1. Accepted Standards and Emerging
Trends in Over Target Baseline (OTB)
Contracts
• Presenter: Simon Dekker
• 2012 NASA PM Challenge
• February 22-23, 2012
• Orlando, Florida

2. UNDERSTANDING OVER
TARGET BASELINE (OTB)
• OTB Explained
• History
• Definitions and Process
• The Customer Perspective
• Recent OTB Findings
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3. OTB: The Essentials
 Project or program that has run significantly
over budget
 Requires “formal reprogramming”
• Complete re-planning
• Must be re-baselined at a cost exceeding the original
contract price, without affecting scope
• Established, well documented process in Earned
Value Management (EVM) practice
 Ramifications
• For the customer (agency)
• For the contractor
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4. “Reprogramming”
“Reprogramming” is more than simply increasing
a budget, it is a fundamental reassessment of a
program or project.
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5. OTB History
 Highly publicized cost overruns on major Defense
programs in the late 1980s
 Contract termination vs. Reprogramming
• Navy A-12 terminated by Secretary of Defense in 1991
• Air Force C-17 allowed to continue under strict
conditions to solve cost/schedule overruns
Boeing (McDonnell Douglas) C-17 Globemaster III
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6. OTB History (cont.)
 OTB process began to take shape
• Perform cost/benefit analysis
• Quantify remaining work under original scope
 Over Target Baseline and Over Target
Schedule (OTB/OTS) codified in DoD/DCMA,
Defense Acquisition University (DAU), and
other EVM documentation
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7. OTB Definitions
Terminology and Acronyms
Total Allocated Budget TAB Contract cost. At the beginning of a project, Total Allocated
Budget is equal to the negotiated contract cost and contract
budget baseline.
Negotiated Contract Costs NCC Contract price less profit/fees
Authorized Unpriced Work AUW Work contractually approved, but not yet negotiated/defined
Contract Budget Base CBB Sum of NCC and AUW
Over Target Baseline OTB Sum of CBB and recognized overrun
Profit/Fees Fixed price contracts include a profit, whereas cost
reimbursement contracts include a fee
Performance Measurement Baseline PMB Contract time-phased budget plan
Management Reserve MR Budget withheld by PM for unknowns/risk management
Undistributed Budget UB Broadly defined activities not yet distributed to CAs
Control Account CA Lowest WBS element assigned to a single focal point to
plan and control scope / schedule / budget
Summary Level Planning Package SLPP Far-term activities not yet defined into CAs
Work Package WP Near-term, detail-planned activities within a CA
Planning Package PP Far-term CA activities not yet defined into WPs
Table 1. Source: Defense Acquisition University EVM Gold Card
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8. OTB Definitions (cont.)
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9. When is an OTB Recommended?
The standard rule-of-thumb is that an OTB is
appropriate on a contract that has exceeded 15%
in terms of Projected Cost Growth
𝐸𝐴𝐶 − 𝐴𝐶𝑊𝑃 − 𝐵𝐴𝐶 − 𝐵𝐶𝑊𝑃
= % 𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝐺𝑟𝑜𝑤𝑡ℎ
𝐵𝐴𝐶 − 𝐵𝐶𝑊𝑃
Customer and contractor must both agree
remaining budget is “decidedly insufficient”
(DCMA, 2006) to complete remaining work
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10. OTB Process
 Formal process documentation written largely
from the contractor’s perspective
 10-step process (Bembers, et. al., 2003)
• Begins with the contractor’s decision to pursue
formal reprogramming, because –
• Purpose of OTB is to help contractor regain control
over ongoing work
• Customer must then be notified immediately
 Provides an opportunity to address areas
where the original contract may have been
unclear or deficient
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11. OTB Process (cont.)
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12. Adding the Customer Perspective
 Very little has been written about the
customer’s role in the OTB process
 Customer must take active role in deciding if an
OTB is warranted
• It’s about more than previous contractor
performance
• Customer must undertake its own audits or reviews
of contract performance and risk items
 Granting an OTB should not be considered a
“given”
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13. The Customer Perspective
 Three questions loom large over OTB process
• Once requested by the contractor, should an OTB be
granted?
• Should the customer consider other sources?
• Should the program or project in fact be terminated?
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14. Informing Customer Concerns (DAU)
 Is the project outcome still aligned to the
critical, strategic goals of the organization?
 Does the program still offer the competitive
advantage it did when the contract was
awarded?
 Has senior management’s buy-in to the project
or capability significantly eroded?
 Are there sufficient resources available to re-
fund the revised Estimate at Complete?
 What internal and external risks are inherent to
OTB?
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15. Customer Assessment of the Contractor
 DAU recommends independently assessing
• Contractor performance-to-date
• “System discipline to maintain baseline integrity”
(Bembers, et al., 2003)
• EVM system and compliance
 System discipline is perhaps most crucial
consideration
• What indicators suggest past failures to control cost
will be corrected?
• If faith in the contractor is not there, contract can be
canceled or re-bid
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16. Recent OTB Studies
 Three recent studies from the Air Force Institute
of Technology
• Analysis of predictive growth models for Estimates at
Complete (EAC)
• OTB’s effect on EVM’s Cost Performance Index
(CPI)
• Trying to predict which contracts will need OTBs
 Findings have universally called into question
the value of OTBs
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17. Recent OTB Findings: EAC
 Establishing a new EAC (Trahan, 2009)
• Predicting EAC for contracts in need of OTB
reprogramming
• Compares “nonlinear growth modeling” to traditional
EVM Cost Performance Index (CPI)
• Actual Cost predicted more accurately in 63%-79%
of contracts examined using growth modeling
• Not an effective early warning indicator, though
 Conclusion: non-traditional calculations can
help better predict ultimate OTB costs
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18. Recent OTB Findings: Benefits
 Theoretical benefits of OTBs rarely realized in
practice (Thickstun, 2010)(Jack, 2010)
• Formal OTB reprogramming in DoD contracts
undertaken fairly randomly
• Using CPI as an indicator, contracts experience no
statistically significant performance improvement
after formal OTBs
 Conclusion: Given the costs incurred by the
OTB process, the customer receives little if any
tangible benefit
 Recommendation: Barring significant changes
to the process, formal OTBs be disallowed
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19. Conclusion
 The OTB process is an accepted part of EVM
practice
 OTBs should not be granted by rote – the
customer must take an active role in
determining if an OTB should take place
 Complete audit and cost/benefit analysis are
necessary, but often overlooked
 Significant changes must be implemented to
ensure future performance will improve
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20. © 2011 Dekker, Ltd. 20

21. Bibliography
Bembers, I., Boord, M., Byrnes, T. A., Finefield, T., Gran, W., Haupt, E., et al. (2003). Over Target Baseline and Over
Target Schedule Handbook. Fort Belvoir: Defense Acquisition University.
Defense Acquisition University (DAU). (2010, September). DAU EVM 'Gold Card'.
Defense Contract Management Agency (DCMA). (2006). Earned Value Management Implementation Guide.
Evans, D. (1993, March 29). Pentagon to Air Force: C-17 Flunks. Chicago Tribune .
Jack, D. E. (2010). Contract Over Target Baseline (OTB) Effect on Earned Value Management's Cost Performance
Index (CPI). Wright-Patterson AFB, Ohio: Graduate School of Engineering and Management, Air Force Institute
of Technology (AU).
Mahnken, T. G. (2008). Technology and the American Way of War. New York: Columbia University Press.
Thickstun, K. E. (2010, March). Predicting Over Target Baseline (OTB) Acquisition Contracts. Wright-Patterson AFB,
Ohio: Graduate School of Engineering and Management, Air Force Institute of Technolgoy (AU).
Trahan, E. (2009, March). An Evaluation of Growth Models as Predictive Tools for Estimates at Completion (EAC).
Wright-Patterson AFB, Ohio: Graduate School of Engineering and Management, Air Force institute of
Technology (AU).
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