Department of Defense news release (March 18, 2005): DoD implements Earned Value Management policy improvements.

Earned Value Management (EVM) is a widely accepted industry best practice for project management that is being used across the Department of Defense, the federal government, and the commercial sector. Consistent with industry practice, DoD adopted the American National Standards Institute/Electronic Industries Alliance Standard 748 (ANSI/EIA-748), Earned Value Management Systems (EVMS)--a.k.a. industry standard--in 1998.

On March 7, 2005, the under secretary of defense for acquisition, technology and logistics (USD(AT & L)) signed the memorandum preceding this article approving revisions to the DoD's EVM policy. The policy has been clarified to provide consistency in EVM application across DoD programs and to better manage the programs through improvements in DoD and industry EVM practices.

The previous EVM policy dates from the mid-1990s. Both industry and entities within the DoD expressed concerns about the state of EVM (and program management in general) in defense acquisition, citing inconsistency in the application of EVM, conflicting contractual requirements, duplicative management systems reviews, and unique surveillance oversight activities. These, as well as other factors, led DoD to re-examine its use of EVM to determine if changes were needed. Among the other factors were process and technology advancements and recent Office of Management and Budget (OMB) initiatives that revised the definition for major capital acquisitions and mandated the use of EVM to manage them.

The revised policy was developed by the Office of the Secretary of Defense (OSD) in consultation with the DoD stakeholders via the DoD EVM Working Group (military services, defense and intelligence agencies, the Defense Contract Management Agency (DCMA), and the Defense Acquisition University). It was also coordinated with OMB. Industry input was obtained through the National Defense Industrial Association (NDIA) and the industry representatives on the Government/Industry EVM Working Group.

Summarizing the Changes

OSD's EVM initiative resulted in several policy changes. The revised policy requires that all EVM applications comply with the industry standard. It also mandates new EVM application thresholds. The separate thresholds for research, development, test, and evaluation (RDT & E) and procurement were eliminated. The lower threshold was raised from $6.3 million (the former cost/schedule status report (C/SSR) threshold) to $20 million. The upper threshold was lowered from $73 million and $315 million (the former RDT & E and procurement thresholds) to $50 million. Other key changes were: revising and renaming the contract performance report (CPR) (previously titled cost performance report); expanding the application of the integrated master schedule (IMS) and integrating the IMS with the CPR; and clarifying the requirement for integrated baseline reviews (IBRs). In addition, the C/SSR and the cost performance report--no criteria were eliminated because they did not require contractor compliance with any minimum management control guidelines.

A business case analysis, based on DoD contracts data supplied by DCMA and industry-representative contracts data supplied by NDIA, concluded that the revised EVM policy would result in significant cost avoidance relative to the former EVM application thresholds. Specifically, the cost of eliminating C/SSRs on low dollar value contracts (below $20 million) more than offsets the increased cost of additional CPRs (and tailored CPRs, which replace C/SSRs on the higher dollar value contracts ($20 million and above).

Compliance with Industry Standard

A contractor EVMS compliant with the current version of the industry standard (as interpreted by the NDIA ANSI Intent Guide) is required whenever EVM is required. The 32 EVM guidelines in the industry standard establish minimum management control guidelines for an EVMS; they ensure the validity of the EVM information relied upon by management.

New Application Thresholds

* EVM compliance is required on cost or incentive contracts, subcontracts, intra-government work agreements, and other agreements valued at or greater than $20 million in then-year dollars. An EVMS that has been formally validated and accepted by the cognizant contracting officer is required on cost or incentive contracts, subcontracts, intra-work agreements, and other agreements valued at or greater than $50 million in then-year dollars. Although validation is not required below $50 million, the contractor must still comply with the industry standard. Once validated, continuing acceptance of a contractor's EVMS will be affirmed by means of government surveillance. The cost of validating contractor systems will be borne by the government.

* The implementation of EVM on cost or incentive efforts valued at less than $20 million is a risk-based decision at the discretion of the program manager. A cost-benefit analysis is required before a decision is made to implement EVM in these situations. EVM is optional for contracts of less than 12 months' duration and non-schedule-based kinds of contracts, such as level of effort. EVM may not be optional if the product or service being acquired is designated as a major capital acquisition in accordance with OMB Circular A-11, Part 7.

* The implementation of EVM on firm-fixed-price efforts is discouraged, regardless of dollar value. In exceptional cases, such as those in which the government believes there is significant schedule risk or is concerned about the impact of cost pressures on product or service quality, cost/schedule visibility may be desired. In these cases, the program manager is required to obtain a waiver for individual contracts from the milestone decision authority. Waiver requests must include a business case analysis that provides rationale for why a cost or incentive contract was not an appropriate contracting vehicle.

Cost and Schedule Reporting

* A CPR and an IMS are required whenever EVM is required. The industry standard leaves it to the government to determine the details of the EVM data to be reported and the level of analysis required. To ensure that contractors and DoD program offices "use EVM data to manage" rather than "manage the EVM data," the data item descriptions for the CPR (DI-MGMT-81466) and the IMS (DI-MGMT-81650) have been up-dated to reflect industry best practice and to enable the use of modern EVM software tools.

* Changes to the CPR include reduced time period for submission, requirement for digital submission, more comprehensive data requirements, and a more comprehensive minimum set of requirements for analysis in Format 5. Changes to the IMS include mandating the IMS and integrating it with the CPR and requirement for a fully integrated network of discrete contract tasks/activities. Both the CPR and IMS are tailorable for contracts valued at less than $50 million, and tailoring guidance has been included in the new version of the DoD Earned Value Management Implementation Guide (EVMIG).

Integrated Baseline Reviews

IBRs are required whenever EVM is required. IBRs are good practice for all programs, regardless of size, to assess that the contractor's baseline for performing the work is achievable and that both the contractor and the government understand the program's risks. If contract requirements or the contractor's approach for complying with contract requirements change significantly, an additional IBR should be conducted.

Implementing the Policy

The changes to DoD's EVM policy must be implemented on applicable contracts awarded based on solicitations or requests for proposal issued on or after April 6, 2005 (30 days from the date of the memorandum signed by the USD (AT & L)). While the changes are not retroactive, remaining contract duration and estimated costs, as well as other risk factors, will be taken into consideration when determining whether to modify existing contracts to require EVM. The costs associated with imposing new or different EVM requirements on existing contracts will be borne by the government.

The revised policy is being incorporated into DoD Instruction 5000.2 and the Defense Acquisition Guidebook. The changes have been incorporated into the EVMIG--the principal reference for detailed implementation guidance, which is available on the DCMA Web site at <http://guidebook.dcma.mil/79/guidebook_process.htm>. In addition, new Defense Federal Acquisition Regulation Supplement (DFARS) clauses are in process to implement the changes in solicitations and contracts.

The responsibility and requirement for government surveillance of contracts remains unchanged and is based on the effectiveness of the contractor's implementation of internal management controls. Guidance on surveillance activity can be found in the EVMIG.

For more information, contact Debbie Tomsic, OUSD(AT & L), Acquisition Resources and Analysis, [phone] or [e-mail].

Tomsic is a senior program analyst in the Office of the Under Secretary of Defense (Acquisition, Technology and Logistics). Acquisition Resources and Analysis. Acquisition Management. She is a certified acquisition professional in the program management career field.