Transcript NDIA PMSC’s Risk Management Team

Program Management Systems Committee
Service Contracts
Subcommittee
Joint Industry/Government
Meeting
January 29, 2009
1
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
2
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.
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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.
4
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.
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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 performancebased, 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.
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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).
•
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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
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Performance Requirements Summary
Required
Service
Performance Standard
AQL
Surveillance
Method
Task
value
%
Provide
User
Training
All organization users fully
know how to use the ABC
System to the extent
necessary to manage their
workload.
4.0%
Random
sampling
30%
ABC System is fully
operational to all users
during the month between
the hours of 6:00 a.m. and
9:00 p.m. EST Monday
through Friday, excluding
Federal Holidays.
1.0%
Maintain
System
(lot = # of
users)
100%
Inspection
(lot = # of
required
operational
hours
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40%
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
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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
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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)
Source: Performance Based Payments (PBPs) if it walks, talks, and quacks like EVM…it
must be EVM, by Quentin W. Fleming and Joel M. Koppelman
1
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How could we do it?
13
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
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Project Management Service
Program Management Office
Project
Management
Project Support
Office
Project
Management
Scheduling
Finance
“Common Approach”
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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
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Project Management Service
Program Management Office
Project
Management
Project Support Office
Training
Admin Mgt
Technical
Direction / Mgt
Planning/
Statusing/
Analyzing/
Reporting
Operations
Support
Baseline
Support
EVMS
Improvements
Monthly
Processing
PMB Creation
Tool & Utility
Development
Verification
&Validation
PMB
Modification
Research &
Informal Train
CAM /User
Support
Conferences &
Seminars
In-house
Company
Mandated
Training Course
Development
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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 (712%)
• Planning, Statusing, Analyzing, Reporting
• Based on Should Costs, Business Processes,
# of CAPs, Risk, Scope Stability, EVM Maturity,
etc
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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
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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
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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
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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
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