The Total Allocated Budget (TAB) is the sum of all budgets allocated to a contract for authorized work but doesn’t include profit or fee. The TAB consists of the Performance Measurement Baseline (PMB) and all Management Reserve (MR). The TAB reconciles directly to the Contract Budget Base (CBB). If the TAB is greater than the CBB, the difference is attributable to an Over Target Baseline (OTB).
A contract price has two elements. 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 (EVM) is always at the cost level. At the beginning of the contract, the total allocated budget is equal to the negotiated contract cost and the contract budget baseline.
From the TAB, most contractors first set aside a small percentage for management reserve to cover unknown unknowns. This can range from 5% – 20% but the average is. The remaining budget becomes the Performance Measurement Baseline (PMB). For most contract changes 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 TAB is equal to the contract budget baseline which is now equal to the negotiated contract cost plus the AUW. 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 negotiated contract cost 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 negotiated contract cost or contract budget baseline.
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