Authorized Unpriced Work (AUW) is the estimated cost (excluding fee or profit) for contract changes that have been approved by the government contracting officer but have not yet been fully negotiated. This type of change is also called: changes orders, not to exceeds, and undefinitized change orders. The Total Allocated Budget (TAB) will be equal to the Negotiated Contract Cost (NCC) plus the value of all Authorized Unpriced Work (AUW) when there are no Over Target Baselines (OTBs).
Authorized unpriced work is best explained by understanding its relationship with the total allocated budget. The Total Allocated Budget (TAB) is one of the most confusing concepts of earned value because its definition changes, as the contract evolves. In all cases, the TAB includes the budgets for all contractually authorized work. The TAB does not include profit or fee. Simply put the TAB represents the estimated budget for all work associated with a contract.
The contract price has two elements (see Figure 1). The first element is profit or fee; fixed price contracts include profit, cost reimbursement contracts include fee. The second element is the total allocated budget which represents the contract cost. It’s important to understand the difference between cost and price. Price includes profit or fee while cost does not. Earned Value Management is always at the cost level. At the beginning of the contract, the Total Allocated Budget (TAB) is equal to the Negotiated Contract Cost (NCC) and the Contract Budget Base (CBB). For now, lets leave it at that and we’ll come back to this box later.
Figure 1
From the total allocated budget, most contractors first set aside a small percentage of the TAB for Management Reserve (MR) to cover unknown unknowns. The remaining budget becomes the Performance Measurement Baseline (PMB). The PMB consists of three elements, Undistributed Budget (UB), Summary Level Planning Packages (SLPPs) and Control Accounts (CAs). Undistributed Budget (UB) is a temporary holding budget that should be allocated as soon as practical to either Summary Level Planning Packages (SLPPs) or to Control Accounts (CAs). SLPPs are traditionally established for far term work. Early in a contract, it would be unreasonable to expect a detailed Control Account (CA) with Work Package (WP) descriptions and detailed schedules for the manufacture of something that had yet to be designed. But it is not unreasonable that a top level manufacturing budget and schedule be established for said manufacturing and the Summary Level Planning Package (SLPP) serves this function. For near term and well defined work, earned value control accounts (CAs) are established. A CA may have hundreds of work and planning packages. An EVM concept called a rolling wave is often used to move work from summary level planning packages to control accounts and from control account planning packages to control account work packages.
Now back to our Total Allocated Budget (TAB) box (see Figure 1). For most contract changes, the need for the change is often time critical. When this occurs, the contracting officer may issue an undefinitized change order or Authorized Unpriced Work (AUW). This allows the contractor to start the work while a proposal and contract modification are being negotiated. At this point in time the total allocated budget is equal to the Contract Budget Baseline (CBB) which is now equal to the Negotiated Contract Cost (NCC) plus the authorized unpriced work. Once the modification is negotiated, the NCC, CBB and TAB will all once again be equal. On some contracts, cost growth or cost overruns can reach a point where the NCC becomes meaningless. At this point in time, an Over Target Baseline, or OTB, may be established. The TAB is now equal to the over target baseline. The establishment of an OTB does not change the NCC or CBB.