Proposed changes to the FAR to implement the requirements in OMB
Circular A-11, Part 7, *Planning,* Budgeting*, Acquisition and
Management of Capital Assets,* for the use of Earned Value Management
Systems on major acquisitions.

**Part 2-Definition of Words and Terms**

**Subpart 2.1 Definitions**

> Add the following new definition on **page 2.1-5** after the
> definition of \"Drug-free workplace\": **\"Earned value management\"
> means a project management tool that effectively integrates the
> investment scope of work with schedule and cost elements for optimum
> investment planning and control. The qualities and operating
> characteristics of earned value management systems are described in
> American National Standards Institute (ANSI)/Electronic Industries
> Alliance (EIA) Standard -748- A-1998, *Earned Value Management
> Systems,* approved May 19, 1998, reaffirmed August 28, 2002.**
>
> Add the following new definition on **page 2.1-9** before the
> definition of \"Major systems\": **\"Major acquisition\" means a
> capital project that requires special management attention because of
> its: (1) importance to an agency\'s mission; (2) high development,
> operating, or maintenance costs; (3) high risk; (4) high return; (5)
> significant role in the administration of an agency\'s programs,
> finances, property, or other resources. The agency\'s documented
> capital programming process should include the criteria for
> determining when a project is classified as major. Resource Management
> Offices within the Office of Management and Budget (OMB) may, in
> coordination with the agency, identify additional specific agency
> projects as \"major acquisitions.\" Major systems as defined below are
> considered \"major acquisitions\". Major acquisitions are subject to
> the requirements of OMB Circular A-11, Part 7, *Planning, Budgeting,
> Acquisition and Management of Capital Assets.***

**Part 7-Acquisition Planning**

**Subpart 7.1,**

> Add a new sentence at the end of the current subparagraph **7.103(d)**
> to read: Establishing criteria and thresholds at which increasingly
> greater detail and formality in the planning process is required as
> the acquisition becomes more complex and costly, specifying those
> cases in which a written plan shall be prepared. **Acquisitions
> defined as major acquisitions under OMB Circular A-11, Part 7, must
> have a written acquisition plan that, as a minimum, meets the
> requirements in Part 7 and the Capital Programming Guide.**
>
> Add a new subparagraph **(C)** to **7.105(b)(4)(ii)** as follows: **If
> the order meets the criteria for a major acquisition, discuss why a
> contract was not solicited.**
>
> Add two new sentences to **7.105(b)(10)** so that it would read:
> *Management Information Requirements.* Discuss, as appropriate, what
> management system will be used by the Government to monitor the
> Contractor\'s effort. **For major acquisitions require the contractor
> to use an earned value management system that meets the guidelines of
> ANSI/EIA Standard 748, and discuss the methodology the Government will
> employ to analyze and use the earned value data to manage performance.
> In addition, discuss how the contractor\'s EVMS will be verified for
> compliance with the standard, and the conduct of independent baseline
> reviews.**

**Part 32-Contract Financing**

**Subpart 32.1004**

> Add an **(iv)** to **32.1004(b)(4)** to make that paragraph read:
>
> \(4\) Unless agency procedures prescribe the basis for establishing
> performance-based payment amounts, contracting officers may establish
> them on any rational basis, including (but not limited to)---
>
> \(i\) Engineering estimates of stages of completion;
>
> \(ii\) Engineering estimates of hours or other measures of effort to
> be expended in performance of an event or achievement of a performance
> criterion; ~~or~~
>
> \(iii\) The estimated projected cost of performance of particular
> events; **or**
>
> **(iv) The earned value of the work performed derived from the Earned
> Value Management System used on the contract.**

**Part 34-Major System Acquisition**

> Change the title of this Part to: **Major Acquisitions/Major System
> Acquisition**

**Subpart 34.000** change to read: This part describes acquisition
policies and procedures for use in acquiring **major
acquisitions/**major systems consistent with **OMB Circular No. A-11,
Part 7, *Planning, Budgeting, Acquisition, and Management of Capital
Assets (A-11, Part 7)****,* and OMB Circular No. A-109, Major System
Acquisitions (A-109) (see 34.003)

**Subpart** **34.002** change to read: The policies of this part are
designed to ensure that agencies acquire **major acquisitions/**major
systems in the most effective, economical, and timely manner. Agencies
~~acquiring major systems~~ shall---

(a) Promote innovation and full and open competition as required by Part
    6 in the development of major ~~system~~ **acquisition** concepts by
    --

    a.  \(1\) Expressing agency needs and major ~~system~~ acquisition
        program objectives...

**Subpart** **34.003**

> \(a\) Change the first line to read: As required by **A-11, Part 7
> and** A-109, the agency head...
>
> \(b\) Delete the word **\"system\"** in the second line.

(c) Delete the current wording and replace with: **Systems and other
    acquisitions normally designated as major are those
    programs/projects that require special management attention because
    of their: (1) importance to an agency\'s mission; (2) high
    development, operating, or maintenance costs; (3) high risk; (4)
    high return; (5) significant role in the administration of an
    agency\'s programs, finances, property, or other resources. The
    agency\'s documented capital programming process may establish
    additional criteria, as specified in A-11, Part 7 and A-109 for
    designating programs or project as major. Resource Management
    Offices within the Office of Management and Budget (OMB) may, in
    coordination with the agency, identify additional specific agency
    projects as major acquisitions/systems.\"**

**Subpart 34.004** change this subpart to read: The program manager,
**in conjunction with the contracting officer assigned to the integrated
project team (IPT)**, as specified in agency procedures, shall develop
an acquisition strategy tailored to the particular major ~~system~~
acquisition program. This strategy is the program manager\'s overall
plan for satisfying the mission need in the most effective, economical,
and timely manner. The strategy shall be in writing and prepared in
accordance with the requirements of Subpart 7.1, except where
inconsistent with this part, and shall qualify as the acquisition plan
for the major ~~system~~ acquisition, are required by that subpart.

**Subpart 34.005.1(a),** delete the words **\"major system\"** in the
first sentence.

**Subpart** **34.005-2(b)** add a new **(6)** as follows: **(6) Require
the use of an Earned Value Management System that meets the criteria of
ANSI/EIA Standard--748--A-1998. (See 42. 1106(c) for the use of earned
value management systems and the reporting requirements).**

**Subpart 34.005-2** add a new **(d)** as follows: **To ensure that both
the Government and the contractor have a complete understanding of the
contract requirements and the contractor\'s proposed solution, an
integrated baseline review (IBR) should be conducted on the initial
performance measurement baseline (PMB) established by the contractor\'s
proposed EVMS work breakdown structure (WBS) before award of the
contract. Additional IBR\'s should be scheduled throughout the life of
the contract to maintain the program management teams\' mutual
understanding of the risks inherent in the PMB. IBR\'s should be
performed before significant baseline changes (exercise of options or
incorporation of major modifications) are approved. The objective of the
IBR is for the Government and the Contractor to jointly assess technical
areas, such as the Contractor\'s planning, to ensure complete coverage
of the statement of work, logical scheduling of the work activities,
adequate resources, methodologies for claiming earned value, and
identification of inherent risks. The review verifies the technical
content of the PMB and the realism of the related performance budgets,
resources, and schedules. Management and mitigation of risks prior to
contract award should result in a realistic and achievable baseline and
allow for effective, on target contract performance through earned value
management. If the Contracting Officer determines that the urgency of an
award action does not allow the IBR to be conducted before an award
action, the IBR shall be scheduled as early as practicable after that
action takes place to mitigate the risks to contract performance without
a joint agreement on cost, schedule and performance goals.**

**Part 37 -- Service Contracting**

**Subpart 37.102,** add a new subparagraph (i) as follows: **Service
contracts that are, or are part of, major acquisitions are subject to
the requirements in Part 34 in addition to the requirements of this
Part. For major acquisition service contracts that provide development
or integration services, the use of EVMS must be included in the
contract and evaluation of the EVMS data must be part of the quality
assurance surveillance plan discussed in Subpart 37.602-2.**

**Part 39-Acquisition of Information Technology**

**Subpart** **39.101**, add a new subparagraph (d) as follows: **For
acquisitions defined as major acquisitions, agencies must follow OMB
Circular A-11, Part 7, Planning, Budgeting, Acquisition, and Management
of Capital Assets.**

**Part 42-Contract Administration and Audit Services**

**Subpart 42.302(a),** add two new subparagraphs numbered (71) and
(72):.

The new (71) should read: **Review and evaluate the contractor\'s
project management system for major acquisitions to verify that it meets
the criteria in ANSI/EIA Standard --748. Provide verification to
Contracting Officers upon request.**

The new (72) should read: **Assist the contracting officer in the
conduct of integrated baseline reviews (IBR) before or after contract
award as required by the contracting officer.**

**Subpart 42.1101,** change to read: Production surveillance is a
function of contract administration used to determine contractor
progress and to identify any factors that may delay performance.
Production surveillance involves Government review and analysis of --

(a) Contractor performance plans, schedules, **cost** controls, and
    industrial processes **to meet the contract baselines**: and

> \(b\) The contractor\'s actual performance ~~under them~~ **in meeting
> the baseline goals**.

**Subpart 42.1102, Applicability**, change to read:

This subpart applies to all contracts for supplies or services other
than facilities, construction contracts, and Federal Supply contracts,
**unless the facilities, construction contracts, and orders placed under
Federal Supply Schedule contracts are a major acquisition as defined in
Subpart 2.1.** See Part 37, especially Subpart 37.6, regarding
surveillance of contracts for services.

**Subpart 42.1103, Policy**, change to read:

The contractor is responsible for ~~timely contract performance~~
**meeting the contract cost, schedule and performance goals.** The
Government will maintain surveillance of contractor performance as
necessary to protect its interests. When the contracting office retains
a contract for administration, the contracting officer administering the
contract shall determine the extent of surveillance.

**Subpart 42.1104 Surveillance requirements,** add a new (d) and change
the current (d) to (e).

> **(d)** **For major acquisitions reports from the earned value
> management system shall be used as part of the surveillance system.**

**Subpart 42.1106 Reporting Requirements,** add a new second sentence:

When information on contract performance status is needed, contracting
officers may require contractors to submit production progress reports
(see 42.1107(a)). **For major acquisitions contracting officers shall
require contractors to submit EVMS reports (see 42.1107(c)).**

**Subpart 42.1107 Contract clauses,** Add a new (c) as follows:

(**c) Major acquisitions require contractor compliance with earned value
management system criteria --**

**Use a clause substantially like the clause at 52.242-xxx, Notice of
Earned Value Management System, in solicitations; and**

**Use a clause substantially like the clause at 52.242-yyy, Earned Value
Management System, in solicitations and contracts.**

**Contracting Officers may require additional reporting than specified
in the clause based on the size and complexity of the contract.**

**Part 52-Solicitation Provisions and Contract Clauses**

**52.242-XXX Notice of Earned Value Management System.**

As prescribed in 42.1107(c)(1), use the following:

NOTICE OF EARNED VALUE MANAGEMENT SYSTEM

(a) The offeror shall provide documentation that the cognizant
    Administrative Contracting Officer (ACO) or a Federal Department or
    Agency has recognized that the proposed earned value management
    system (EVMS) complies with the EVMS criteria in ANSI/EIA Standard
    -- 748 -- A -- 1998, as reaffirmed.

(b) If the offeror proposes to use a system that does not meet the
    requirements of paragraph (a) of this provision, the offeror shall
    submit a comprehensive plan for compliance with the EVMS criteria.

    1.  the plan shall --

        A.  Describe the EVMS the offeror intends to use in performance
            of the contracts;

        B.  Distinguish between the offeror\'s existing management
            system and modifications proposed to meet the criteria;

        C.  Describe the management system and its application in terms
            of the 32 EVMS criteria;

        D.  Describe the proposed procedure for administration of the
            criteria, as applied to subcontractors: and

        E.  Provide documentation describing the process and results of
            any third-party or self-evaluation of the system\'s
            compliance with the EVMS criteria.

    2.  The offeror shall provide information and assistance as required
        by the Contracting officer to support review of the plan.

    3.  The Government will review the offeror\'s plan for EVMS before
        contract award.

(c) Offerors shall identify the major subcontractors, or major
    subcontracted effort if major subcontractors have not been selected,
    planned for application of the criteria. The prime contractor and
    the Government shall agree to subcontractors selected for
    application of the EVMS criteria.

(End of provision)

**52.242-YYYY Earned Value Management System.**

As prescribed in 42.1107(c)(2), use the following clause:

EARNED VALUE MANAGEMENT SYSTEM

(a) "Earned Value Management (EVM) as used in this clause, means a
    project management system used by the contractor that effectively
    integrates the project technical scope of work with schedule and
    cost elements for optimum project planning and control. The
    qualities and operating characteristics of earned value management
    systems are described in American National Standards Institute
    (ANSI)/Electronic Industries Alliance (EIA) Standard-748- A-1998,
    *Earned Value Management Systems, approved: May 19, 1998,
    Reaffirmed: August 28, 2002.* A copy of the standard is available
    from Global Engineering Documents (1-800-854-7179).

(b) In the performance of this contract the contractor shall use an
    earned value management system (EVMS) to manage the contract that --

> \(1\) At the time of contract award has been recognized by the
> contracting officer or her/his authorized representative as compliant
> with the guidelines in ANSI/EIA Standard -748-A. If, at the time of
> award, the contractor\'s EVMS has not been recognized by the
> Contracting Officer as complying with EVMS criteria, the contractor
> shall apply the system to the contract and shall be prepared to
> demonstrate to the contracting officer that the EVMS complies with the
> EVMS criteria referenced in paragraph (a) of this clause
>
> \(2\) Provides, in a format prescribed by the Contracting Officer,
> (XML, direct on-line access, or other) on a monthly basis, or more
> often as negotiated by the contracting officer, the following project
> status information at WBS level 3, with capability to report at any
> lower level at the request of the Contracting Officer:
>
> \(a\) Budgeted (planned) cost for work scheduled (BCWS); = Planned
> Value
>
> \(b\) Budgeted cost for work performed (BCWP); = Earned Value
>
> \(c\) Actual cost of work performed (ACWP); = Actual Cost,
>
> \(d\) Budget at completion (BAC);
>
> \(e\) Estimate at completion (EAC): and
>
> \(f\) Provide a performance curve graph plotting cumulative BCWS,
> BCWP, and ACWP on a monthly basis from inception of the contract, with
> BCWS plotted to completion and projecting the ACWP curve to the
> estimate at completion (EAC) value.
>
> \(g\) In addition, provide the following EVMS variance analysis:
>
> Cost variance = (BCWP minus ACWP);
>
> Cost Variance % = (CV/BCWP X 100%);
>
> Cost Performance Index (CPI) = (BCWP/ACWP);
>
> Schedule Variance = (BCWP minus BCWS);
>
> Schedule Variance % = (SV/BCWS X 100%);
>
> Schedule Performance Index (SPI) = (BCWP/BCWS);
>
> Two independent Estimates at Completion (EAC);

(1) ACWP cum + 1/CPI X (BAC minus BCWP cum);

(2) ACWP cum + 1/CPI X SPI X (BAC minus BCWP cum):

> Variance at Completion (VAC) = (BAC minus EAC) for the EAC and both
> independent EACs above;
>
> Variance at Completion % = (VAC/BAC X 100%) for both the EAC and both
> independent EAC's above; and
>
> Expected Completion Date.
>
> \(3\) Explain the reasons for all variances that exceed the statutory
> threshold of 10 percent or a lower threshold specified in the
> contract.
>
> \(4\) Define technical performance variance. Explain, based on work
> accomplished as of the date of the report, whether the performance
> goals will be achieved, and the impact to the cost and schedule goals.
>
> \(5\) Discuss the contractor EAC and the differences with the two
> independent EAC's calculated as above.
>
> \(6\) Discuss the corrective actions that will be taken to mitigate
> all variances identified, the risk associated with the actions, and
> how close these actions will bring the project to the original
> baseline. Define proposed baseline changes, if necessary.
>
> \(c\) The Government may require an integrated baseline review (IBR)
> at (1) contract award, (2) exercise of significant options, or (3)
> incorporation of major modifications. Such reviews will normally be
> scheduled before award of the contract action. If the contracting
> officer determines that the urgency of the award does not allow time
> to conduct the IBR before award, the IBR shall be scheduled as early
> as practicable, but not later than 180 days after the award action.
> The objective of the integrated baseline review is for the Government
> and the Contractor to jointly assess technical areas, such as the
> Contractor's planning, to ensure complete coverage of the statement of
> work, logical scheduling of the work activities, adequate resources,
> methodologies for claiming BCWP, and identification of inherent risks.
>
> \(d\) Contractor-proposed EVMS changes require approval of the
> contracting officer prior to implementation. The Contracting Officer
> shall advise the contractor of the acceptability of such chances
> within 30 calendar days after receipt of the notice of proposed
> changes from the contractor.
>
> \(e\) The Contractor agrees to provide access to all pertinent records
> and data requested by the contracting officer or a duly authorized
> representative. Access is to permit Government surveillance to ensure
> that the EVMS conforms, and continues to conform, with the performance
> criteria referenced in paragraph (a) of this clause.
>
> \(f\) The contractor shall require the subcontractors specified below
> to comply with the performance criteria of this clause, and allow an
> authorized representative of the Contracting Officer to perform
> surveillance and monitor monthly EV performance. The contractor shall
> conduct IBR's with government participation for the subcontractors
> specifically identified. (Insert list of applicable subcontractors).
>
> (End of Clause)