[Federal Register: April 23, 2008 (Volume 73, Number 79)]
[Rules and Regulations]               
[Page 21846-21850]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ap08-17]                         

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 234, 242, and 252

RIN 0750-AF19

 
Defense Federal Acquisition Regulation Supplement; Earned Value 
Management Systems (DFARS Case 2005-D006)

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Final rule.

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SUMMARY: DoD has issued a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to update requirements for 
DoD contractors to establish and maintain earned value management 
systems. The rule also eliminates requirements for DoD contractors to 
submit cost/schedule status reports.

EFFECTIVE DATE: April 23, 2008.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Gomersall, Defense 
Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3D139, 
3062 Defense Pentagon, Washington, DC 20301-3062. Telephone 703-602-
0302; facsimile 703-602-7887. Please cite DFARS Case 2005-D006.

SUPPLEMENTARY INFORMATION: 

A. Background

    This final rule updates DFARS text addressing earned value 
management policy for DoD contracts. The rule supplements the final FAR 
rule published at 71 FR 38238 on July 5, 2006, and establishes DoD-
specific earned value management requirements, as permitted by the FAR. 
The DFARS rule is consistent with the policy in the memorandum issued 
by the Under Secretary of Defense (Acquisition, Technology, and 
Logistics) on March 7, 2005, Subject: Revision to DoD Earned Value 
Management Policy (available at http://www.acq.osd.mil/dpap/ops/
policy_vault.html).
    The DFARS changes in this rule include the following:
    [cir] For cost or incentive contracts and subcontracts valued at 
$20,000,000 or more, the rule requires an earned value management 
system that complies with the guidelines in the American National 
Standards Institute/Electronic Industries Alliance Standard 748, Earned 
Value Management Systems (ANSI/EIA-748).
    [cir] For cost or incentive contracts and subcontracts valued at 
$50,000,000 or more, the rule requires an earned value management 
system that has been determined by the cognizant Federal agency (as 
defined in FAR 2.101) to be in compliance with the guidelines in ANSI/
EIA-748.
    [cir] For cost or incentive contracts and subcontracts valued at 
less than $20,000,000, the rule provides that application of earned 
value management is optional and is a risk-based decision.
    [cir] For firm-fixed-price contracts and subcontracts of any dollar 
value, the rule discourages the application of earned value management.
    [cir] The Defense Contract Management Agency is assigned 
responsibility for determining earned value management compliance when 
DoD is the cognizant Federal agency.
    [cir] Requirements for contractor cost/schedule status reports are 
eliminated.
    DoD published a proposed rule at 71 FR 3449 on January 23, 2006. 
Five sources submitted comments on the proposed rule. A discussion of 
the comments is provided below.
    1. Comment: One respondent stated that the $20,000,000 threshold 
for earned value management (EVM) further aggravates the ability to 
mitigate cost, schedule, and technical risks, since receiving EVM data 
below that threshold would be helpful in assisting leadership to make 
affordable decisions.
    DoD Response: The rule allows for EVM below the $20,000,000 
threshold when its application is determined to be appropriate as the 
result of a cost-benefit analysis.
    2. Comment: Two respondents stated that the rule should be revised 
to specifically state that EVM requirements do not apply to time-and-
materials, labor-hour, and level-of-effort contracts.
    DoD Response: The rule requires EVM to be applied only on cost and 
incentive type contracts and subcontracts over certain thresholds. EVM 
is discouraged on firm-fixed-price contracts and subcontracts of any 
dollar value. Further, performance-based acquisition management on 
developmental efforts, as described in OMB Circular A-11, Part 7, 
focuses on the use of EVM on cost and incentive type contracts.
    3. Comment: One respondent expressed support of the rule, but urged 
that the Defense Acquisition Regulations Council work with the Civilian 
Agency Acquisition Council to ensure that the final FAR rule is 
consistent with the DFARS rule. In particular, the respondent stated 
that the FAR rule should be revised in four areas to make it consistent 
with the DFARS rule as follows: Explicitly limit application of EVM 
requirements to cost or incentive contracts; establish a fixed dollar 
value for the applicability of EVM requirements; limit integrated 
baseline reviews to contract post-award; and establish an executive 
agency (such as the Defense Contract Management Agency (DCMA)) within 
the Government responsible for Government-wide EVM system compliance 
reviews.
    DoD Response: The respondent's recommendations regarding the FAR 
were addressed in the preamble to the FAR rule published at 71 FR 38238 
on July 5, 2006. Additional changes have been made to the DFARS rule 
for consistency with the FAR rule. Those changes include:

[[Page 21847]]

    [cir] Relocation of EVM policy from Part 242 to Part 234.
    [cir] For cost or incentive contracts and subcontracts valued at 
$50,000,000 or more, replacement of the requirement for a contracting 
officer's formal validation and acceptance with the requirement for an 
EVM system that has been determined by the cognizant federal agency to 
be in compliance with the guidelines in ANSI/EIA-748. DCMA is assigned 
responsibility for determining EVM system compliance when DoD is the 
cognizant Federal agency.
    [cir] Elimination of the text included in the proposed rule at 
252.242-7006(b), which specified that the terms for compliance with 
ANSI/EIA-748 for contracts below $50,000,000 may be subject to 
negotiation between the contractor and the contracting officer; 
compliance with the guidelines in ANSI/EIA-748 is not subject to 
negotiation.
    [cir] Addition of text in the solicitation provision at 252.234-
7001(a)(2)(ii) and (iii) to require an offeror proposing to use a 
system that has not been determined to be in compliance with ANSI/EIA-
748, to provide information and assistance as required by the 
contracting officer to support review of the offeror's plan for 
compliance and to provide milestones that indicate when the offeror 
will be compliant.
    [cir] Elimination of a separate provision and clause to address 
requirements for contracts valued at $20,000,000 or more but less than 
$50,000,000. The provision and clause at 252.234-7001 and 252.234-7002 
address requirements for contracts above or below $50,000,000.
    4. Comment: One respondent recommended that the contract clause for 
EVM compliance be modified to indicate that the contract performance 
report may be tailored in accordance with the DoD Earned Value 
Management Implementation Guide, in order to reduce the burden on 
contractors while still ensuring that DoD managers receive useful 
information. The memorandum issued by the Under Secretary of Defense 
(Acquisition, Technology, and Logistics) on March 7, 2005, indicates 
that the contract performance report may be tailored, based on guidance 
in the implementation guide, for cost or incentive contracts valued at 
$20 million or more but less than $50 million.
    DoD Response: DoD does not believe it is necessary to address 
tailoring of the contract performance report within the contract 
clause. The contracting officer may tailor the report in accordance 
with the DoD Earned Value Management Implementation Guide. A reference 
to the guide has been added to the DFARS companion resource, 
Procedures, Guidance, and Information. Any tailoring of contract 
performance reports for a particular contract will be documented in the 
contract data requirements list to ensure the contractual requirements 
are clear.
    5. Comment: One respondent recommended that language be added to 
the contract clause to state that the contractor is responsible for 
ensuring that selected subcontractors comply with ANSI/EIA-748.
    DoD Response: Paragraph (h) of the contract clause in the final 
rule specifies that the contractor must require certain subcontractors 
(or subcontractor effort if subcontractors have not been selected) to 
comply with the EVM requirements of the clause. This includes 
compliance with the EVM guidelines in ANSI/EIA-748.
    6. Comment: One respondent recommended adding the following 
language to the contract clause for consistency with language included 
in the solicitation provision: ``The terms for compliance with ANSI/
EIA-748 may be subject to negotiation between the contractor and 
subcontractor. The conduct of the integrated baseline reviews also may 
be subject to negotiation between the contractor and subcontractor.''
    DoD Response: The cited language has been excluded from the final 
rule. The clause at 252.234-7002 requires contractors to ensure 
subcontractor compliance with the EVM requirements of the clause, to 
include compliance with the guidelines in ANSI/EIA-748. Likewise, 
contractors are required to ensure that any necessary participation by 
a subcontractor in the performance of integrated baseline reviews is in 
accordance with the clause. However, since integrated baseline reviews 
are a joint assessment between the contractor and the Government, the 
timing of such reviews will necessarily be coordinated between the 
parties.
    7. Comment: One respondent indicated that emphasis should be placed 
on establishing a system that requires a company-wide commitment to 
standardized actual collection systems, budgeting systems, scheduling 
systems, status systems, change management systems, and reporting 
systems, rather than simply emphasizing what threshold should be used 
to apply EVM.
    DoD Response: The Government can not mandate contractor management 
and budgetary control systems used outside of Government contracts. 
However, contractors that are frequently awarded Government contracts 
that require EVM may find it in their best interests to establish 
company-wide standardized EVM systems that are in compliance with ANSI/
EIA-748.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD has prepared a final regulatory flexibility analysis consistent 
with 5 U.S.C. 604. A copy of the analysis may be obtained from the 
point of contact specified herein. The analysis is summarized as 
follows:
    This final rule amends the DFARS to update requirements for DoD 
contractors to establish and maintain earned value management systems. 
The rule revises the dollar thresholds at which DoD applies earned 
value management policy, and eliminates requirements for DoD 
contractors to submit cost/schedule status reports.
    The rule supplements the FAR rule published at 71 FR 38238 on July 
5, 2006. The FAR rule provides standard earned value management policy, 
consistent with the requirements of OMB Circular A-11, Part 7, 
Planning, Budgeting, Acquisition, and Management of Capital Assets, and 
the supplement to Part 7, the Capital Programming Guide. The OMB 
Circular and its supplement implement statutory requirements for the 
Government to define the cost, performance, and schedule, and schedule 
goals for major acquisitions and to achieve, on the average, 90 percent 
of the established goals.
    The FAR rule permits agency supplementation with regard to earned 
value management applicability criteria, post-award review 
requirements, and procedures for implementation of the guidelines in 
American National Standards Institute/Electronic Industries Alliance 
Standard 748 (ANSI/EIA-748), Earned Value Management Systems. This 
DFARS rule establishes the DoD-specific earned value management 
requirements.
    The FAR rule permits agency supplementation with regard to earned 
value management applicability criteria, post-award review 
requirements, and procedures for implementation of the guidelines in 
American National Standards Institute/Electronic Industries Alliance 
Standard 748 (ANSI/EIA-748), Earned Value Management Systems. This 
DFARS rule establishes the DoD-specific earned value management 
requirements.
    The threshold at which a DoD contractor previously was required to

[[Page 21848]]

have an earned value management system that complied with ANSI/EIA-748 
was $73 million for contracts and subcontracts funded with research, 
development, test and evaluation funding; and $315 million for 
contracts and subcontracts funded with operation and maintenance or 
procurement funding. This DFARS rule lowers those thresholds to a 
single $20 million for all cost or incentive contracts and 
subcontracts, regardless of funding type, and establishes a new 
threshold of $50 million for an earned value management system that has 
been determined by the Government to be in compliance with ANSI/EIA-
748. The rule discourages the application of earned value management 
requirements to fixed-price contracts and subcontracts of any dollar 
value.
    During fiscal year 2006, DoD awarded 8,266 cost or incentive 
contracts to small business concerns, with only 16 of those contracts 
exceeding $20 million in value. During the same fiscal year, DoD 
awarded 53,585 fixed-price type contracts to small business concerns, 
with only 70 of those contracts exceeding $20 million in value. The use 
of earned value management requirements in fixed-price contracts is 
expected to be rare.
    The DFARS rule mitigates the impact on small businesses by 
establishing a $20 million contract threshold for earned value 
management requirements, and discouraging the application of earned 
value management requirements to fixed-price contracts and 
subcontracts, thereby establishing a very small subset of the small 
business community for which the rule would be applicable. The cost for 
a small business concern to establish a compliant earned value 
management system would be a one-time cost that the concern may offset 
through cost reimbursement on the resulting Government contract.

C. Paperwork Reduction Act

    This rule does not impose any new information collection 
requirements that require the approval of the Office of Management and 
Budget (OMB) under 44 U.S.C. 3501, et seq. The contract performance 
reports required by the rule are approved under OMB Clearance Number 
0704-0188, Acquisition Management Systems and Data Requirements Control 
List.

List of Subjects in 48 CFR Parts 234, 242, and 252

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Therefore, 48 CFR parts 234, 242, and 252 are amended as follows:
0
1. The authority citation for 48 CFR parts 234, 242, and 252 continues 
to read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 234--MAJOR SYSTEM ACQUISITION


Sec.  234.005  [Removed]

0
2. Section 234.005 is removed.
0
3. Subpart 234.2 is added to read as follows:
Subpart 234.2--Earned Value Management System
Sec.
234.201 Policy.
234.203 Solicitation provisions and contract clause.

Subpart 234.2--Earned Value Management System


Sec.  234.201  Policy.

    (1) DoD applies the earned value management system requirement as 
follows:
    (i) For cost or incentive contracts and subcontracts valued at 
$20,000,000 or more, the earned value management system shall comply 
with the guidelines in the American National Standards Institute/
Electronic Industries Alliance Standard 748, Earned Value Management 
Systems (ANSI/EIA-748).
    (ii) For cost or incentive contracts and subcontracts valued at 
$50,000,000 or more, the contractor shall have an earned value 
management system that has been determined by the cognizant Federal 
agency to be in compliance with the guidelines in ANSI/EIA-748.
    (iii) For cost or incentive contracts and subcontracts valued at 
less than $20,000,000--
    (A) The application of earned value management is optional and is a 
risk-based decision;
    (B) A decision to apply earned value management shall be documented 
in the contract file; and
    (C) Follow the procedures at PGI 234.201(1)(iii) for conducting a 
cost-benefit analysis.
    (iv) For firm-fixed-price contracts and subcontracts of any dollar 
value--
    (A) The application of earned value management is discouraged; and
    (B) Follow the procedures at PGI 234.201(1)(iv) for obtaining a 
waiver before applying earned value management.
    (2) When an offeror proposes a plan for compliance with the earned 
value management system guidelines in ANSI/EIA-748, follow the review 
procedures at PGI 234.201(2).
    (3) The Defense Contract Management Agency is responsible for 
determining earned value management system compliance when DoD is the 
cognizant Federal agency.
    (4) See PGI 234.201(4) for additional guidance on earned value 
management.


234.203  Solicitation provisions and contract clause.

    For cost or incentive contracts valued at $20,000,000 or more, and 
for other contracts for which EVMS will be applied in accordance with 
234.201(1)(iii) and (iv)--
    (1) Use the provision at 252.234-7001, Notice of Earned Value 
Management System, instead of the provisions at FAR 52.234-2, Notice of 
Earned Value Management System--Pre-Award IBR, and FAR 52.234-3, Notice 
of Earned Value Management System--Post-Award IBR, in the solicitation; 
and
    (2) Use the clause at 252.234-7002, Earned Value Management System, 
instead of the clause at FAR 52.234-4, Earned Value Management System, 
in the solicitation and contract.

PART 242--CONTRACT ADMINISTRATION AND AUDIT SERVICES

0
4. Section 242.1106 is amended by revising paragraph (a) to read as 
follows:


242.1106  Reporting requirements.

    (a) See DoDI 5000.2, Operation of the Defense Acquisition System, 
for reporting requirements for defense technology projects and 
acquisition programs.
* * * * *


242.1107-70  [Removed]

0
5. Section 242.1107-70 is removed.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Sections 252.234-7001 and 252.234-7002 are added to read as follows:


252.234-7001  Notice of Earned Value Management System.

    As prescribed in 234.203(1), use the following provision:

Notice of Earned Value Management System (Apr 2008)

    (a) If the offeror submits a proposal in the amount of 
$50,000,000 or more--

[[Page 21849]]

    (1) The offeror shall provide documentation that the Cognizant 
Federal Agency (CFA) has determined that the proposed Earned Value 
Management System (EVMS) complies with the EVMS guidelines in the 
American National Standards Institute/Electronic Industries Alliance 
Standard 748, Earned Value Management Systems (ANSI/EIA-748) 
(current version at time of solicitation). The Government reserves 
the right to perform reviews of the EVMS when deemed necessary to 
verify compliance.
    (2) If the offeror proposes to use a system that has not been 
determined to be in compliance with the requirements of paragraph 
(a)(1) of this provision, the offeror shall submit a comprehensive 
plan for compliance with the guidelines in ANSI/EIA-748.
    (i) The plan shall--
    (A) Describe the EVMS the offeror intends to use in performance 
of the contract, and how the proposed EVMS complies with the EVMS 
guidelines in ANSI/EIA-748;
    (B) Distinguish between the offeror's existing management system 
and modifications proposed to meet the EVMS guidelines;
    (C) Describe the management system and its application in terms 
of the EVMS guidelines;
    (D) Describe the proposed procedure for administration of the 
EVMS guidelines as applied to subcontractors; and
    (E) Describe the process the offeror will use to determine 
subcontractor compliance with ANSI/EIA-748.
    (ii) The offeror shall provide information and assistance as 
required by the Contracting Officer to support review of the plan.
    (iii) The offeror's EVMS plan must provide milestones that 
indicate when the offeror anticipates that the EVMS will be 
compliant with the guidelines in ANSI/EIA-748.
    (b) If the offeror submits a proposal in an amount less than 
$50,000,000--
    (1) The offeror shall submit a written description of the 
management procedures it will use and maintain in the performance of 
any resultant contract to comply with the requirements of the Earned 
Value Management System clause of the contract. The description 
shall include--
    (i) A matrix that correlates each guideline in ANSI/EIA-748 
(current version at time of solicitation) to the corresponding 
process in the offeror's written management procedures; and
    (ii) The process the offeror will use to determine subcontractor 
compliance with ANSI/EIA-748.
    (2) If the offeror proposes to use an EVMS that has been 
determined by the CFA to be in compliance with the EVMS guidelines 
in ANSI/EIA-748, the offeror may submit a copy of the documentation 
of such determination instead of the written description required by 
paragraph (b)(1) of this provision.
    (c) The offeror shall identify the subcontractors (or the 
subcontracted effort if subcontractors have not been selected) to 
whom the EVMS requirements will apply. The offeror and the 
Government shall agree to the subcontractors or the subcontracted 
effort selected for application of the EVMS requirements. The 
offeror shall be responsible for ensuring that the selected 
subcontractors comply with the requirements of the Earned Value 
Management System clause of the contract.

(End of provision)


252.234-7002  Earned Value Management System.

    As prescribed in 234.203(2), use the following clause:

Earned Value Management System (Apr 2008)

    (a) In the performance of this contract, the Contractor shall 
use--
    (1) An Earned Value Management System (EVMS) that complies with 
the EVMS guidelines in the American National Standards Institute/
Electronic Industries Alliance Standard 748, Earned Value Management 
Systems (ANSI/EIA-748); and
    (2) Management procedures that provide for generation of timely, 
reliable, and verifiable information for the Contract Performance 
Report (CPR) and the Integrated Master Schedule (IMS) required by 
the CPR and IMS data items of this contract.
    (b) If this contract has a value of $50,000,000 or more, the 
Contractor shall use an EVMS that has been determined by the 
Cognizant Federal Agency (CFA) to be in compliance with the EVMS 
guidelines as stated in paragraph (a)(1) of this clause. If, at the 
time of award, the Contractor's EVMS has not been determined by the 
CFA to be in compliance with the EVMS guidelines as stated in 
paragraph (a)(1) of this clause, the Contractor shall apply its 
current system to the contract and shall take necessary actions to 
meet the milestones in the Contractor's EVMS plan.
    (c) If this contract has a value of less than $50,000,000, the 
Government will not make a formal determination that the 
Contractor's EVMS complies with the EVMS guidelines in ANSI/EIA-748 
with respect to the contract. The use of the Contractor's EVMS for 
this contract does not imply a Government determination of the 
Contractor's compliance with the EVMS guidelines in ANSI/EIA-748 for 
application to future contracts. The Government will allow the use 
of a Contractor's EVMS that has been formally reviewed and 
determined by the CFA to be in compliance with the EVMS guidelines 
in ANSI/EIA-748.
    (d) The Contractor shall submit notification of any proposed 
substantive changes to the EVMS procedures and the impact of those 
changes to the CFA. If this contract has a value of $50,000,000 or 
more, unless a waiver is granted by the CFA, any EVMS changes 
proposed by the Contractor require approval of the CFA prior to 
implementation. The CFA will advise the Contractor of the 
acceptability of such changes as soon as practicable (generally 
within 30 calendar days) after receipt of the Contractor's notice of 
proposed changes. If the CFA waives the advance approval 
requirements, the Contractor shall disclose EVMS changes to the CFA 
at least 14 calendar days prior to the effective date of 
implementation.
    (e) The Government will schedule integrated baseline reviews as 
early as practicable, and the review process will be conducted not 
later than 180 calendar days after (1) contract award, (2) the 
exercise of significant contract options, and (3) the incorporation 
of major modifications. During such reviews, the Government and the 
Contractor will jointly assess the Contractor's baseline to be used 
for performance measurement to ensure complete coverage of the 
statement of work, logical scheduling of the work activities, 
adequate resourcing, and identification of inherent risks.
    (f) The Contractor shall provide access to all pertinent records 
and data requested by the Contracting Officer or duly authorized 
representative as necessary to permit Government surveillance to 
ensure that the EVMS complies, and continues to comply, with the 
performance criteria referenced in paragraph (a) of this clause.
    (g) When indicated by contract performance, the Contractor shall 
submit a request for approval to initiate an over-target baseline or 
over-target schedule to the Contracting Officer. The request shall 
include a top-level projection of cost and/or schedule growth, a 
determination of whether or not performance variances will be 
retained, and a schedule of implementation for the rebaselining. The 
Government will acknowledge receipt of the request in a timely 
manner (generally within 30 calendar days).
    (h) The Contractor shall require its subcontractors to comply 
with EVMS requirements as follows:
    (1) For subcontracts valued at $50,000,000 or more, the 
following subcontractors shall comply with the requirements of this 
clause:

[Contracting Officer to insert names of subcontractors (or 
subcontracted effort if subcontractors have not been selected) 
designated for application of the EVMS requirements of this clause.]
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    (2) For subcontracts valued at less than $50,000,000, the 
following subcontractors shall comply with the requirements of this 
clause, excluding the requirements of paragraph (b) of this clause:

[Contracting Officer to insert names of subcontractors (or 
subcontracted effort if subcontractors have not been selected) 
designated for application of the EVMS requirements of this clause.]
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(End of clause)


252.242-7001 and 252.242-7002  [Removed and Reserved]

0
7. Sections 252.242-7001 and 252.242-7002 are removed and reserved.

[[Page 21850]]

252.242-7005 and 252.242-7006  [Removed]

0
8. Sections 252.242-7005 and 252.242-7006 are removed.

 [FR Doc. E8-8706 Filed 4-22-08; 8:45 am]

BILLING CODE 5001-08-P