Program Management Systems Committee

1. Program Management Systems Committee Service Contracts Subcommittee Joint Industry/Government Meeting January 29, 2009

2. Subcommittee Charter • Problem Statement • EVMS is being applied to a variety of services type work scenarios and there is no consistent guidance or policy on how EVMS should be implemented • Charter for Subcommittee: • To develop and recommend policy, process guidance, and/or training to support the implementation of EVMS on services type work • Targeted Exit Criteria: • White Paper - “Guidance for Implementing EVMS on Services Work

3. Conclusions • EVM is useful for managing services work; however its application should be scaled to balance the benefits of EVM with program risks and the cost of EVM implementation • EVM is compatible with performance based services acquisition, but there are some issues that require further discussion/resolution • It’s important to seek ways to define objective methods for measuring earned value of services • Over-reliance on LOE for services can mask progress on other work • Recommend separate analysis of performance data for development and service work • It may be more appropriate and beneficial to implement EVM at the program level rather than at the individual contract level, e.g., staff augmentation (personal services) work • More flexibility in EVM Systems may be required to enable optimal application of EVM to services contracts, e.g., • Summary-level planning/shorter planning horizons • Allowances in the process for more frequent re time-phasing of budgets • Use WBS process to determine work to manage using EVM and PBSA.

4. What We Know • FAR 34.201  Policy. (a) An Earned Value Management System (EVMS) is required for major acquisitions for development, in accordance with OMB Circular A-11. The Government may also require an EVMS for other acquisitions, in accordance with agency procedures. • EVMS requirements have been included by the Government on a broad variety of contracts for services, and these requirements frequently present significant management challenges. • Services in support of Capital programs are often acquired using T&M/LOE contracts and the contracts include EVMS clauses • Most suppliers have policies that require EVMS to be used to manage both government and commercial projects, at least those posing significant risk, regardless of contract type but these policies often exclude T&M/LOE contracts unless the contract requires it.

5. What We Know • CPG II.4 Select Contract Type • Time and Materials and Labor Hour Contracts are not appropriate for major acquisitions that have passed the planning stage. • They are to be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate cost with any reasonable degree of confidence. • These types of contracts may be imbedded in the prime contract for short duration unquantifiable work, but never used as the primary vehicle for the delivery of products or services. • Earned Value is required on these types of contracts if they are used for development work.

6. What We Know • The use of EVMS on contract types to which it has not been traditionally applied, i.e., on FFP or T&M contracts; on efforts combining development and services; or on efforts where not only completion criteria but also specific performance standards must be met, requires flexibility that many EVM systems weren’t designed for and typically don’t provide. • Service contracts are required to be performance-based, with detailed Quality Assurance Surveillance Plans. Performance standards not met subject the supplier to payment reductions or reduced profits. • Planning for both Service and Capital acquisitions starts with a WBS.

7. Contract Element Required for EVM • A discrete SOW, from which an end product-oriented work breakdown structure can be defined, and a schedule. From these, a time-phased, resource loaded plan for executing the required work within the timeframe specified in the contract can be developed. • As stated in the NDIA PMSC EVMS Application Guide: • “Where work is discrete, EVM can be effectively employed. Where work is T&M/LOE, performance must be evaluated using other means that are not related to schedule milestones or measurement of progress.” • “For contracts issued in support of a program where the supplier does not control and manage the work scope and schedule (such as a staff augmentation contract), EVMS requirements should not be applied to the contract itself but at the program level where scope, schedule and cost are present.” (Source: NDIA PMSC EVMS Application Guide).

8. Performance–Based Service Acquisitions Have Discrete Work • Use a WBS to develop the requirements, cost and schedule for the contract • Tell contractor what the Government wants not “How To” do the work • Define clear measurable performance standards for all the work • Develop a Quality Assurance Surveillance Plan • Clearly define the method of measuring performance • Establish good and poor performance parameters • Require re-performance of unsatisfactory work, if feasible • Take appropriate action if work is not delivered • Past Performance rating • Reduction in price or fee

10. Quality Assurance Plan • Written procedure for each service to assess contractor performance against the standards with the use of the minimum amount of government resources and minimum disruption of contractors operation • Plan of actions - IAW Inspection of services clause. • If any services do not meet standards • May require the Contractor to perform services again • When re-performance cannot correct defect • Require corrective action for future; and reduce the price/fee to reflect the reduced value of the service

11. Performance Based Payments PBA/EVM Integration • Definition – Payment based on physical completion of authorized work • Basis • Performance measured by objective, quantifiable methods • Accomplishment of defined events, e.g., milestones • Other quantifiable measures of results • Applicability • CO and offeror agree on performance-based payment terms • Contract, individual order, or line item is FP-type and does not provide for progress payments • Procedures • Performance criteria that will trigger a payment is identified in the contract, along with a description of what constitutes successful performance • For each, the contract specifies a dollar amount or a percentage of the price • The customer must be able to readily verify successful performance of each such event or performance criterion

12. PBA/EVM Integration • “The concept of performance based payments is in fact a simple form of EVM.”1 • Like EVM, performance is measured by the physical completion of work, as defined by established completion criteria • As is the case with a discrete milestone, where EV can’t be claimed until the milestone is 100% complete, PBPs aren’t made until all of the completion criteria defined for each payment are met • Thus, the PMB and its component milestones can be used to establish and monitor the contractual PBP schedule • Similarly, if suitable completion criteria are established, EVM could be used to monitor performance against performance requirements (for incentive or profit adjustment purposes) 1Source: Performance Based Payments (PBPs) if it walks, talks, and quacks like EVM…it must be EVM, by Quentin W. Fleming and Joel M. Koppelman

13. How could we do it?

14. Change Common Approach Used for Services Management • Control Account for PMO • Work Package 1: Project Management • Resources: Fixed, Project Manager • One charge number, LOE • Work Package 2: Project Control • Resources: Fixed; Scheduler, Financial Analyst, EV Specialist, Data Entry Clerk • One charge number, LOE

15. Project Management Service Program Management Office Project Management Project Support Office Project Management Scheduling Finance “Common Approach”

16. Use Normal WBS Process/Planning Considerations • Isolate the must do work • Target a process for improvement • Isolate the important high risk work • Collect costs to objectively demonstrate correlations (cause & effect) • Understand what affects quality • Understand where the money is going • Manage it, Make it, Fix it, Maintain it, Operate it, Improve it

17. Project Management Service Program Management Office Project Management Project Support Office Training Admin Mgt Conferences & Seminars Operations Support EVMS Improvements Baseline Support Technical Direction / Mgt In-house Monthly Processing PMB Creation Tool & Utility Development Planning/ Statusing/ Analyzing/ Reporting Company Mandated Verification &Validation PMB Modification Research & Informal Train CAM /User Support Training Course Development

18. PM Basis of Estimate (BOE) • Administrative Management • Based on percentage times the number of FTEs (5-8%) • Technical Direction / Management • Based on percentage of technical work (7-12%) • Planning, Statusing, Analyzing, Reporting • Based on Should Costs, Business Processes, # of CAPs, Risk, Scope Stability, EVM Maturity, etc

19. Successful Application of EVM to Services Requires Change in Business Practices • Government must • Fully implement PBA • Clearly define the work • Provide WBS • Provide Schedule • Reduce the number of T&M/LOE contracts • Industry must • Adopt current EVM Systems to accommodate Services. • When necessary, if Government does not, • Define the work • Develop the WBS • Establish the schedule • Determine work to manage with EVM/PBSA

20. When should EVM be applied to service work? • Types of Contracts • Criteria for when it is appropriate • Separate major acquisition • Part of a major acquisition • FPI, CPI, CPAF • Criteria for when it is not appropriate • Stand alone contract • FFP, CPFF, Cost, T&M and LOE

21. When should EVM be applied to service work • Types of Work • When is it appropriate Operation/Service can be "projectized' A PMB can be created and maintained Work can be defined, budgeted, and scheduled EV reporting criteria is viewed as "real" PMB predictable over time Re-planning chore does not overwhelm actual work effort • When is it NOT appropriate? Work success is focused on process Timeliness, quality, customer satisfaction Workload for service is externally driven Work scope does not lend itself to PMB creation Can't link a time-phased budget or schedule to work output

22. Recommended Policy Changes • White paper will include specific language for each policy area below • OMB Circular A-11, Part 7 • Specific policy that all major acquisition contracts (both capital asset and services) will be developed using the WBS process and where appropriate EVM will be the preferred contract management method. • Federal Acquisition Regulation • Part 7 - Acquisition Planning • 7.105 Contents of written acquisition plans. • 7.106  Additional requirements for major systems. • Part 34 - Major Systems Acquisition • Part 36 – Construction and Architect and Engineering Contracts? • Part – 37 – Service Contracting