An Estimate-At-Completion (EAC), also known as Estimate-To-Complete (ETC), is an estimate of the amount of hours that it will take to complete a project, milestone or contract period. (For simplicity I am using completion an option period as the example.) An EAC allows companies to determine whether there are enough hours (which translates to funding) for Time and Materials Contracts and/or what the projected profitability will be for Firm-Fixed Price Contracts.
Time and Material Contracts
For a Time and Materials (T&M) contract, it’s important to determine how many workdays and hours are expected to complete the contract period and whether this is adequate to complete the Contract Period.
Follow the following steps in order to calculate.
|1.||Check the contract for total number of hours that are funded for a specific labor category.|
|2.||Use timesheets to see how many hours have been utilized for the current period. Be sure to capture all employees in the labor category providing direct labor on the contract.|
|3.||Figure out how many more hours will be needed to complete the contract period. The formula is Workdays (not including holidays) minus employee’s planned vacation days multiplied by 8 (or number of hours per workday).|
|4.||Add hours utilized plus additional hours necessary and evaluate if there is enough funding.|
|5.||Repeat for all applicable labor categories.|
|6.||If Other Direct Costs (ODCs) and//or Travel funding is needed, check to see if funding utilized plus funding that will be needed is sufficient. If there are not enough hours, contact the Government or Prime Contractor to inquire about additional funding. (This assumes that total amount of hours/funding necessary was proposed or covered by modifications.) If there is enough funding, but not enough hours in the applicable labor category, check with your Contract Manager. Depending on the contract, sometimes labor hours can be moved between labor categories, but not always. A Contracts Manager can interpret the contract and determine whether this is allowable.|
On a related note, if FAR clause 52.232-22 Limitation of Funds is in the contract or subcontract, an EAC can be used to determine if/when a Limitation of Funds notification is required.
Firm Fixed Price Contracts
For a Firm Fixed Price (FFP) contract, check and see whether your company is on track for the profitability estimated during the proposal.
1. Calculate how many hours have been utilized and how many more hours will be necessary to complete the contract period and add the two numbers together.
2. Compare this to the proposal submitted. All else being equal, if fewer hours are used than were bid, profitability will be higher and if more hours are used, profitability will be lower.
3. With this information, decide whether any changes can be made to enhance the bottom line while still meeting all of the contractual requirements.
There are other profitability factors as well. One factor is how indirect rates compare used for the proposal and the current period when work is performed. Another factor to consider is salary, salary increases, new hires with potential salary differences, ODCs, and travel if they were factored into the price. Incidentally, these factors can help compare profitability for T&M contracts also. After award, it is crucial not only to execute technically, but fiscally as well.