OUSD(AT&L)DPAP EVM Status and Issues

1. OUSD(AT&L)DPAPEVM Status and Issues Michael PelkeyOUSD(AT&L) Defense Procurement & Acquisition Policy 4 February 2010

2. Agenda • EVM Status Update • DFARS Proposed Rule on Business Systems

3. EVM Status Update • 27 Aug 09 – Dick Ginman, Dep. Dir. DPAP, designated DoD Ombudsman for EVM Issues • 2 Nov 09 – DoD EVM Report transmitted to Congress • 4 Jan 10 – Gary Bliss designated Director, Performance Assessments & Root Cause Analyses

4. DFARS Proposed Rule • Business Systems-Definition and Administration(DFARS Case 2009-D038) • Applies to any contract, of any type, with a requirement to maintain an approved system for Subcontracts, Government Property, Cost Estimating, EVM, MMAS, or Accounting system.

5. Background • Aug 09 - Commission on Wartime Contracting (CWC) hearing on the adequacy of contractor business systems • Sep 09 – CWC published Special Report on Contractor Business Systems, “Defense agencies must improve their oversight of contractor business systems to reduce waste, fraud, and abuse.” • Nov 09 - CWC found that contractual mechanisms to enforce compliance with FAR and DFARS through payment withholding are inconsistent and, in some cases, completely lacking for key business systems. • 15 Jan 10 – DFARS Proposed Rule published for public comment.

6. Business Areas/Systems DCAA internal control audit Business Areas DCMA-administered Business Systems Accounting System Purchasing System Estimating System Material Management and Accounting System (MMAS) Earned Value Management System (EVMS) Property Management System • Control Environment and Overall Accounting System Controls • Purchasing (subcontracting) Controls • Indirect and Other Direct Cost Controls • Compensation System Controls • Billing System Controls • Budget and Planning System Controls • Estimating System Controls • Material Management and Accounting System Controls • Labor System Controls • IT General System Controls

7. DFARS Proposed Rule • Adopts the 6 business systems defined in the FAR/DFARS • Makes changes to EVMS clause, new or revised clauses for other business systems • New “Business Systems” clause provides for payment withholding of 10% or 5% for deficiencies in each of 6 Business systems

8. EVMS clause changes • Requires ACO notification of system deficiency • Requires contractor response within 30 days of notification • If ACO determines that the EVMS contains a deficiency, the ACO will withhold payments IAW the Business Systems clause.

9. Payment Withholding • Upon determination that a deficiency in a Business System exists, ACO will withhold 10% of contract payments • Upon receipt of an acceptable corrective action plan (CAP) within 45 days, ACO will reduce withholding for that Business System deficiency to 5% • If the ACO determines that the contractor fails to follow the CAP, withholding reverts back to 10% • Cumulative withholding across all Business Systems shall not exceed 50% of payments due, except where deficiencies: • Are highly likely to lead to improper contract payments being made, or • Represent an unacceptable risk of loss to the Government

10. Questions?