Recognition of Scope Change in the IPMR

Recognition of Scope Change in the IPMRJuly 2013

NAVY CEVM

#Welcome to CEVM Training for the Recognition of Scope Change in the IPMR/CPR1Definitions IPMR requirementsExample with scope added Example with scope removed (de-scope)Authorized Unpriced Work (AUW)SummaryOutline

#This course is consistent with the IPMR DID DI-MGMT-81861 2De-Scope The removal of a specific scope of work from the contract (may be partially completed or all in future)Definitized Work scope is definitized when the contract has been officially modified for the agreed upon scope & valueNegotiated Cost The contractually agreed upon cost of the definitized effort. This excludes feeAuthorized Unpriced Work (AUW) Budget/Work scope that has been authorized in writing by the Procuring Contracting Officer (PCO), but has not yet been definitized. It is typically supported by a Rough Order of Magnitude (ROM) estimate or Engineering Change Proposal (ECP) value. Fee is also excluded from AUWDefinitions

#Key definitions used in the training are listed here. 3Undistributed Budget (UB) budget which is being held for specific known scope, but which has not yet been distributed to WBS elements at or below the reporting levelManagement Reserve (MR) budget which is being held without specific known scope for management control purposes, such as risk mitigation activityPerformance Measurement Baseline (PMB) = UB + Distributed budget (time-phased in control accts)Contract Budget Base (CBB) = Performance Management Baseline (PMB) + Management Reserve (MR) Contract Estimated/Target Cost = Negotiated Cost + AUW

Definitions (Cont.)

#Key definitions used in the training are listed here. 43.2.1.3. Estimated Cost of Authorized, Unpriced Work (AUW)3.2.1.3.1. AUW value shall represent the Procuring Contracting Officers (PCO) best estimate of the authorized scope for inclusion in the baseline. Authorized, Unpriced Work is approved work scope that has not been definitized. The total dollar value (excluding fee or profit) of AUW shall be entered in Block 5.c.3.2.1.3.2. AUW can never be a negative value. For effort de-scoped and not yet reflected in the Contract Budget Base (CBB), report the estimated value in Format 5 (see 3.6.11.3).UB is used to accommodate temporary situations where time constraints prevent adequate budget planning or where contract effort can only be defined in very general terms.UB shall not be used as a substitute for adequate contract planning. Budgets shall be allocated within the PMB to responsible organizations at the earliest possible time, preferably within the next reporting period.UB can never be negative. If a contractual de-scope change occurs and the effort has not been removed from time-phased PMB, the amount shall be discussed in Format 5. Discuss when the de-scope will be removed from the PMB and placed into UB.IPMR Requirements

#This chart provides excerpts from DI-MGMT-81861. The red sections highlight key requirements that drive how to handle scope changes. Per the DID; UB, MR, and AUW can never be negative. This helps to standardize the way that descopes are processed.5Government Contracts Officer authorizes ECP 105 scopeAUW must reflect current scope change authorized in the current period. It is increased $100K based on ECP.UB is immediately increased by $100K until the amount can be distributed.Upon definitization of the change ($95K at cost):The AUW pre-negotiated amount of $100K is eliminatedNegotiated Cost is increased $95K per the contract modUB is adjusted for the delta between the final negotiated value and the AUW/ECP value ($95K - $100K = $5K). In a situation where all UB has already been distributed and the negotiated value is less than estimated, the PMB must be reduced instead.If not already distributed, the remaining UB balance for this scope is expected to be distributed within 30-60 days.Contractual Change with Scope Added

#Our first example is a typical scenario of new scope added to a contract. Upon written authorization (email, letter, contract modification), the contractor must increase AUW to reflect the full scope authorized, in this case $100K based on the ECP. UB is increased concurrently by the same amount, raising the PMB. UB for the ECP can now be distributed to the control accounts as necessary for effort to begin. When the change is definitized, any AUW previously recognized for the definitized scope is removed, and the contract negotiated cost is increased. If the full budget and scope have not been distributed, UB is adjusted to account for any difference between the pre vs. post negotiated values. If the negotiated value is less than prior AUW value and the effort was already fully distributed, the PMB must be reduced appropriately. Following definitization, all budget is generally expected to be distributed from UB within 30-60 days.6Stop work order on ECP 105 is issuedAll ECP 105 effort stops, and the contractor begins identification and transfer of the budget/scope from the PMB to UB pending a contract modificationOnce the descope is definitized and all associated budget has been transferred from the PMB to UB, IPMR negotiated contract cost and UB are reducedNegative AUW/UB entries should never be used to offset the PMB for a pending descopeUntil the budget/scope are completely removed from the IPMR, the contractor shall address in Format 5:the total anticipated value of each pending descopetotal PMB distributed portion of stop work/descope effortthe anticipated removal dateContractual Change with Scope Removed

#For our second example, consider a descope scenario. Upon receipt of a stop work for a pending descope, the contractor ceases effort on the applicable scope and may begin removal of the budget from the distributed baseline to UB (still within the PMB). This can occur immediately, but some delay is reasonable if the work is in progress or otherwise already distributed to large number of accounts. Its important to note that a stop work alone does not constitute or justify a reported net change to the PMB or contract value.

From a reporting perspective, the IPMR negotiated contract cost can not be reduced for a descope until a contract modification has been signed and until the descoped effort and budget have been returned to UB from the distributed baseline. Once the contract modification is definitized and budget/scope have been moved from the PMB to UB, the IPMR Negotiated contract cost and UB should be reduced consistent with the contract mod, and the revised contract should reconcile with PMB + MR.

Some contractors are overzealous about reflecting a descope quickly and inappropriately attempt to use negative UB/AUW to prematurely reduce the PMB without reducing the distributed baseline. However, the same scope can not be accounted for in UB and the control accounts at the same time, and negative UB/AUW values are not allowed per the IPMR DID.

Until the budget and scope have been fully removed from contract and from the PMB, Format 5 must disclose the full anticipated amount of de-scope, the amount remaining in the PMB, and the expected date of the pending removal. 7Properly recorded, an AUW value provides a best estimate of the total cost of a specific piece of scopeThe only way to limit AUW is to limit the scope statementNot to Exceed (NTE) amounts are funding constraints that temporarily limit spending only. An NTE does not limit scope or associated cost estimatesConsider the following examples:Authorization for ECP 1234 subject to a Not-To-Exceed $22M; where ECP is $100M at cost. AUW is increased $100M consistent with the ECP total scope.Authorization for ECP 1234 long lead parts WBS XYZ only, subject to a Not To Exceed of $2M; where the long lead was proposed at $2M. AUW is increased $2M, consistent with the long lead authorization.Clarification of AUW

#Authorized Unpriced Work estimates should always reflect the full anticipated cost of the authorized scope. Often, contracts will incorrectly assume that an NTE funding constraint constitutes a limitation to the AUW scope estimate. While it is certainly possible that an AUW estimate may be equal to or less than an NTE constraint, it is not a requirement. The NTE is required in the FAR and dictates an expenditure limit. It provides the spending threshold at which all work must stop if the effort is not yet negotiated; however it does not limit the amount of budget that a contractor may apply to a time-phased baseline plan for how the effort will be executed. In fact, if proper disclosure were not provided, the contractor could be considered negligent for providing planning data for un-negotiated effort which represents less than the best estimate of total cost for the scope. Just like a 10-year contract will be fully planned despite incremental funding, any new authorized scopes AUW value should be driven by scope rather than any applicable NTE expenditure constraint.

Lets consider two different scenarios to illustrate the point. For the first, consider a $100M ECP with a $22M NTE. Given no specific scope limitation, the contractor must plan the full $100M ECP scope, taking note of when in the plan the NTE limitation is likely to require a stop work. The NTE is fully effective and the stop work at the NTE value is required unless the NTE is lifted.

As a second scenario, for the same ECP, assume that authorization to proceed has been granted solely and specifically to purchase $2M of long lead material detailed in the ECP. In this case, the NTE and AUW will both be limited at $2M; however, it is the limited scope authorization and not the NTE constraint that limits the AUW to the long lead material portion of the larger ECP. The burden is on the Government to define the scope clearly for what they require. If the desire is for the contractor to plan only a portion of the ECP, then a limitation of scope itself should be pursued, and this would presumably result in a more limited cost estimate.8The IPMR DID requirements help standardize the way scope additions/deletions are reflected in IPMR reportingUB should be cleared as quickly as possible following contract modificationInto the PMB/MR for a scope additionRemoved from IPMR UB/negotiated contract cost for a descope AUW should be used for scope additions only, and neither UB nor AUW are allowed to be negative numbersFollowing a stop work or descope modification, the value and status of any pending descope actions must be conveyed in Format 5If work is authorized prior to definitization, any AUW recognized must be driven by scope, not by an NTE limitationSummary

#In summary, as the requirements and examples suggest, the IPMR DID effectively serves to standardize the way that contract changes are managed in IPMR reporting. UB is intended for temporary use only, and should be cleared as quickly as possible following contract definitization. Authorized work is intended for scope additions only, and neither UB nor AUW should ever be entered as a negative number. Once a stop work or descope mod has been received, Format 5 must include the value and status of any pending action to remove the scope/budget from the IPMR. Finally, if AUW is to be used to authorize scope prior to definitization, the value of AUW must be driven by scope, and should not been limited solely based upon an NTE limitation.9Point of ContactNavy Center for Earned Value Management

(703) 695-0510

http://acquisition.navy.mil/acquisition_one_source/cevm

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