EVM Goes Mainstream

Earned Value Management (EVM) is the 21st Century term for a project management discipline that has been around for more than 40 years. It has its roots in the Program Evaluation and Review Technique (PERT) methodology developed by Booz Allen and Hamilton for the Polaris Submarine program in the late 1950s. By the late 1960s, the Department of Defense had developed its own very rigorous standards for program evaluation referred to as the Cost and Schedule Control Systems Criteria (CSCSC), often called the (CS)2 Criteria or just CS2.

DOD’s standard was not widely applied even within the Armed Services and never outside the Department. The problem was the cost. The CS2 standard was probably over specified and that contributed to the cost of implementing it. But the real cost driver was the custom nature of most of the software systems built to do the calculations and produce the reports. The CS2 discipline was so expensive to implement and operate that DOD prohibited its use on R&D programs of less than $20 Million and production programs of less than $315 Million.

The advent of “commercial, off the shelf” (COTS) scheduling and EVM software tools in the 1990s began to mitigate the cost issue. With DOD’s cancellation of the CS2 instructions in 1999 and adoption of the ANSI 748(a) EVM standard – an electronics industry developed methodology – EVM began to look like a discipline that could be cost-effectively applied to almost any program.

By the way, from 1968 when the CS2 instruction was first promulgated until 1999 when it was cancelled, less than 100 companies achieved validation of their systems.

OMB really started the EVM ball rolling with a 2004 white paper suggesting that widespread application of EVM techniques could save significant amounts of money for the taxpayer and making eight specific recommendations, among them being:
· Standardize on one methodology (ANSI 748) across Government
· Mandate it on all cost-type contracts over $20 Million
· Permit it on other contract types and contracts of smaller size
· Enforce compliance through contract provisions and actually read the reports

In July 2006, the Federal Acquisition Regulation (FAR) was amended to implement all of the recommendations but one. The regulations left it to each Agency to set its own threshold for when EVM would be mandatory. Most agencies have set theirs at $20M. None have set a higher threshold. A few have set theirs as low as $5M.

Fast forward to today.

Just this morning I was reading through the highlights of Grant Thornton’s 13th Annual Survey of the Government Contractor Industry. This survey represents findings from well over 100 companies who do business with the Federal Government. Of the companies surveyed, 27% reported that they had contracts which require an EVM system. I believe this is the first time this question has been included in the survey. Certainly if that question had been in the survey two years ago, or even last year, the response would probably have been near zero.
Very few initiatives in Government progress this fast. Of course, so far we are seeing mostly the impact of a new contractual requirement, not results from a new program management discipline. Only time will tell whether it can achieve the cost savings that were claimed. And there are some near term barriers to real effectiveness.

I talk frequently with program managers who work in this discipline day in and day out. It’s clear to me that the number one problem they face is availability of people with the right skill sets and it’s not a problem that will be solved overnight. But progress is being made there, too.

All in all, a standard EVM approach across Government seems like an idea whose time has come – maybe even one that could work.

The Law of Unintended Consequences - Part Deux

When the Small Business Administration (SBA) changed the rules on set-aside contracts last June, they were trying to improve the accuracy of the reports they give Congress, the President and the public. (See SBA.GOV for more) They didn't mean to kill the merger and acquisition market for small Government contractors.

At least, I don’t think they did…

Since the beginning, Federal spending on contracts set aside for small and small disadvantaged businesses were counted as Small/Small Disadvantaged procurement for the life of the contract. If the company that won the contract outgrew their classification, spending on the contract was still counted against the Federal goal for small/small disadvantaged procurement (currently 23%). If the company was acquired by a large company, the spending on set-aside contracts was still accounted against the goal. If the company was acquired by another small company and the new combined firm was no longer small…

You get the idea.

When the Federal Government first started tracking set-aside spending that wasn’t much of a problem. Most contracts were for a discrete amount. Even the occasional incrementally funded contract or contract with options didn’t distort the data that much. How spending should be counted only became an issue when the predominate contract for small business spending became an “ordering vehicle.”

There are lots of different kinds of ordering vehicles – IDIQs, MACs, GSA Schedule contracts, GWACS – but they have one thing in common. Their primary value isn’t in the funding provided at award (usually nothing) it’s in their marketing potential.

When a new vehicle is awarded, the business development folks hit the street to market the vehicle to every agency and program that could possibly place an order against it. If the vehicle was awarded as a small or small disadvantaged business set aside, marketing that vehicle is vastly easier because the agency can take credit against its set-aside goal. As a result, the vehicle is much more valuable to the enterprise that one without that status. Conversely, if a vehicle loses its set-aside status, it becomes much less valuable. Sometimes, it becomes completely worthless.

June 30th, 2007, the rules changed.

Effective 30 June, 2007, all contracts held by companies that have acquired another company or have been acquired must be recertified as to the status of the current holder. All contracts held by any company acquired by or acquiring another company after that date must be recertified immediately upon completion of the merger/acquisition. In addition, all set-aside contracts must be recertified on or before the five-year anniversary of the award AND upon exercise of each and every option thereafter.

Literally thousands of contracts held by large businesses as a result of acquisitions of small businesses became worthless. You might think that assessment harsh, but consider this.

Most large companies hold at least one GSA schedule 70 contract for IT products or services. The rate structures of large companies tend to benefit from economies of scale not achievable by small businesses. As a result, their rates are lower and so are their prices. That’s why some contracts are set aside exclusively for small business – to give them a chance to compete.

If such a large company were to acquire a small company that offers similar products or services on a schedule 70 contract awarded as a set-aside, the company could market that vehicle to prospective clients based on its size status even though the prices (and profits to the new owner) might be higher.

If that contract loses its status, it becomes simply a duplicate vehicle with higher rates. No agency would place an order against it in preference to another vehicle with the same company with lower rates. Accepting an order might even be a problem for the contractor under GSA’s “most favored pricing” contract clause.

The prospective valuation of some small or small disadvantaged Government contractors was heavily influenced by the potential value to a buyer of their “set-aside vehicles.” When the value of those vehicles to a buyer dropped (or evaporated) so did the valuation of the business.

I don’t think they meant to do that.

Did they?

The Law of Unintended Consequences

Everything has consequences. Some are planned. Many are not.

I attended a breakfast meeting of the Coalition for Government Procurement this morning featuring an address by Steven Preston, the Administrator of the Small Business Administration. He spoke at length about the Agency’s efforts to monitor and enforce procurement rules against “bundling” of requirements to the exclusion of small business. I talked with him briefly after the meeting in hopes of hearing a alternative, but I'm afraid the scope of the underlying problem is beyond the purview of the SBA or any other single agency.

In an environment where the acquisition workforce continues to shrink, the workload continues to grow and half of all senior personnel will retire in the next five years, how else will we accomplish the mission? There simply aren’t enough experienced acquisition professionals to go around. How will we buy the goods and services required to support the mission without combining procurements? It would seem to be a practical necessity.

If the practice of bundling is effectively outlawed, who will compete and award all of the separate contracts required to procure the goods and services to support the mission?

Historically, the response of the small business community to bundling has been to form teams to amass the necessary resources to bid and win. The current sense of the Congress seems to be to severely restrict subcontracting in an effort to reduce “pass through” costs (viewed as adding no value). Any significant subcontracting restriction would almost preclude the prime/sub teams many firms form to bid bundled procurements.

If bundling is a practical necessity and the subcontracting restrictions limit teaming (as I believe they will), how will small businesses compete?

The agencies have responded to this conundrum with a proliferation of Indefinite Delivery/Indefinite Quantity (IDIQ) contracts under which they can place many small orders and skate around the bundling issue. Many times, they will run one competition, but award dozens of contracts. It works, but that practice is also under fire by everyone from GAO to Congress. And, don’t look to GSA to save the day. Interagency procurement is under fire as well.

In attempting to address acquisition issues piecemeal, Congress has created a massive “you can’t get there from here” scenario. I’m sure that wasn’t the intent, but it may be the result.

It’s the law.

Interagency Procurement and T&M Contracts

For almost 15 years now, the Federal Government’s acquisition workforce has been shrinking. According to a 2002 GAO report, the workforce declined by more than 22% from 1992 to 2002. And since then, the trend has accelerated, not slowed.

Over the same period, the annual Federal procurement budget has more than doubled. Doing more with less is practically a Government mantra, but please!

In this environment, the IDIQ (Indefinite Delivery, Indefinite Quantity) contract and the T&M delivery order have become the preferred contracting method for virtually all services requirements. And, sending money to GSA to have them park it on one of their IDIQs became the ultimate year-end shell game.

But, nothing is forever.

In April, 2005, the GAO issued a report so critical of the Department of the Interior’s GovWorks program (GAO-05-201), that it prompted a system-side examination of interagency contracting practices.

In June, 2007, GAO issued a scathingly critical report on DOD’s T&M contracting practices (GAO-07-273). Congress responded by inserting language in the 2008 Defense Authorization bill that would effectively restrict T&M contracting to:

(1) Commercial services procured for support of a commercial item, as described in section 4(12)(E) of the Office of Federal Procurement Policy Act (41 U.S.C. 403(12)(E)).
(2) Emergency repair services.

This will pretty much restrict T&M contracting to network maintenance and copier repair. It doesn’t affect orders already placed, but the prospective prohibition is nearly absolute. The restrictive language also applies to procurements “on behalf of DOD,” so sending the money out to GSA won’t help.

Of course, the same bill will also significantly restrict interagency contracting. Procurements over a certain threshold (as of this writing, $100K) may not be sent outside the originating agency absent exigent circumstances. The bill also requires delivery orders over $100K to be competed among all holders of multiple award contracts. It makes sense, but it’s labor intensive. See the first two paragraphs. On top of everything else, it also makes orders placed under previously competed multiple award contracts subject to protest if the estimated total exceeds $10M.

Let’s see. Heavy restrictions on going outside the home agency, severely restricted use of T&M contracts and delivery orders, a requirement to compete large orders and no more safe haven from protests. Congress may very well have killed interagency contracting along with the T&M contract, at least for DOD.

Of course, that may be what they intended all along. Congress seems to feel that Government agencies should compete and award their own contracts for mission critical requirements. And they seem to think the process should be conducted requirement by requirement, not en masse.

I think I feel the same way, but I wonder who’s going to do the work? Once again, see the first two paragraphs. In trying to address acquisition issues piecemeal, Congress may have accelerated a potential future shortage of acquisition professionals to a present day crisis.

In the GovCon business, we call this the “Law of Unintended Consequences.”

I think it originated with a guy named Murphy…