CHAPTER 11
Cost Reporting

Large, complex, risky cost-reimbursement contracts and subcontracts require some type of cost reporting system to provide insight into seller’s progress for program purposes. This is commonly referred to as an earned value management system (EVMS). EVMS provides buyer with seller’s cost and schedule performance data, which (1) relates time-phased budgets to contract tasks or statements of work, (2) shows work as it evolves, (3) recounts cost, schedule, and technical accomplishments, and (4) summarizes information in clear, concise detail. EVMS ensures that cost, schedule, and technical aspects of the contract are properly integrated.

RISK

While EVMS is a very good tool for large research and development efforts, it involves considerable manpower to administer and is quite costly. Many small businesses lack the resources to adequately report at these levels. It is not a good tool for production efforts and small dollar contracts.

RESPONSE

If buyer’s contract requires an EVMS requirement, ensure that the level of cost reporting reflects the type, complexity, and size of the job. Familiarize yourself with the level of reporting required and price it accordingly. Challenge buyers that require EVMS on soft deliverable jobs or firm fixed priced (FFP) contracts. If the requirement can be reduced without jeopardizing the program, the attempt should be made. Always keep in mind that EVMS is designed to track large, complex, risky cost-reimbursement contracts.

EVMS involves strict earned value reporting, which may be erroneously flowed down to seller when the prime contract meets the threshold for applicability but the subcontract does not. In such an instance, it is best to request that a higher tier reporting system be used.