Earned Value Management System (EVMS) Validation on Government Contracts

Earned Value Management (EVM) has been a significant focus in the U.S. for decades, particularly because the government explicitly requires EVM from its suppliers for large contracts. Not only does the government mandate EVM for projects above a certain size, but it also validates the Earned Value Management System (EVMS) of its subcontractors after work has begun. This article explains the key fundamentals of EVM on government contracts and the process for validating an EVMS.

Contract Size Determines the EVM Effort

The Department of Defense (DoD) and other U.S. government agencies were among the first systematic adopters of EVM decades ago. From there, EVM spread steadily across industries. Some DoD contractors were required to use EVM, while other companies recognized its benefits and adopted it voluntarily.

In October 2015, U.S. government procurement regulations were updated to include new EVM requirements. For example, the threshold at which a validated EVMS is required increased from $50 million to $100 million. The implication is clear: without an EVM system in place, a contractor may not win the bid.

The following diagram illustrates EVM application in the U.S. On the left side, smaller and larger companies in private industry are shown. Smaller companies tend to keep EVM efforts minimal, while larger companies often establish more extensive EVM regulations. However, for very large, high-risk projects, clear and detailed EVM regulations are critical.

On the right side, EVM application for DoD projects is depicted. For contracts exceeding $20 million and lasting more than 12 months, specific reporting rules apply. These include the Cost Performance Report (CPR) in formats 1 and 5, along with an EIA-748-compliant EVMS. For high-risk projects below this threshold, reporting may still be required. Contracts exceeding $100 million must use a validated and compliant EVMS per EIA-748 and submit CPRs in formats 1 to 5.

Accept the Cost Risk or Apply a Compliant EVMS

For government contracts exceeding $100 million, contractors must use an EIA-748-compliant and validated EVMS. Once project work begins, the system will be audited and validated by the government.

If a company receives a Request for Proposal (RFP) that includes the DFARS 252.234-7001 clause for projects over $20 million, they face a decision. Ignoring the clause and submitting a Fixed Price (FFP) bid places all cost risk on the contractor. This is especially risky for projects with uncertain scope or non-routine work. For other contract types, the use of an EVMS is mandatory. For contracts over $100 million, the contractor must provide details in the proposal about how validation will be achieved.

This includes a description of the proposed system:

• An annotated checklist that addresses each of the 162 management system criteria.
• Proposed changes to the existing system
• Resumes of personnel responsible for implementing the compliant system
• A description of how the Guideline requirements will be met, including a description of subcontractor compliance and a schedule for achieving EVMS compliance.

Review Existing Control System and Reaching a Management Decision

Step 1: Familiarize the organization with the requirements of the EIA-748 Guideline and get full buy-in from senior management.

Step 2: Review the existing management control system, including the existing software and verify how it supports the full EVM requirements. This information is the basis for the implementation plan and for the cost of the customization.

Step 3: Management Decision:

• Review cost benefit of EVMS and possibly change the bid strategy to a Firm Fixed Price (FFP) bid and stop an EVMS implementation without significant investments.
• Decide to implement an EVMS step by step or
• Do not submit an offer

The Steps to Implement a Validated EVMS

Below you will find the most important steps to implement a validated EVMS:

1. Review the Existing Management System and subsystems in detail and identify corresponding weaknesses and deficiencies. Identify solutions to these, develop the final system design and a revised implementation plan, and get this approved by management.
2. Develop an EVMS compatible system description, processes and associated instructions. This describes how the system implements the EIA-748 requirements. Implement the processes in software and tools. Develop training materials.
3. Train Key Personal: Train all levels of management, Control Account Managers, Project Managers, etc. in the operation and use of the EVM system.
4. Apply the EVM system, ideally to the project where one has bid and won the contract. Normally three months of system data and reporting are required before the next step is to review and validate the EVMS system.
5. Validation Review: This begins with at least one visit by the contracting officer’s EVMS representative (or the Defense Contract Management Agency representative for DoD contracts) to confirm that the system is being implemented as described. After the company completes a Self-Assessment, it may request a formal Validation Review by the Review Agency.
   This review typically occurs about 12 months after the contract starts. It is a detailed and resource-intensive process, involving 15 to 20 reviewers over a period of at least two weeks. The company must provide logistical support, including facilities such as rooms, computers, and printers..
   The Validation Review generally concludes with a list of required improvements. Once these are addressed, the company receives the “System Acceptance Letter,” signifying the EVMS has been formally validated.
6. Surveillance Review: This ensures that the implemented EVMS continues to comply with the EIA-748 Guideline. This process is essential because, over time, the use of EVM systems often diminishes. Common issues include reduced management commitment, the adoption of shortcuts, and a general lapse into a more relaxed approach. For long-term projects, Surveillance Reviews are typically conducted periodically, such as on an annual basis, to maintain adherence and effectiveness.

Is It Worth the Effort?

For projects exceeding $100 million, the investment in implementing and validating an EVMS is justified. For smaller projects, however, the effort may not be worthwhile..

The EIA-748 and the 32 EVMS criteria