A contractor is currently constructing a new building for your organization on a cost-plus-incentive contract. You just received the project status report from the contractor’s project manager. According to the report, the project’s CPI is 1.5. You are shocked because you believe the project costs are out of control. Upon investigation, you learn the $1 million advance payment (20 percent of the estimated project cost) given to the contractor at the start of the project was included in the project’s earned value. Further, the cost of the inventory at the project site was excluded from the total actual costs. According to the contract, your company reimburses only the costs for the completed deliverables and not for the supplies in the project’s inventory. In this scenario, the reported project’s CPI is incorrect because:
Actual cost is understated.
Earned value is overstated, and actual cost is understated.
Earned value is overstated.
Both the earned value and the actual cost are overstated.