A firm-fixed-price (FFP) contract to build four prototype helicopter rotors has

Question

A firm-fixed-price (FFP) contract to build four prototype helicopter rotors has a contract value of $40M. The program manager believes there is significant schedule risk. How should Earned Value Management (EVM) be applied to the contract? A. Apply EVM; a formal Earned Value Management System (EVMS) validation is not required. B. Apply EVM only if the Milestone Decision Authority (MDA) approves the use of EVM based on a business case analysis. C. Apply EVM; a formal Earned Value Management System (EVMS) validation is required. D. Apply EVM; Earned Value Management System (EVMS) compliance is not required.

Explanation / Answer

Firm fixed-price (FFP) contracts don’t normally require EV data reporting since Government risk is minimized as the Contractor assumes all of the cost risk. The Contractor receives a flat amount regardless of the actual cost (regardless if there is a cost underrun or overrun). However, minimal EV requirements have been invoked in instances when the PM determines that schedule/cost/technical risk is considerable and failure to meet schedule milestones will impact program execution or execution of other dependent systems or events.

A- as per EVM policy, EVM is discouraged for Firm-Fixed Price (FFP) contracts, except when a FFP contract equal to or greater than $20M is used for development work. Exception requires business case and Milestone Decision Authority waiver. Here the contract value is $40M, so we can apply EVM.

A formally validated and accepted EVMS is required for cost or incentive contracts equal to or greater than $50M.

B - The application of EVM is discouraged on Firm-Fixed Price (FFP) (including FFP with economic price adjustment) contracts, subcontracts, intra-government work agreements, and other agreements, regardless of dollar value. In cases where cost/schedule visibility is required, such as for development work equal to or greater than $20M, the program manager must obtain a waiver for individual contracts from the Milestone Decision Authority. The program manager will prepare a business case that includes rationale for why a cost reimbursable or fixed price incentive contract is not an appropriate contractual vehicle.

C- EVM implementation compliant with the guidelines in ANSI/EIA 748 is required for those where contract value is $50M. An EVMS that has been formally validated and accepted by the cognizant contracting officer is required/

D- The Defense Contract Management Agency (DCMA) is DoD’s Executive Agent for EVMS. In its role as Executive Agent, DCMA has responsibility for EVMS compliance, validation, and surveillance.

Compliance with Validation (DFARS Subpart 234.2)
An offeror that proposes to use an EVMS previously accepted by the Government may satisfy this requirement by citing the Advance Agreement (AA) or Letter of Acceptance (LOA) and providing a copy of the approved system description. An offeror not having a previously accepted system should submit a Contractor EVMS Validation Plan to obtain EVM validation (refer to DFARS Clause 252.234-7001 “Notice of Earned Value Management System” for a description of the plan).

Compliance Only (No Validation) (DFARS Subpart 234.2)
If the offeror proposes to use a non-validated EVM system, the proposal includes a written summary of the EVMS. The description of the offeror’s EVMS is to be in sufficient detail to show how it complies with the ANSI/EIA-748 and address all guidelines. DFARS clause 252.242-7001 describes the requirements for this documentation. This clause also requires a matrix that cross references provisions of the EVM system description to the ANSI/EIA-748 guidelines. An offeror may elect to keep the system description general and rely on cross-referencing to internal procedures or policy manuals for a discussion of the details. In this case, the procedures and policy documents are to be referenced in, and considered a part of, the EVMS summary description.

The offeror may elect to use and apply a validated EVM system to meet this requirement and can satisfy this requirement by citing the AA or LOA and providing a copy of the approved system description.

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