1. OUSD(AT&L)DPAP EVM Status and Issues Michael Pelkey OUSD(AT&L) Defense Procurement & Acquisition Policy 4 February 2010 1

2. Agenda  EVM Status Update  DFARS Proposed Rule on Business Systems 2

3. EVM Status Update  27 Aug 09 – Dick Ginman, Dep. Dir. DPAP, designated DoD Ombudsman for EVM Issues  2 Nov 09 – DoD EVM Report transmitted to Congress  4 Jan 10 – Gary Bliss designated Director, Performance Assessments & Root Cause Analyses 3

4. DFARS Proposed Rule  Business Systems-Definition and Administration (DFARS Case 2009-D038) »Applies to any contract, of any type, with a requirement to maintain an approved system for Subcontracts, Government Property, Cost Estimating, EVM, MMAS, or Accounting system. 4

5. Background  Aug 09 - Commission on Wartime Contracting (CWC) hearing on the adequacy of contractor business systems  Sep 09 – CWC published Special Report on Contractor Business Systems, “Defense agencies must improve their oversight of contractor business systems to reduce waste, fraud, and abuse.”  Nov 09 - CWC found that contractual mechanisms to enforce compliance with FAR and DFARS through payment withholding are inconsistent and, in some cases, completely lacking for key business systems.  15 Jan 10 – DFARS Proposed Rule published for public comment. 5

6. Business Areas/Systems DCAA internal control audit Business Areas  Control Environment and Overall Accounting System Controls  Purchasing (subcontracting) Controls  Indirect and Other Direct Cost Controls  Compensation System Controls  Billing System Controls  Budget and Planning System Controls  Estimating System Controls  Material Management and Accounting System Controls  Labor System Controls  IT General System Controls DCMA-administered Business Systems  Accounting System  Purchasing System  Estimating System  Material Management and Accounting System (MMAS)  Earned Value Management System (EVMS)  Property Management System 6

7. DFARS Proposed Rule  Adopts the 6 business systems defined in the FAR/DFARS  Makes changes to EVMS clause, new or revised clauses for other business systems  New “Business Systems” clause provides for payment withholding of 10% or 5% for deficiencies in each of 6 Business systems 7

8. EVMS clause changes  Requires ACO notification of system deficiency  Requires contractor response within 30 days of notification  If ACO determines that the EVMS contains a deficiency, the ACO will withhold payments IAW the Business Systems clause. 8

9. Payment Withholding  Upon determination that a deficiency in a Business System exists, ACO will withhold 10% of contract payments  Upon receipt of an acceptable corrective action plan (CAP) within 45 days, ACO will reduce withholding for that Business System deficiency to 5%  If the ACO determines that the contractor fails to follow the CAP, withholding reverts back to 10%  Cumulative withholding across all Business Systems shall not exceed 50% of payments due, except where deficiencies: »Are highly likely to lead to improper contract payments being made, or »Represent an unacceptable risk of loss to the Government 9

10. Questions? 10