Thursday, April 30, 2015

Value Engineering Change Proposals (VECPs)

Value Engineering (VE) refers to a systematic process of reviewing and analyzing the requirements, functions and elements of systems, project, equipment, facilities, services, and supplies for the purpose of achieving the essential functions at the lowest life-cycle cost consistent with required levels of performance, reliability, quality, or safety.

Value Engineering Change Proposals (VECPs) are proposals submitted by contractors, pursuant to the VE clause in contracts (e.g. FAR 52.248-1) that, through a change in the contract, would lower the project's life-cycle cost to the Government without impairing essential functions, characteristics, or performance. VECPs are applicable to all contract types.

VECPs are voluntary but when the proposal is accepted by the contracting officer, contractors must share in the net acquisition savings. The share is significant. For a fixed-price contract for example, the contractors receives 50 percent of the net acquisition savings. Contractors and contracting officers often have a difficult time agreeing upon the calculation of net acquisition savings.

According to the OMB (Office of Management and Budget), value engineering has generated billions of dollars of savings and cost avoidance. The House Armed Services Committee in the 2016 National Defense Authorization Act however noted that the use of value engineering has waned in recent years but sees great potential for shared savings in the Department of Defense's current and future acquisitions to the extent that VE is effectively implemented.

To that end, the House Version of the 2016 NDAA contains a provision that directs DoD to conduct a review on the extent to which it is taking advantage of the opportunities for shared savings through greater use of value engineering in the acquisition of goods and services, the benefits it has achieved, barriers to effective implementation, and any unintended consequences.

Many contractors are unaware of the VECP clause in their contracts, the incentives that are available to them. Contractors who are aware of the program are sometimes reluctant to spend the effort, cost, and resources necessary to "engineer" new processes or functionality because of past experience where the Government did not seem to receptive to their efforts. Perhaps this provision in the new NDAA will help change the Government's attitude.

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