Agencies face new rules on contract management

The councils responsible for overseeing federal acquisition regulations released a much-anticipated proposed rule last week to standardize the use of earned value management, a method of monitoring contract performance.

The announcement in the Federal Register triggered excitement among proponents of the technique, along with concerns about its implementation.

Currently, the Defense Department requires earned value management to be used in certain contracts valued at over $20 million, and the Office of Management and Budget requires other agencies to use the method on large, developmental contracts.

Despite the requirements, consultants familiar with government contracting say that agencies often don't apply earned value management correctly and sometimes avoid it altogether.

Contracting officers resist it partly because they don't understand it, said Marilyn McCauley, owner of the Dayton, Ohio-based McManagement Group, which consults with agencies on earned value management. The regulation "is going to put some teeth in what's already out there, and put some consistency in the government," she said.

Earned value management is a mathematical tool that enables contracting officers to compare actual cost, planned cost and output, allowing them to track discrepancies in spending and results.

Last week's announcement adds the OMB requirements to the Federal Acquisition Regulation, which formalizes government-wide procurement rules. It requires agencies to conduct "integrated baseline reviews," a first step toward earned value management. The reviews involve discussion of performance measurement risks and management controls before contracts are awarded.

Garry Booker, president of Project Frontier, a Tulsa, Okla., company that produces earned value management software, said he supports the idea of requiring such reviews because they promote collaboration between contractors and agencies.

"Those contractors who can convert their proposed approach into an executable project plan…are the contractors most likely to succeed," he said.

But Tony Finefield, owner of Finefield Consulting of Garden Grove, Calif., said he is concerned that the proposed requirement would add too much work to an already overburdened federal acquisition workforce.

Integrated baseline reviews can take up to five days for each bid, he said, which means that when an agency receives multiple bids, contracting officers might have to spend weeks on reviews.

Finefield said pre-award reviews might make more sense in sole-source contracting situations, where there is only one bid.

OMB maintains that reviews prior to contract awards can result in lower overall costs. "Conducting an integrated baseline review before an award may actually save money in the contract process, since conducting an IBR after the award often increases overall price," said Sarah Hawkins, an OMB spokeswoman. She also emphasized that the proposed rule does not signal a final decision.

Booker, whose Project Frontier is a small business, said he plans to discuss how earned value management is applied to such companies with the Small Business Administration. "It is wrong to impose a heavyweight [earned value management] standard on small businesses," he said.

The councils are taking comments on the proposed rules until June 7, particularly on the question of whether or not to require integrated baseline reviews prior to contract awards.