 2010
In a Memorandum to Secretaries of Military Department Directors of the Defense Agencies, Dr Carter stated; “This memorandum specifies action that I expect you to execute immediately or in a time frame indicated in order to implement the September 14 Guidance.”
I recommend that you read this for yourself. You can find this memo here: http://www.ndia.org/Advocacy/Resources/Documents/LegislativeAlerts/Implementation_Directive_6Nov2010.pdf
Here are the key areas of the guidance;
1. Target Affordability and Controlling Cost Growth
2. Incentivize Productivity and Innovation in Industry
3. Promote Real Competition
4. Improve Tradecraft in Services Acquisition
5. Reduce Non-Productive Processes and Bureaucracy
Here is a summary of the major points within the 2 areas that those of us in program/project management should be aware of.
Target Affordability and Controlling Cost Growth has to do with affordability based decisions making at milestone decision points for all ACAT I programs, driving productivity growth through ‘will cost’/'should cost’ management, and setting shorter program time-lines and managing to them.
Although this has more to do with the program estimates, I think it is important for you to see this comment;
“These costs (Should Cost) will be used as a basis for contract negotiations and contract incentives and to track contractor and program executive officer/project manager performance.”
He then set the target date of January 1, 2011 to establish “Should Cost” for ACAT II and ACAT III programs as they are considered for component MS decisions. He went on to say “You will use “Should Cost” based management to track performance of ACAT II & III programs.”
Does this mean we will have to report on another metric to the customer? It does not say and I do not expect that to happen, but I have been wrong before.
Incentivize Productivity and Innovation in Industry has to do with rewarding contractors for successful supply chain and indirect expense management, increasing the use of FPIF contracts and adjusting progress payments to incentivize performance.
Here he is directing the use of FPIF with 50/50 share line and 120 percent ceiling for all contracts over $100 million or justify why not. He also wants to drive early production lots to FFP contracts.
What does all this mean to us in the EVM world? Well it really only affects those of us in the DOD world and is not likely to have any immediate implications unless you start a new contract in the next few months. Even then it will be on little impact to start. It is part of a bigger effort and will change our role in the coming years.
With the emphasis on cutting contracts that are not staying on budget and schedule, there is even more reason to have the early warning that EVM provides. As contracts tend toward fixed price, it will be more important to plan the work and work the plan. That means EVM is even more important.