Background
Value Engineering (VE) was developed at General Electric Corp. during
World War II and is widely used in industry and government, particularly
in areas such as defense, transportation, construction, and healthcare.
VE is defined as "an analysis of the functions of a program, project,
system, product, item of equipment, building, facility, service, or
supply of an executive agency, performed by qualified agency or
contractor personnel, directed at improving performance, reliability,
quality, safety, and life cycle costs."
The OFPP Act requires every Federal agency to maintain a Value
Engineering program. DOD has had an active VE program since at least
the early 1960s.
Despite its close tie-in with other DOD priorities such as Reducing
Total Ownership Costs (R-TOC) and despite ample evidence that VE is
highly cost-effective, the use of this program by the Services and
defense agencies has diminished in recent years. Responsibility for VE
was recently transferred to AT&L/Defense Systems and a series of
meetings have been held with government and industry to consider ways to
revive this program.
Value Engineering Change Proposals (VECPs)
The purpose of the Value Engineering Change Proposal (VECP) Program is
to incentivize the contractor to propose contract modifications which
reduce cost without reducing product or process performance. Two
aspects of the VECP make it unique in achieving its purpose: the
requirement that the VECP result in a contract modification, and the
incentive paid to the contractor for reducing costs. The VECP is the
formal document a Contractor uses to submit a cost saving recommendation
to the government in accordance with the VE provisions of their
contract. A VECP must be submitted under an existing contract and must
result in a change to that contract. In addition, the change must
result in a reduction in the system's life cycle cost to the Government
For over three decades the VECP has had a notable history as an
effective savings program for the Government. Countless programs have
used the VECP to reduce cost and improve both product and process.
Contractors have used the VECP to increase their profits and to ensure
continuing improvement to their products. Most authorities concede
that Value Engineering is an excellent program but that its use has
waned in recent years due to a perceived lack of support by government
agencies. Providing this seed money would encourage agencies to
establish VE, promote wider acceptance, and provide criteria for a sound
program.
Traditionally, VECPs have been used most often on procurement contracts.
More recently, the lower number of new acquisition systems and lower
production quantities have heightened the attention paid to the
sustainment of existing systems. Approximately 60 percent of the funds
in the DOD's Total Obligation Authority (TOA) are in Operations and
Support (O&S). Replacement systems are not being developed as often as
in the past, resulting in an increase in the number of Service Life
Extension Programs. Contractor Logistics Support (CLS) is being used
more frequently to maintain existing systems. Manpower reductions are
increasing the value of improvements in reliability and maintenance and
reductions in supply requirements. Use of open system architectures is
facilitating system upgrades and insertion of new technologies. The
government is encouraging the contractor to develop and use commercial
technologies in defense systems. Mechanisms are being sought to
incorporate improved technologies into existing systems to increase
system readiness, extend service life, reduce the O&S cost burden and
ensure existing systems can continue to meet developing threats. This
heightened interest in the sustainment of existing systems offers an
increased opportunity for use of the VECP.
In today's environment, the VECP has a vital role as one of the proven
tools for reducing program cost and improving product and process
performance. As one element in a more comprehensive cost reduction
program, the VECP can provide for system enhancements and cost reduction
changes which might not otherwise become available to the Government.
The VECP can be used at any point during acquisition but the predominant
application has been and continues to be in the production and support
phase of a program. On these legacy systems, the VECP remains one of
the principal, established and proven tools for reducing cost and
enhancing system performance.
