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.
Value Engineering (VE) is an effective technique for reducing costs,
increasing productivity, and improving quality. It can be applied to
hardware and software; development, production, and manufacturing;
specifications, standards, contract requirements, and other acquisition
program documentation; facilities design and construction. 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." It may be successfully introduced at any point in
the life-cycle of products, systems, or procedures. VE is a technique
directed toward analyzing the functions of an item or process to
determine "best value," or the best relationship between worth and cost.
In other words, "best value" is represented by an item or process that
consistently performs the required basic function and has the lowest
life-cycle cost. In this context, the application of VE in facilities
construction can yield a better value when construction is approached in
a manner that incorporates environmentally-sound and energy-efficient
practices and materials.
Because "costs" are measurable, "cost reduction" is often thought of as the sole criterion for a VE application, and indeed, cost reduction is primarily addressed in this document. However, the real objective of VE is "value improvement," and that may not result in an immediate cost reduction.
VE originated in the industrial community, and spread to the Federal Government due to its potential for yielding a large return on investment. The Office of Federal Procurement Policy Act requires every Federal agency to maintain a VE program. DOD has had an active VE program since at least the early 1960s. VE has long been recognized as an effective technique to lower the Government's cost while maintaining necessary quality levels. Its most extensive use has been in Federal acquisition programs. The Federal Government's application of VE to projects, processes, and products has demonstrated success. Annually the Department of Defense (DoD) reports savings of approximately $1 billion.
VE is a management tool that can be used alone or with other management techniques and methodologies to improve operations and reduce costs. For example, the acquisition reform efforts, the emphasis on performance-based specifications, the design-build project delivery process, and the use of Integrated Product/Project/Process Teams (IPT) can include VE and other cost-reduction techniques, such as life-cycle costing, cost as an independent variable, concurrent engineering, and design-to-cost approaches. These techniques are effective as analytical tools in process and product improvement. VE can be used with lean six sigma processes to challenge requirements and identify functions that cost more than they are worth.
The DoD VE program has two distinct components:
- An in-house effort where VE is performed by DoD military and civilian personnel and
- An external effort where VE is performed by DoD contractors and applied to contracts after DoD approval.
This latter component is the principal subject of this document. With few exceptions, it is mandatory (since June 1962) to include VE provisions in most DoD contracts to encourage contractor participation and thereby realize the full benefits from cost reduction opportunities and innovations. These contract provisions provide the basis for the contractor to obtain a share of the savings that result from an approved VB effort. Before this development, submitting a cost-reduction change led to a commensurate decrease in the size of the contract and usually reduced profit by a proportional amount. The VE provisions changed this paradigm by providing the contractor with an incentive to submit Value Engineering Change Proposals (VECPs) to reduce cost.
A Value Engineering Change Proposal (VECP) is a proposal submitted to the Government by the contractor in accordance with the VE clause in the contract. It proposes a change that, if accepted and implemented, provides an eventual, overall cost savings to the Government. A VECP may update an existing design to the current state-of-the-art technology, simplify complex material by modifying or eliminating components, update specifications/drawings providing improved data for future procurements, or reduce Contract Data Requirements List (CDRL) items, to name a few examples. Although termed "value engineering," no engineering effort is required; only a proposal that reduces the cost of performance under the contract and requires a contract change for implementation. The VE provisions in a contract prescribe that the contractor receives a substantial share in the savings accrued as a result of implementation of the change.
A VECP does not require a change in a specification; it requires only a change in the contract. In order to qualify as a VECP and to ensure that savings can be shared, the proposed change must be submitted under a current contract and must meet two primary requirements:
- It must require a change to the contract under which it is submitted.
- It must provide an overall cost savings to the Government after being accepted and implemented.
Note that a VECP could result in increased hardware cost but reduced Operations and Support (O&S) cost, resulting in an overall savings to the Department of Defense. A VECP can be submitted at any time under an active contract with a VE clause.
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.
DoD has established a knowledge-based community of practice (CoP),
initially focused on VECPs, to help practitioners share and learn from
one another, face-to-face and virtually. The CoP will help navigate the
VECP process, improve the probability of successful VECP evaluations,
provide assistance and answers to technical questions, and serve as a
forum for disseminating the latest information. The CoP can be accessed
by going to the Defense Acquisition University's Acquisition Community
Connection Web site at
VE Management Advisory Group (VE MAG)
The VE MAG is established to act as the agent across Services and agencies promoting the use of value engineering. The chair of the VE MAG is the OSD VE Program Manager. The membership consists of one primary voting member from each Service and agency. In addition to an Army member, the U.S. Army Corps of Engineers will appoint one primary member to represent the Corps of Engineers. The VE MAG facilitates and promotes VE programs in the Services and agencies and prepares a VE strategic plan and updates the plan annually. The VE MAG reviews and recommends approval of the annual VE plans to the OSD VE Program Manager. The VE MAG will select the VE annual award winners from those nominated by the Services and agencies and will sponsor an annual VE awards ceremony to publically recognize all the selected VE award winners.