Authorized Unpriced Work or AUW means that a contractor has been authorized by the customer to start work on new contract scope but the budgetary details of which have not yet been negotiated.
Authorized Unpriced Work Details and Examples
You can think of Authorized Unpriced Work as a change management tool that is designed to mitigate the risk to both parties when a customer needs to make changes the original project scope.
Changes to contract scope are a common occurrence and can often present risks to the contractor performing the work if they are not handled with a formal process. If the customer is asking for additional deliverables above the original statement of work (SOW) then the costs of these changes can potentially fall on the contractor to cover while the new work is being negotiated. This is commonly referred to as working ‘at risk’.
How the Authorized Unpriced Work Process Works
When a customer and contractor agree to a change, a proposal is developed and submitted to the customer. This proposal will include a ‘not to exceed’ (NTE) amount that will be the basis for funding the changes while details are finalized and negotiated. This NTE amount protects both parties in that the contractor will get paid for the work up to that amount, and the customer has just limited their exposure to a potential cost overrun should the detailed specifications reveal the change to be excessively expensive.
At the project level, this NTE is placed in Undistributed Budget (UB) until it is formally distributed to the Control Account Manager (CAM) and added to the Earned Value Management System (EVMS). Next the NTE AUW is formally added to the project following the EVM System Description process guidelines. Typically this involves logging the budget in the formal program logs, the project manager authorizes a portion of the budget to a CAM who then proceeds with the near-term work. The portion of the NTE AUW authorized to the CAM is at the discretion of the project manager and is not specifically called out in the ANSI 748: although many project managers will authorize up to the full NTE amount.
It is also possible to fund unpriced work from existing MR as long as both parties agree to this approach and recognized that this MR budget was derived from the funding previously negotiated for the original contractual effort. The amounts used will be refunded to MR once the AUW is finalized and formally approved.
Once the final negotiations are completed, the customer formally authorizes the contractor to proceed with the change. At this point the contractor can authorize the full budget amounts to the CAMs, minus any management reserve (MR) for risk mitigation, enter the detailed scope into the control accounts, move the amounts from UB to the distributed budget accounts, and proceed in earnest with the effort. This should all be completed within two reporting periods of the authorization because leaving money in the UB account for more than 60 days goes against EVM guidelines. In other words this should all happen in a ‘timely’ fashion.
The specifics of this process can vary between different organizations, but the above does outline the general concept of Authorized Unpriced Work and how it is handled when scope is being added to an existing performance measurement baseline. As I mentioned it does allow new work to be planned and even started in the absence of, or prior to, a formal negotiated change.
Simply put, Authorized Unpriced Work protects both parties from the risk that a scope change may be more expensive than the customer is ultimately willing to pay for. The issuance of a ‘not to exceed’ value as part of the AUW process limits the cost to the customer if for some reason the new scope turns out to be technically or financially unfeasible. In this situation the customer only pays up to the not to exceed amount. The contractor is also protected from working on something at the behest of the customer, only to not get paid for it when it turns out to be too expensive or technically unfeasible.