### February 16, 2006

### AGAR ADVISORY

##### UNITED STATES DEPARTMENT OF AGRICULTURE

##### OFFICE OF PROCUREMENT AND PROPERTY MANAGEMENT

**AGAR ADVISORY NO. 80**

**Requirement for Use of an Earned Value Management System (EVMS)**

**INTRODUCTION**: The purpose of this Agriculture Acquisition Regulation
(AGAR) Advisory is to establish policy and procedures for incorporating
requirements for Earned Value Management (EVM) Systems in Department of
Agriculture (USDA) contracts and orders for major information technology
(IT) investments.

**SUMMARY:** Use of an EVMS for USDA IT investments enables
investment/program managers and senior management to better track the
progress of IT investments and enhances USDA's ability to make informed
decisions concerning these investments. EVM is a project management
technique that measures the actual progress of a project, taking into
account the work completed, the time taken and the costs incurred. This
information can then be compared to the original project estimates to
enable the investment/program manager to assess the actual versus
planned progress of the project. The USDA Office of the Chief
Information Officer (OCIO) has established requirements for use of EVM
on major IT investments. This AGAR Advisory recaps these OCIO
requirements and establishes policy and procedures for including
requirements for EVM systems in USDA contracts.

**SPECIFIC ISSUES:**

-   [BACKGROUND]{.underline}

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-   Title V of the Federal Acquisition Streamlining Act of 1994 (FASA)
    required agency heads to approve or define the cost, performance and
    schedule goals for major acquisitions and achieve, on average, 90%
    of the cost, performance and schedule goals established.

-   The Clinger-Cohen Act of 1996 directed the Office of Management and
    Budget (OMB) to develop, as part of the budget process, a process
    for analyzing, tracking and evaluating the risks and results of all
    major capital investments for information systems for the life of
    the system.

-   OMB Circular A-11, Part 7, Planning, Budgeting, Acquisition and
    Management of Capital Assets, and the supplement to Part 7, the
    Capital Programming Guide, were written to meet the statutory
    requirements of FASA and the Clinger-Cohen Act.

-   OMB Circular A-11, Part 7, Section 300, instructs Federal executive
    agencies on the budget justification and reporting requirements for
    major investments. Section 300.7 requires that these executive
    agencies submit an Exhibit 300, Capital Asset Plan and Business
    Case, for all major investments as part of the annual budget
    submission. As part of the funding decision process, each Exhibit
    300 is scored by OMB.

-   OMB Circular A-11, Part 7, further requires use of an EVMS that
    meets the American National Standards Institute (ANSI)/Electronics
    Industries Alliance (EIA) Standard 748 "for both Government and
    contractors costs, for those parts of the total investment requiring
    development efforts (e.g., prototypes and testing in the planning
    phase and development efforts in the acquisition phase)" and
    requires that agencies "show how close the investment is to meeting
    the approved cost, schedule and performance goals."

-   The USDA Information Technology Capital Planning and Investment
    Control (CPIC) Guide establishes the process and strategies for
    USDA's management of its IT investment portfolio and establishes the
    thresholds and criteria for determining which USDA IT projects are
    deemed to be major IT investments. The USDA CPIC includes
    implementing information on the preparation and submission of
    Exhibit 300s to OMB via the USDA OCIO.

-   USDA Departmental Regulation (DR) 3130-006, "Information Technology
    Earned Value Management," defines the policies and responsibilities,
    for using and reporting EVM for major USDA IT investments.
    (<http://www.ocio.usda.gov/directives/#3000link>)

-   USDA Chief Information Officer (CIO) and USDA Senior Procurement
    Executive (SPE) memoranda of November 22, 2005 and September 29,
    2004 provide additional USDA policy and guidance for incorporating
    EVM requirements in major IT investments.

-   There is currently a Federal Acquisition Regulation (FAR) case in
    process to establish requirements for inclusion of EVMS provisions
    and clauses in solicitations and contracts. This AGAR Advisory will
    be modified, as necessary to comply with the FAR upon issuance of
    the formal change.

    -   [REQUIREMENTS FOR EVM IN USDA MAJOR IT INVESTMENTS]{.underline}

        -   DR 3130-006 establishes thresholds for application of USDA
            EVM policy for major IT investments. These thresholds apply
            only to the development, modernization or enhancement
            (D/M/E) expenditures of a major IT investment.

        -   DR 3130-006 requires:

            -   Compliance with the ANSI/EIA-748-A EVM Standard for:

(1) All new major IT investments (major applications) for which agencies
    are planning to spend more than \$20 million in D/M/E for
    application development over the agency-defined life cycle.

(2) All major IT investments that are currently in process and are
    budgeted for more than \$20 million in D/M/E during the remainder of
    the life cycle.

-   All major IT investments that have planned budgets in excess of \$50
    million in D/M/E over the defined life cycle must be compliant with
    the ANSI/EIA-748 EVM Standard [and]{.underline} must have a written
    certification, provided to OCIO, that the EVM system being used is
    in full compliance with the ANSI/EIA-748 EVM Standard.

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-   Pursuant to DR 3130-006 and USDA CIO and SPE memorandum of November
    22, 2005:

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-   The D/M/E dollars thresholds apply to the total D/M/E cost for the
    investment including all contracted and in-house work. Data
    collected from each contracted and in-house element of the project
    will be combined to measure and report an investment's performance.

-   For IT investments requiring an EVMS, for which IT investment
    integration will be performed under a contract, the solicitations
    and contracts may require inclusion of an EVMS provision and clause.

-   Contracts that support IT investments requiring EVM systems, but
    which are not the IT investment integration contracts, must include
    requirements for the contractor to provide reports of EVM data for
    all D/M/E costs to the investment integrator (either the Government
    or Contractor integrator).

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-   The thresholds and criteria for determining whether an EVMS is
    required for specific IT investments are established by the USDA
    OCIO and are based on estimated costs of the IT investments. The
    agency investment/program manager has primary responsibility for
    determining whether an EVMS is required for a specific in-house IT
    investment. The agency investment/program manager and the
    contracting officer are jointly responsible for determining if, and
    to what extent, the EVMS requirement will be applied to contracts.

    -   POLICY AND PROCEDURES FOR INCLUSION OF REQUIREMENTS FOR EVMS IN
        SOLICITATIONS AND CONTRACTS

        -   The determination of whether a solicitation/contract should
            include a requirement

> for a contractor to have an EVMS must be coordinated between the IT
> investment/program manager and the contracting officer. The
> determination of whether an EVMS is required for an investment is
> based on the estimated D/M/E costs for the IT investment. The
> determination of whether a particular solicitation/contract must
> include a provision and clause requiring the contractor to have an
> EVMS is based on the purpose of the contract, the contract type and
> the estimated contract value. For IT investments for which the
> Government is the integrator, the types of reports and information
> required from contractors providing support must be developed by the
> investment/program manager and the contracting officer based on the
> contract type and value.

-   Solicitations and contracts shall include a requirement for an EVMS
    that is compliant with ANSI/EIA Standard 748, in accordance with the
    following.

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-   Cost-reimbursement or incentive contracts (as defined in FAR part 2
    and subparts 16.3 and 16.4) with estimated values (including
    options) over \$20 million up to and including \$50 million shall
    include a requirement for an EVMS compliant with ANSI/EIA Standard
    748.

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-   Cost-reimbursement or incentive contracts (as defined in FAR part 2
    and subparts 16.3 and 16.4) with estimated values (including
    options) over

> \$50 million shall include a requirement for an EVMS that:

(1) is compliant with ANSI/EIA Standard 748; and

(2) in accordance with DR 3130-006 has been certified as being in full
    compliance with the ANSI/EIA 748 EVM Standard.

-   Firm-fixed price, time and materials and labor hour contracts should
    not normally include a requirement for an EVMS, regardless of dollar
    value. However, a requirement for an EVMS compliant with ANSI/EIA
    Standard 748 may be included in such contracts valued at over \$20
    million when the contract requirements are solely for development,
    and the necessary cost and schedule information cannot be obtained
    absent such a requirement. In these instances the acquisition plan
    for the contract shall set forth the rationale for the determination
    to include a requirement for an EVMS compliant with ANSI/EIA
    Standard 748.

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-   Contracts of any type valued at \$20 million or less if the
    contracting officer and IT investment/program manager determine that
    an ANSI/EIA Standard 748 compliant EVMS is needed. When such a
    determination is made, the Acquisition Plan shall set forth the
    rationale for the inclusion of the requirement for an ANSI/EIA
    Standard 748 compliant EVMS was made.

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-   An integrated baseline review (IBR) is a joint assessment by the
    contractor and the Government, intended to provide a mutual
    understanding of the inherent risks in the contractor's performance
    plans and the underlying management control systems. Under contracts
    that include a requirement for an EVMS, the IT investment/program
    manager may determine that an IBR is required. If required, the IBR
    will usually be conducted after contract award. If a pre-award IBR
    is considered necessary by the Government, the Acquisition Plan must
    discuss why a pre-award IBR is appropriate, including: (i) how it
    will be considered in the source selection decision, (ii) how it
    will be conducted in the source selection process, and (iii) whether
    offerors will be compensated when participating in a pre-award IBR.

-   In general, the contracting officer will require contractors to
    submit EVM reports on a monthly basis.

-   For an acquisition that includes a requirement for an EVMS (whether
    certified or not), the investment/program officer, with the
    assistance of the contracting officer, will include in the
    Acquisition Plan, a description of the methodology the Government
    will employ to analyze and use the earned value data provided by
    contractor's EVMS to assess and monitor contract performance. In
    addition, when a validated EVMS is required, the Acquisition Plan
    should include a discussion on how the contractor's EVMS will be
    validated for compliance with the standard; and if IBRs will be
    conducted, how they will be conducted.

-   EVMS requirements will be applied to subcontractors using the same
    rules as applied to the prime contractor.

    -   INTERIM AGAR 434 AND 452 SOLICITATION PROVISION, CONTRACT CLAUSE
        AND USE PRESCRIPTIONS

    7001. Contracting officers shall include a provision and a clause
          that contain language similar to that in 452.234-70 and
          452.234-71 in solicitations and contracts that require
          contractors to use a certified EVMS.

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    a.  If a pre-award integrated baseline review (IBR) is required, use
        Alternate I of 452.234-70.

    b.  If a post-award integrated baseline review (IBR) is required,
        use Alternate I of 452.234-71.

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    7002. For solicitations and contracts that require an EVMS compliant
          with ANSI/EIA Standard 748, for which certification by the
          Government is not required, include in the statement of work a
          requirement similar to the following:

> The contractor is required to have an Earned Value Management System
> that complies with ANSI/EIA Standard 748; however, Government review
> and certification of the contractor's management system is not
> required.
>
> 452.234-70 NOTICE OF EARNED VALUE MANAGEMENT SYSTEM (Dec 2005)

(a) The offeror shall provide documentation that the Government has
    recognized that the proposed earned value management system (EVMS)
    complies with the EVMS guidelines in ANSI/EIA Standard 748 (current
    version at the time of solicitation).

(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 guidelines.

> \(1\) 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 guidelines;

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

D.  Describe the proposed procedures for administration of the
    guidelines, 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 guidelines.

    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 an EVMS before
        contract award.

> (End of provision)
>
> *Alternate I:* (Dec 2005) As prescribed in 434.7001(a), if a pre-award
> integrated baseline review (IBR) will be required, add the following
> paragraph (c) to the basic provision 452.234-70.
>
> \(c\) The Government will conduct an integrated baseline review (IBR),
> as designated by the agency, prior to contract award. 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 contract requirements,
> logical scheduling of the work activities, adequate resources,
> methodologies for earned value and identification of inherent risks.
>
> 452.234-71 EARNED VALUE MANAGEMENT SYSTEM (Dec 2005)

(a) In the performance of this contract the contractor shall use an
    earned value management system (EVMS) to manage the contract that at
    the time of contract award has been determined by the Government as
    compliant with the guidelines in ANSI/EIA Standard 748 (current
    version at time of award) and the contractor will submit reports in
    accordance with the requirements of this contract.

(b) If, at the time of award, the Contractor's EVMS has not been
    determined by the Government as complying with EVMS guidelines (or
    the Contractor does not have an existing cost/schedule control
    system that is compliant with the guidelines in ANSI/EIA Standard
    748 (current version at time of award)), the Contractor shall apply
    the system to the contract and shall be prepared to demonstrate to
    the Government that the EVMS complies with the EVMS guidelines
    referenced in paragraph (a) of this clause.

(c) Unless a waiver is granted by the Contracting Officer, 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 changes within 30 calendar
    days after receipt of the notice of proposed changes from the
    contractor. If the advance approval requirements are waived by the
    Contracting Officer, the contractor shall disclose EVMS changes to
    the Contracting Officer at least 14 calendar days prior to the
    effective date of implementation.

(d) The contractor shall 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, to the
    performance criteria referenced in paragraph (a) of this clause.

(e) The contractor shall include this clause in subcontracts that are
    subject to the EVMS requirements of this contract.

> (End of Clause)
>
> *Alternate I:* (Dec 2005) As prescribed in 434.7001(b), if a
> post-award integrated baseline review (IBR) will be required, add the
> following paragraph (f) to the basic clause 452.234-71.
>
> \(f\) An Integrated Baseline Review (IBR) shall be scheduled as early
> as practicable after contract award, but not later than 180 days after
> award. An IBR will also be required at (1) exercise of significant
> options or (2) incorporation of major modifications. Such review will
> normally be
>
> scheduled before the exercise of the significant option or issuance of
> the major modification.

A copy of the joint USDA SPE and USDA CIO memoranda of [November 22,
2005](../evmsmemo_05nov22.pdf) and [September 29,
2004](../evmsmemo_04sep29.pdf), and a mini-glossary of terms used in
this Advisory are attached.

If you have questions about DR 3130-006, the application of EVM systems
to IT investments, or the USDA OCIO thresholds, please contact Dan
Stoltz, OCIO, by telephone at (202) 720-9080 or by email to
<dan.stoltz@usda.gov>.

####### For other questions about this advisory, please contact Pat Honda by telephone at 

\(202\) 720-8924, by fax at (202) 720-8972, or by email to
<pat.honda@usda.gov>. This advisory is available on the USDA homepage at
<http://www.usda.gov/procurement/policy/advisories.html>*.*

**EXPIRATION DATE**: Effective until cancelled.

**\[END\]**

**Glossary of Terms**

**AGAR Advisory Number 80**

"Capital project" (investment) means the acquisition of a capital asset
and the management of that asset through its life-cycle after the
initial acquisition. Capital projects (investments) may consist of
several useful segments. (OMB Circular A-11)

"Earned value management" (EVM) is a project (investment) 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)/Electronics Industries Alliance (EIA) Standards - 748 - 1998,
Earned Value Management Systems, approved May 19, 1998. It was
reaffirmed on August 28, 2002. (OMB Circular A-11)

> The ANSI/EIA-748 Standard is available from Global Engineering
> Documents (for a fee) at (1-800-854-7179) or online at
> <http://global.ihs.com/>. Information on earned value management
> systems in available at
> [www.acq.osd.mil/pm](http://www.acq.osd.mil/pm).

"Development, modernization, or enhancement (D/M/E) costs." Costs for
new investments, changes or modification to existing systems that
improve capability or performance, changes mandated by the Congress or
agency leadership, personnel costs for project (investment) management,
and direct support. (USDA CPIC Guide for Fiscal year 2007)

"Integrated Baseline Review." An IBR is a formal review conducted by the
government program manager and technical staff, jointly with their
contractor counterparts, following contract award to verify the
technical content of the performance measurement baseline and the
accuracy of the related resource (budgets) and schedules. An IBR will
also be performed when work on a production option of a development
contract begins or, at the discretion of the program manager, when a
major modification to an existing contract significantly changes the
existing PMB. When major events occur within the life of a program, e.g.
PDR, CDR, etc., and a significant shift in the content and/or
time-phasing of the PMB occurs, the PM may conduct a review of those
areas affected by the change with the associated resources and
schedules. The intent is for the IBR to be a continuous part of the
process of program management by both the government and the contractor.
(Excerpt from Acquisition Community Connection Website -
www.dau.acc.mil)

"Major acquisition" means a capital project (investment) 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; or (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 an investment is classified as
major. (OMB Circular A-11)