[Federal Register Volume 71, Number 14 (Monday, January 23, 2006)]
[Proposed Rules]
[Pages 3449-3453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-705]


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DEPARTMENT OF DEFENSE

48 CFR Parts 242 and 252

[DFARS Case 2005-D006]
RIN 0750-AF19


Defense Acquisition Regulations System; Defense Federal 
Acquisition Regulation Supplement; Earned Value Management Systems

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

ACTION: Proposed rule with request for comments.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to update requirements for DoD 
contractors to establish and maintain earned value management systems 
(EVMS). The rule revises the dollar thresholds at which EVMS 
requirements are applied and eliminates requirements

[[Page 3450]]

for contractors to submit cost/schedule status reports under DoD 
contracts.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before March 24, 2006, to be considered 
in the formation of the final rule.

ADDRESSES: You may submit comments, identified by DFARS Case 2005-D006, 
using any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: dfars@osd.mil. Include DFARS Case 2005-D006 in the 
subject line of the message.
     Fax: (703) 602-0350.
     Mail: Defense Acquisition Regulations System, Attn: Ms. 
Deborah Tronic, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense 
Pentagon, Washington, DC 20301-3062.
     Hand Delivery/Courier: Defense Acquisition Regulations 
System, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 
22202-3402.
    Comments received will be posted without change to http://www.regulations.gov, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Ms. Deborah Tronic, (703) 602-0289.

SUPPLEMENTARY INFORMATION:

A. Background

    This proposed rule revises DFARS Subpart 242.11 and the 
corresponding clauses in DFARS Part 252 to reflect changes in DoD 
policy on the application of EVMS compliance requirements. The proposed 
changes--
     Require compliance with American National Standards 
Institute/Electronic Industries Alliance Standard 748, Earned Value 
Management Systems, for cost or incentive contracts and subcontracts 
valued at $20,000,000 or more;
     Require a formally validated and accepted EVMS for cost or 
incentive contracts and subcontracts valued at $50,000,000 or more;
     Discourage the application of earned value management to 
fixed-price contracts and subcontracts; and
     Eliminate requirements for contractors to submit cost/
schedule status reports.
    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 an initial regulatory flexibility analysis 
consistent with 5 U.S.C. 603. The analysis is summarized as follows:
    This proposed rule amends the DFARS to update requirements for DoD 
contractors to establish and maintain earned value management systems 
(EVMS). The rule revises the dollar thresholds at which EVMS 
requirements are applied and eliminates requirements for contractors to 
submit cost/schedule status reports under DoD contracts. The objective 
of the proposed rule is to streamline, improve, and increase 
consistency in earned value management implementation and application.
    The threshold at which a DoD contractor previously was required to 
have an EVMS that complied with American National Standards Institute/
Electronic Industries Alliance Standard 748 (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 proposed rule would lower those thresholds to 
a single $20 million threshold for all cost or incentive contracts and 
subcontracts, regardless of funding type, and would establish a new 
threshold of $50 million for an EVMS that has been formally validated 
and accepted as complying with the standard.
    According to the Defense Contract Action Data System, in Fiscal 
Year 2004, 7 small businesses received a cost or incentive type award 
obligating funds in excess of $20 million, and 46 small businesses 
received a fixed-price type award obligating funds in excess of $20 
million. EVMS compliance requirements would only be used in fixed-price 
contracts in extremely rare instances. The Dynamic Small Business 
Search database hosted on the Central Contractor Registration Web site 
indicates there are 304,961 small businesses registered in that 
database.
    The proposed rule is consistent with the proposed changes to the 
Federal Acquisition Regulation (FAR) published in the Federal Register 
on April 8, 2005 (70 FR 17945), that would extend Governmentwide the 
requirement for a contractor to have an EVMS that complies with ANSI/
EIA-748. The initial regulatory flexibility analysis for the proposed 
FAR rule anticipated that agencies would establish a threshold of $20 
million for EVMS compliance.
    A copy of the analysis may be obtained from the point of contact 
specified herein. DoD invites comments from small businesses and other 
interested parties. DoD also will consider comments from small entities 
concerning the affected DFARS subpart in accordance with 5 U.S.C. 610. 
Such comments should be submitted separately and should cite DFARS Case 
2005-D006.

 C. Paperwork Reduction Act

    The proposed rule does not impose any new information collection 
requirements that require the approval of the Office of Management and 
Budget under 44 U.S.C. 3501, et seq. The contract performance reports 
required by the rule are approved under Office of Management and Budget 
Clearance Number 0704-0188, Acquisition Management Systems and Data 
Requirements Control List, for use through May 31, 2006.

List of Subjects in 48 CFR Parts 242 and 252

    Government procurement.

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

    Therefore, DoD proposes to amend 48 CFR parts 242 and 252 as 
follows:
    1. The authority citation for 48 CFR parts 242 and 252 continues to 
read as follows:

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

PART 242--CONTRACT ADMINISTRATION AND AUDIT SERVICES

    2. Section 242.1106 is revised to read as follows:


242.1106  Reporting requirements.

    (a)(i) See DoDI 5000.2, Operation of the Defense Acquisition 
System, for reporting requirements for defense technology projects and 
acquisition programs. The earned value management system requirement is 
applied as follows:
    (A) For cost or incentive contracts and subcontracts valued at 
$20,000,000 or more, the earned value management system shall comply 
with American National Standards Institute/Electronic Industries 
Alliance Standard 748, Earned Value Management Systems.
    (B) 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 formally validated and accepted by the 
contracting officer.
    (C) For cost or incentive contracts and subcontracts valued at less 
than $20,000,000, earned value management application is optional and 
is a risk-based decision that is at the discretion of the program 
manager. See PGI 242.1106(a)(i)(C) for information on conducting a 
cost-benefit analysis.

[[Page 3451]]

    (D) For firm-fixed-price contracts and subcontracts of any dollar 
value, the application of earned value management is discouraged. See 
PGI 242.1106(a)(i)(D) for information on obtaining a waiver before 
applying earned value management to a firm-fixed-price contract or 
subcontract.
    (ii) When an offeror proposes a plan for compliance with earned 
value management system guidelines, follow the review procedures at PGI 
242.1106(a)(ii).
    (iii) The Defense Contract Management Agency is the DoD executive 
agency for earned value management system compliance reviews.
    (iv) Additional guidance on earned value management can be found in 
the Defense Acquisition Guidebook at http://akss.dau.mil/dag and the 
DoD Earned Value Management Implementation Guide at http://guidebook.dcma.mil/79/guidebook_process.htm.
    3. Section 242.1107-70 is revised to read as follows:


242.1107-70  Solicitation provisions and contract clauses.

    (a) For cost or incentive contracts valued at $50,000,000 or more--
    (1) Use the provision at 252.242-7001, Notice of Earned Value 
Management System--Validation Requirement, in the solicitations; and
    (2) Use the clause at 252.242-7002, Earned Value Management 
System--Validation Requirement, in the solicitation and contract.
    (b) For cost or incentive contracts valued at $20,000,000 or more 
but less than $50,000,000--
    (1) Use the provision at 252.242-7005, Notice of Earned Value 
Management System--Compliance Requirement, in the solicitation; and
    (2) Use the clause at 252.242-7006, Earned Value Management 
System--Compliance Requirement, in the solicitation and contract.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    4. Sections 252.242-7001 and 252.242-7002 are revised to read as 
follows:


252.242-7001  Notice of Earned Value Management System--Validation 
Requirement.

    As prescribed in 242.1107-70(a)(1), use the following provision:

NOTICE OF EARNED VALUE MANAGEMENT SYSTEM--VALIDATION REQUIREMENT (XXX 
2006)
    (a) The offeror shall provide documentation that its proposed 
earned value management system (EVMS) complies with the EVMS guidelines 
in American National Standards Institute/Electronic Industries Alliance 
Standard 748, Earned Value Management Systems (ANSI/EIA-748), or that 
the proposed EVMS has been validated and accepted by the Department of 
Defense.
    (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 its comprehensive plan for compliance with the EVMS guidelines 
to the Government for approval.
    (1) The plan shall--
    (i) Describe the EVMS the offeror intends to use in performance of 
the contract;
    (ii) Distinguish between the offeror's existing management system 
and modifications proposed to meet the EVMS guidelines;
    (iii) Describe the management system and its application in terms 
of the EVMS guidelines;
    (iv) Describe the proposed procedure for administration of the EVMS 
guidelines as applied to subcontractors;
    (v) Provide documentation describing the process, results, and any 
Government participation in any third-party or self-evaluation of the 
system's compliance with EVMS guidelines; and
    (vi) Include a schedule that provides a timetable of events leading 
up to Government validation and acceptance of the Contractor's EVMS. 
This schedule should include a progress assistance visit no later than 
30 days after contract award, and a compliance review as soon as 
practicable. The Department of Defense Earned Value Management 
Implementation Guide outlines the requirements for conducting a 
progress assistance visit and compliance review.
    (2) The Government will review the offeror's EVMS plan before 
contract award.
    (c) Offerors shall identify the subcontractors, or 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 subcontracted effort selected.
    (1) For proposed subcontracts with an estimated dollar value of 
$50,000,000 or more, the offeror shall be responsible for ensuring that 
the selected subcontractors comply with the requirements of the Earned 
Value Management System--Validation Requirement clause of the contract.
    (2) For proposed subcontracts with an estimated dollar value of 
$20,000,000 or more but less than $50,000,000, the offeror shall be 
responsible for ensuring that the selected subcontractors comply with 
ANSI/EIA-748. The terms for compliance with ANSI/EIA-748 may be subject 
to negotiation between the offeror and the subcontractor. The conduct 
of integrated baseline reviews also may be subject to negotiation 
between the offeror and the subcontractor.
    (d) The offeror shall incorporate its compliance evaluation factors 
for subcontractors into the plan required by paragraph (b) of this 
provision. (End of provision)


252.242-7002  Earned Value Management System--Validation Requirement.

    As prescribed in 242.1107-70(a)(2), use the following clause:

EARNED VALUE MANAGEMENT SYSTEM--VALIDATION REQUIREMENT (XXX 2006)
    (a) In the performance of this contract, the Contractor shall use--
    (1) An earned value management system (EVMS) that has been accepted 
by the Administrative Contracting Officer (ACO) as complying with the 
EVMS guidelines in 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 and 
reliable information for the contract performance report (CPR) required 
by the CPR data item of this contract.
    (b) If, at the time of award, the Contractor's EVMS has not been 
accepted by the ACO as complying with the EVMS guidelines, the 
Contractor shall apply the system to the contract and shall take timely 
action to implement its plan to obtain compliance. If the Contractor 
does not follow the implementation schedule in the compliance plan or, 
within a reasonable time, correct all system deficiencies identified 
during the compliance review specified in that plan, the Contracting 
Officer may take remedial action.
    (c) The Government will require integrated baseline reviews. Such 
reviews shall be scheduled as early as practicable, and the review 
process should be initiated no later than 180 calendar days after (1) 
contract award, (2) the exercise of significant contract options, and 
(3) the incorporation of major modifications. The objective of the 
integrated baseline review is for the Government and the Contractor to 
jointly assess the Contractor's baseline to be used for performance 
measurement, to ensure complete coverage of the statement of work,

[[Page 3452]]

logical scheduling of the work activities, adequate resourcing, and 
identification of inherent risks.
    (d) Unless a waiver is granted by the ACO, Contractor-proposed EVMS 
changes require approval of the ACO prior to implementation. The ACO 
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 
ACO, the Contractor shall disclose EVMS changes to the ACO at least 14 
calendar days prior to the effective date of implementation.
    (e) The Contractor agrees to provide access to all pertinent 
records and data requested by the ACO or the ACO's authorized 
representative. Access is to permit Government surveillance to ensure 
that the EVMS complies, and continues to comply, with the EVMS 
guidelines referenced in paragraph (a) of this clause and to 
demonstrate--
    (1) Proper implementation of the procedures generating the cost and 
schedule information being used to satisfy the contract data 
requirements;
    (2) Continuing application of the accepted company procedures in 
satisfying the CPR data item through recurring program/project and 
contract surveillance; and
    (3) Implementation of any corrective actions identified during the 
surveillance process.
    (f) The Contractor shall require its subcontractors to comply with 
EVMS requirements as follows:
    (1) For subcontracts with an estimated dollar value of $50,000,000 
or more, the following subcontractors shall comply with the requirement 
of this clause.
    (Contracting Officer to insert names of subcontractors selected for 
compliance with the EVMS validation requirement in accordance with 
252.242-7001(c)(1).)

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    (2) For subcontracts with an estimated dollar value of $20,000,000 
or more but less than $50,000,000, the following subcontractors shall 
comply with ANSI/EIA-748.
    (Contracting Officer to insert names of subcontractors selected for 
compliance with ANSI/EIA-748 in accordance with 252.242-7001(c)(2).)

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    (g) If indicated by the CPR, the Contractor shall submit a request 
for approval to begin implementation of an over-target baseline or 
over-target schedule to the Contracting Officer. This 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 have 30 calendar days to respond after receipt of the request. 
Failure of the Government to respond within the 30-day period will 
constitute automatic approval. For cost-reimbursement contracts, the 
contract budget base should include authorized changes to the contract 
scope but should exclude changes for cost growth. (End of clause)
    5. Sections 252.242-7005 and 252.242-7006 are revised to read as 
follows:


252.242-7005  Notice of Earned Value Management System--Compliance 
Requirement.

NOTICE OF EARNED VALUE MANAGEMENT SYSTEM--COMPLIANCE REQUIREMENT (XXX 
2006)
    As prescribed in 242.1107-70(b)(1), use the following provision:
    (a) The offeror shall submit a written summary of the management 
procedures it will establish, maintain, and use in the performance of 
any resultant contract to comply with the requirements of the Earned 
Value Management System--Compliance Requirement clause of this 
contract. This description shall include a matrix that correlates each 
guideline in American National Standards Institute/Electronic 
Industries Alliance Standard 748, Earned Value Management Systems 
(ANSI/EIA-748), to the corresponding process in the Contractor's 
written summary.
    (b) If the offeror proposes to use an earned value management 
system (EVMS) that has been previously accepted by the Administrative 
Contracting Officer as complying with the EVMS guidelines in ANSI/EIA-
748, the offeror may submit a copy of the documentation of such 
acceptance instead of the written summary required by paragraph (a) of 
this provision.
    (c) The offeror shall identify the subcontractors, or 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 compliance requirement. The offeror shall be responsible 
for ensuring that the selected subcontractors comply with ANSI/EIA-748. 
The offeror shall incorporate its compliance evaluation factors for the 
subcontractors into the plan required by paragraph (a) of this 
provision. (End of provision)


252.242-7006  Earned Value Management System--Compliance Requirement.

    As prescribed in 242.1107-70(b)(2), use the following clause:

EARNED VALUE MANAGEMENT SYSTEM--COMPLIANCE REQUIREMENT (XXX 2006)
    (a) The Contractor shall use management procedures in the 
performance of this contract that provide for--
    (1) Planning and control of cost and schedule performance;
    (2) Measurement of performance (value for completed tasks); and
    (3) Generation of timely and reliable information for the contract 
performance report (CPR) required by the CPR data item of this 
contract.
    (b) The Contractor shall use and maintain an earned value 
management system (EVMS) that complies with American National Standards 
Institute/Electronic Industries Alliance Standard 748, Earned Value 
Management Systems (ANSI/EIA-748), throughout the life of the contract. 
However, the terms for compliance with ANSI/EIA-748 may be subject to 
negotiation between the Contractor and the Contracting Officer. The 
Government will not formally accept the Contractor's EVMS with respect 
to this contract. The use of the Contractor's EVMS for this contract 
does not imply Government acceptance of the Contractor's EVMS for 
application to future contracts.
    (c) The Contractor may elect to use an EVMS that has been formally 
reviewed and accepted by the Administrative Contracting Officer (ACO) 
as complying with the EVMS guidelines in ANSI/EIA-748.
    (d) The Government will require integrated baseline reviews. Such 
reviews shall be scheduled as early as practicable, and the review 
process should be initiated not later than 180 calendar days after (1) 
contract award, (2) the exercise of significant contract options, and 
(3) the incorporation of major modifications. The objective of the 
integrated baseline review is for the Government and the Contractor to 
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.

[[Page 3453]]

    (e) The Contractor shall provide access to all pertinent records, 
company procedures, and data requested by the ACO, or the ACO's 
authorized representative, to demonstrate--
    (1) Proper implementation of the procedures generating the cost and 
schedule information being used to satisfy the contract data 
requirements;
    (2) Continuing application of the company procedures in satisfying 
the CPR data item through recurring program/project and contract 
surveillance; and
    (3) Implementation of any corrective actions identified during the 
surveillance process.
    (f) The Contractor shall submit notification of any substantive 
changes to the EVMS procedures and the impact of those changes to the 
ACO or the ACO's authorized representative.
    (g) The Contractor shall require the following subcontractors to 
comply with the requirements of this clause:
    (Contracting Officer to insert names of subcontractors selected for 
application of the EVMS compliance requirement in accordance with 
252.242-7005(c).)

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    (h) If indicated by the CPR, the Contractor shall submit a request 
for approval to begin implementation of an over-target baseline or 
over-target schedule to the Contracting Officer. This 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 have 30 calendar days to respond after receipt of the request. 
Failure of the Government to respond within this 30-day period will 
constitute automatic approval. For cost-reimbursement contracts, the 
contract budget base should include authorized changes to the contract 
scope but should exclude changes for cost growth. (End of clause)

 [FR Doc. E6-705 Filed 1-20-06; 8:45 am]
BILLING CODE 5001-08-P