1.) can the CPR CDRL be modified to exclude entirely the FFP work (PMB must include all contracted work; all contracted work must be in the PMB?), and how is that done?
2. if the aggregate of non-FFP CLINs is less than $20M, is the contract exempt from EVM?
According to the Earned Value Management Implementation Guide (EVMIG), mixed contracts should be handled in the following manner:
188.8.131.52 Mixed Contract Types. Additional care is taken when applying EVM compliance and performance reporting to a particular contract that is a mix of contract types. For example, a contract may be composed of cost plus incentive fee (CPIF), FFP, and T&M elements. The following general guidance applies in this circumstance: limit reporting to what can and should be effectively used. In some cases, it may be advisable to exempt portions of the contract from CPR or IMS reporting, if they do not meet the overall threshold or contract type criteria. Normally, different contracting types are applied to different contract line item number (CLIN) items, and these can then be segregated within the WBS. Each portion of the contract that falls under a different contract type should be evaluated separately for EVM implementation, including CPR or IMS reporting. One caution that should be kept in mind is the potential impact to the CFSR, which can be applied to all contract types with the exception of FFP. It may be advisable to call for separate reporting by contract type in the CFSR. The following examples illustrate these concepts.
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Example 1: The planned contract is a development contract with an expected award value of $200M. At the time of award, the contract type is entirely cost plus award fee (CPAF). Subsequent to award, some additional work is added to the contract on a T&M CLIN.
Solution: Full EVM (validation and compliance) and CPR reporting should be applied at the time of award to the entire contract, but the T&M efforts should be exempted from CPR reporting at the time they are added to the contract. The T&M efforts are deemed low risk and are excluded from the IMS. However, the T&M efforts extend over several years and the PM wishes to have a separate forecast of expenditures and billings. The CFSR data item is therefore amended to call for separate reports for the CPAF and T&M efforts.
Example 2: The planned contract is a mix of development and production efforts, with a planned value of $90M. At the time of award, the development effort is estimated at $10M under a CPAF CLIN, and the production is priced as FFP for the remaining $80M.
Solution: The PM conducted a risk assessment and concluded that the risk did not justify EVM and CPR reporting on the FFP production effort, nor was there sufficient schedule risk to justify an IMS. The PM noted that the development effort fell below the mandatory $20M threshold, and determined that EVM was not applicable, based on a risk evaluation. However, a CFSR is determined to be appropriate for the development portion of the contract to monitor expenditures and billings. A CFSR would not be appropriate for production, as it is priced as FFP.
Example 3: A planned contract calls for development and maintenance of software. The overall value of the development portion is $30M, and the maintenance portion is $170M. Development is placed on a CPIF CLIN, while maintenance is spread over several cost plus fixed fee (CPFF) CLINs. It is anticipated that the majority of the maintenance effort should be LOE. The PM is concerned about proper segregation of costs between the efforts, and has determined that there is significant schedule risk in development. The PM is also concerned about agreeing up front to exclude the maintenance portion from EVM reporting. Since there is a specified reliability threshold that is maintained during the operational phase, performance risk has been designated as moderate. There are key maintenance tasks that can be measured against the reliability threshold.
Solution: EVM compliance and validation should be placed on the contract at the time of contract award. The CPR and IMS reporting are applied to the development portion at the time of contract award. Specific thresholds are established at contract award for variance reporting for the development effort. EVM and CPR reporting is also imposed on the maintenance portion of the contract. Format 1 reporting is established at a high level of the WBS, with Format 5 reporting thresholds for maintenance to be re-evaluated after review of the EVM methodology during the IBR. Variance reporting then specifically excludes WBS elements that are determined to be LOE. CFSR reporting is also required for the entire contract, with a requirement to prepare separate reports for the development and maintenance portions, since they are funded from separate appropriations. The IMS is required for the development effort, but not for the maintenance effort.
In conclusion, every contract is carefully examined to determine the proper application of reporting. The preceding examples were shown to illustrate the various factors that should be evaluated in determining the appropriate level of reporting. Every contract is different, and the analyst is encouraged to work with the PM and earned value staff officers to determine the appropriate requirements.
In your situation, you stated that the non-FFP CLINs aggregate to $30M which would require EVM application and reporting. As indicated in the examples above, you can tailor the reporting and application to only the non-FFP portions so that you receive meaningful data for analysis. If the total of the non-FFP CLINs were less than $20M then the contract could be exempt from EVM, however, if you anticipate the value exceeding the $20M threshold in the future, it is recommended to require EVM on the contract at the beginning. In your situation, since the CLINs cut across various WBSs, it may be difficult to separate the FFP effort from the non-FFP effort for management and reporting purposes. You would need to work with your team to include technical representatives to evaluate whether the work can be cleanly and easily segregated into distinct efforts. If not, it may be more effective to report at the contract level.
As for reporting, the following requirements apply to contracts between $20 and $50M of non-FFP work:
If your office decides to apply EVM to a portion of the contract, the CDRL items will need to be adjusted to clearly inform the contractor of the reporting requirements. This is done by tailoring each Data Item. CDRL Tailoring guidance is found at paragraph 184.108.40.206 with CPR specific guidance in paragraph 220.127.116.11 and IMS guidance in 18.104.22.168. Some highlights are included below:
22.214.171.124.3 General Tailoring Guidelines. All parts of DIDs can be tailored as necessary per the tailoring guidance contained in this guide. However, there are prohibitions against adding requirements beyond the requirements in the standard DID. Tailoring is accomplished via the DD 1423-1, CDRL form. Any tailoring instructions, such as frequency, depth or formats required, are annotated on the CDRL forms.
|≥ $20M but < $50M
|Includes: Contracts for highly classified, foreign, and in-house programs.
||o Must use ANSI/EIA-748 compliant management system. No validation. |
o CPR Formats 1 and 5 are required.
o Integrated Master Schedule is required.
|Not required for: Firm-fixed price contracts. (Requires business case analysis and MDA approval.) |
|Not recommended for: Contracts less than 12 months in duration.
|May not be appropriate for: Non-schedule based contract efforts, e.g., level of effort.
||o CPR Formats 2, 3, and 4 are optional. |
o Schedule Risk Assessment is optional.
The program office should have an internal process to review and approve all CDRLs for the contract. The EVMSS can provide assistance in tailoring. It should be stressed that the CPR and IMS are management reports and the CDRLs should therefore be prepared by or thoroughly discussed with the PM.
The CPR and the IMS apply to all contracts that meet the EVM applicability requirements. On contracts valued at or greater than $20M but less than $50M, it is recommended that CPR and IMS reporting be tailored. Tailoring to the specific needs of the program is highly encouraged and is described in greater detail below. Sample DD Forms 1423-1 for both the CPR and the IMS are included in Appendix C. ………
(CPR) 126.96.36.199.3.2 DD 1423-1, Block 16: This block is used to tailor the requirements in the DID. Tailoring can include: Format 1 reporting levels, required formats, reporting frequencies, designation of time periods for Formats 3 and 4, variance reporting thresholds, and delivery options. These are described below in more detail.
188.8.131.52.3.2.1 Format 1 Reporting Levels. The PM should carefully evaluate the CWBS reporting levels selected for routine reporting to ensure that only the minimum data necessary for effective management control and cost analysis requirements are obtained (in your situation it would also require tailoring of specific WBS elements since all of the WBS may not be under EVM). The reporting level specified in the CDRL is normally at contract WBS level 3. Reporting may be specified at lower levels for complicated, high cost or high risk items. It is not necessary for reporting levels in different legs of the WBS to be the same. For example, reporting in the Prime Mission Equipment leg of the WBS may be at WBS Level four, while reporting in the Training leg may be at Level three. Program management personnel should determine the appropriate level. (Refer to the guidance in paragraph 184.108.40.206.2, Risk Factors, for aid in selection of reporting levels.)
The reporting level of WBS elements should be evaluated periodically and changed, as necessary, to ensure that the CPR continues to satisfy the PMs needs.
The chart at https://acc.dau.mil/CommunityBrowser.aspx?id=470333 provides a decision tree used to determine applicability of EVM to contracts:
Applying the Policy - The decision process for applying earned value management to DoD contracts is essentially a three-step process. Contracts in this context means contracts, subcontracts, intra-government work agreements, and other agreements.
The first question to be answered is what is the nature of work and can it be measured? The best thing to do here is use the rule for segregating Discrete (or measurable) tasks from Level of Effort tasks. If there are no objective or useful measurement points to determine progress and to apply to determine future performance, EVM should not be required. Things like services and studies are the most common items that fall into this category. These are usually contracted by paying for a level of service or staffing level not a certain number of repairs or specific level of detail. While a study is certainly a deliverable, failure to deliver the study rarely causes a system to fail. If there is a deliverable like a piece of hardware or software that is part of an end item or required to complete the project, it is measureable and can benefit from EVM. Even efforts like testing have deliverables (data analysis and test reports) and we have criteria that tell us if we passed the tests. This question comes first because program offices do not always chose the correct contracting method.
Second question to be answered is what is the type of contract to be used? If the contract type is firm fixed price, earned value management is not required and the decision to apply earned value management must be approved by the milestone decision authority. If the contract type is cost or incentive, proceed to the third question.
The third question is what is the estimated total dollar value of the contract, including planned options in then-year dollars? If the contract value is less than $20 million, earned value management is not required but can be approved by the program manager if deemed necessary based on a risk assessment.
If the contract value is $20 million or greater, earned value management is required and the management system must comply with ANSI/EIA-748.
The final item is to how to treat mixed contracts—use of contract types on various Contract Line Item Numbers (CLINs). If the contract type is mixed, then apply the guidance separately to the different parts of the contract. (see discussion above)