Is the Cumulative SCI-based EAC an Upper Bound to the Final Cost of Post-A12 Defense Contracts?

Abstract Christensen (1999) describes several methods to evaluate the predicted final cost of a defense acquisition contract, termed the “Estimate at Completion” (EAC). One of the methods uses the EAC derived from the cumulative Schedule-Cost Index (SCI) as a potential upper bound to the final cost of a defense contract. The method was derived from Department of Defense (DoD) experience on hundreds of defense contracts completed in the 1970s and 1980s, and used by Beach (1990) to evaluate the reasonableness of contractor and government estimates of the final cost of the A12 program. This study tests the validity of the rule on 120 contracts completed after the A-12 cancellation in 1991. Results show that the average cumulative SCI-based EAC is significantly lower than the average final cost of defense contracts in the early and middle stages of completion. Using it as a lower bound may result in more realistic estimates of final cost.