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U.S. Department of Energy ORDER
Washington, D.C. DOE 4010.1A
5-14-92
SUBJECT: VALUE ENGINEERING
1. PURPOSE. To implement Office of Management and Budget (OMB) Circular
A-131, shown in Attachment 1 of this Order, and to establish procedures
in the Department which meet the requirements of that circular.
2. CANCELLATION. DOE 4010.1, VALUE ENGINEERING, of 2-17-89.
3. SCOPE. The provisions of this Order apply to all Departmental Elements
and contractors performing work for the Department, as provided by law
and/or contract and as implemented by the appropriate contracting
officer.
4. REFERENCES.
a. DOE 4200.3C, MANAGEMENT OF SUPPORT SERVICE CONTRACT ACTIVITY, of
5-17-91, which provides the policy, procedures, and
responsibilities for the management of support service contracts
within the Department.
b. OMB Circular A-131, "Value Engineering," of 1-26-88, which
requires that agencies shall establish value engineering (VE)
programs and use VE, where appropriate, to reduce nonessential
costs and improve productivity.
c. Executive Order 12615, "Performance of Commercial Activities," of
11-19-87, which facilitates ongoing efforts to ensure that the
Federal Government acquires needed goods and services in the most
economical and efficient manner.
d. Office of Federal Procurement Policy, "Guide for Writing and
Administering Performance Statements of Work for Service
Contracts," of 10-8-80, which provides OMB instructions for
preparing statements of work.
e. FAR Part 48, "Value Engineering," of 3-2-89, which provides
information on the applicability and administration of value
engineering in Government contracts.
f. FAR Part 57.248-1, "Value Engineering," of 3-2-89, which provides
information on inserting relevant clauses in supply or service
contracts thereby enabling value engineering incentives under the
conditions specified in FAR 48.201.
5. DEFINITIONS.
a. Value Engineering. An organized effort directed by a person
trained in VE techniques to analyze the functions of systems,
equipment, facilities, services, and supplies for the purpose of
achieving the essential functions at the lowest life cycle cost
consistent with required performance, reliability, availability,
quality, and safety. (Terms such as value analysis, value
control, value improvement, value management, and functional
analysis are synonymous.)
b. Value Engineering Change Proposal (VECP). A change proposal that
is submitted by a contractor under a VE incentive or mandatory
program requirement clause included in a Federal contract.
c. Value Engineering Proposal (VEP). A change proposal developed by
employees of the Federal Government or contractor VE personnel
employed by the agency to provide VE services for the contract or
program.
d. Value Engineering Incentive (VEI) Clause. A contract clause which
allows for the voluntary participation by the contractor in the
development and submission of VECPs. The contract clause provides
that when a VECP is accepted, any resulting savings are shared
with the contractor in a preestablished - usually a percentage -
basis set forth in the contract.
e. Value Engineering Program Requirement (VEPR). A contractual
requirement that a contractor maintain a formal Value Engineering
Program as a condition of contract performance. It is implemented
by contract clause and is generally reserved for circumstances
where substantial savings may result from a sustained value
engineering effort.
f. Value Engineering Program Requirement (VEPR) Clause. A contract
clause which requires a contractor to conduct a specific VE effort
within the contract, i.e., an effort to identify and submit to the
Government methods for performing more economically. In this
approach, the contractor also shares in any savings resulting from
the VECP, but at a lower percentage rate than under the voluntary
VEI approach. This effort is generally directed at the major cost
items of a system or project.
6. POLICY. The policy is to establish VE programs, and use VE, where
appropriate, to reduce nonessential costs and improve productivity.
These VE programs shall, at a minimum, provide for the management and
procurement practices as required by OMB Circular A-131.
7. RESPONSIBILITIES.
a. Director of Administration and Human Resource Management (AD-1),
has the overall responsibility for the effective implementation of
OMB Circular A-131.
b. Director of Organization, Resources and Facilities Management
(AD-10), through the Director of Facilities and Real Property
Management (AD-14), shall establish a VE program (in accordance
with the procedures listed below), including the establishment of
an advisory VE Steering Committee consisting of appropriate
Headquarters and field program managers.
c. Director of Procurement, Assistance and Program Management (PR-1),
through the Cognizant Contracting Officers, shall ensure that the
contractual aspects of the Department's VE program are
appropriately implemented.
d. Heads of Departmental Elements shall ensure that the policies and
procedures identified in OMB Circular A-131 and this Order are
carried out for activities under their jurisdiction.
e. VE Steering Committee, an advisory body composed of selected Heads
of Departmental Elements, recommends VE criteria and guidelines to
the Director of Facilities and Real Property Management for
possible Departmentwide application; and provides technical input,
advice, and assistance on VE program planning. A list of the
current VE Steering Committee membership is as follows:
Director of Administration and Human Resource Management
Assistant Secretary for Nuclear Energy
Assistant Secretary for Fossil Energy
Assistant Secretary, Conservation and Renewable Energy
Assistant Secretary for Defense Programs
Assistant Secretary for Environment, Safety, and Health
Assistant Secretary for Environmental Restoration and Waste
Management
Director of Civilian Radioactive Waste Management
Director of Energy Research
Director of Naval Reactors
Manager, DOE Albuquerque Field Office
Manager, DOE Chicago Field Office
Manager, DOE Fernald Field Office
Manager, DOE Idaho Field Office
Manager, DOE Nevada Field Office
Manager, DOE Oak Ridge Field Office
Manager, DOE Richland Field Office
Manager, DOE San Francisco Field Office
Manager, DOE Savannah River Field Office
Director, Morgantown Energy Technology Center
Director, Pittsburgh Energy Technology Center
Administrator, Bonneville Power Administration
Administrator, Western Area Power Administration
8. PROCEDURES. This Order requires all Departmental Elements to establish
a VE program and use VE, where appropriate, to reduce nonessential
costs and improve productivity.
a. Establish Criteria and Guidelines. Establish criteria and
guidelines to identify those programs and projects that are most
appropriate for VE studies.
(1) AD-14 shall review and evaluate the criteria and guidelines
developed by the field elements and approved by Headquarters
or Power Marketing Administrations' program offices.
(2) Heads of Headquarters program offices shall review and
approve the field elements' criteria and guidelines.
(3) Heads of Field Elements shall develop specific criteria and
guidelines for programs and projects and, through delegated
contracting authority to contracting officers, perform the
procurement practices described in OMB Circular A-131.
(4) Heads of Power Marketing Administrations' program offices
shall review and approve the field elements' criteria and
guidelines.
b. Budgeting for VE. Heads of Field Elements shall develop and
include in their annual budgets funding as appropriate to support
VE programs under their jurisdiction.
c. Promotion and Training. Promote, through training and other
programs, the potential of VE to reduce unnecessary costs.
(1) AD-14 shall coordinate the development of Departmental
training programs and other promotional activities including
the recognition of exemplary VE accomplishments by
Departmental in-house and/or contractor personnel.
(2) Heads of Headquarters program offices shall participate as
appropriate in Departmental training programs.
(3) Heads of Field Elements shall utilize training programs which
have been authorized by AD-14 and/or develop and provide
other training as appropriate.
d. Perform VE Studies. Heads of Field Elements shall perform VE
studies as early in the design process as feasible and implement
study recommendations as appropriate.
e. Report Annual Summary VE Program Information.
(1) AD-14 shall review Headquarters and field elements' annual VE
reports, consolidate them into a Departmental report, and
submit that report to OMB in accordance with OMB Circular
A-131.
(2) Heads of Headquarters program offices shall review and concur
with field organizations' reports as appropriate.
(3) Heads of Field Elements shall prepare an annual VE report in
the format shown in Attachment 2 of this Order.
(4) Heads of Field Elements' reports shall be submitted annually
to AD-14 by November 15 of each year.
BY ORDER OF THE SECRETARY OF ENERGY:
DONALD W. PEARMAN, JR.
Acting Director
Administration and Human
Resource Management
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
January 26, 1988
CIRCULAR NO. A-131
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Value Engineering
1. Purpose. The purpose of this circular is to require the use of value
engineering, as appropriate, by Federal Departments and agencies to
identify and reduce nonessential procurement and program costs. The
circular requires agency heads to establish and improve their use of
value engineering programs.
2. Background. Value engineering in the Federal Government is a means for
some Federal contractors and Government entities to change the plans,
designs and specifications for Federal programs and projects. These
changes are intended to lower the Government's costs for goods and
services and maintain necessary quality levels.
a. Prior Reports. Over the last several years, reports issued by the
General Accounting Office (GAO) and many Inspectors Generals (IGs)
have consistently concluded that greater use of value engineering
would result in substantial savings to the Government. While some
Federal agencies have value engineering programs, other agencies
have not utilized value engineering fully. Even for agencies with
established programs, the GAO and IG reports conclude that much
more can and should be done to realize the benefits of value
engineering.
b. Identified Impediments. The impediments that are frequently noted
in these reports and that have prevented a greater use of value
engineering include:
(1) Failure of senior management to allocate the necessary
resources, both in effort and in funds, to establish and run
value engineering programs;
(2) Absence of good criteria for selecting projects and programs
for value engineering studies;
(3) Failure to properly perform value engineering studies;
(4) Inadequate attention by agency management to reviewing and
implementing the recommendations made in value engineering
studies.
c. Other Problems. Many of the problems noted in the GAO and IG
reports are attitudinal. A common observation in many of the
reports is that there are few incentives to use value engineering
or other cost cutting techniques to save money on fully funded
Federal programs and projects. Obviously, programs should be
developed, critically reviewed and administered in the most cost
effective manner possible. Value engineering and other management
techniques must ensure realistic project budgets and identify and
remove nonessential capital and operating costs.
3. Definitions.
a. Agency. As used in this Circular, the term "agency" means any
executive department, military department, government corporation,
government controlled corporation or other establishment of the
executive branch of the Federal government.
b. Value Engineering. An organized effort directed by a person
trained in value engineering techniques to analyze the functions
of systems, equipment, facilities, services, and supplies for the
purpose of achieving the essential functions at the lowest life
cycle cost consistent with required performance, reliability,
quality and safety.
c. Value Engineering Change Proposal (VECP). A change proposal that
is submitted by a contractor under a value engineering incentive
or program requirement clause included in a Federal contract.
d. Value Engineering Proposal. A change proposal developed by
employees of the Federal Government or contractor value
engineering personnel employed by the agency to provide value
engineering services for the contract or program.
4. Policy. Agencies shall establish value engineering programs and use
value engineering, where appropriate, to reduce nonessential costs and
improve productivity. Value engineering programs of agencies shall, at
a minimum, provide for the following management and procurement
practices.
a. Management Practices. Value engineering programs must be tailored
to the mission and organizational structure of each agency. For
example, the cost and program/project size usually indicate the
potential for value engineering. In most agencies, a relatively
few programs or projects comprise the majority of costs and value
engineering efforts should be concentrated on these programs and
projects. Therefore, agencies shall:
(1) Emphasize, through training, evaluation and other programs,
the potential of value engineering to reduce unnecessary
costs.
(2) Establish a single entity within the agency to manage and
monitor value engineering efforts, encourage the use of value
engineering and maintain data on the program. This function
shall achieve the purposes of this circular. Value
engineering training shall be provided to the person
responsible for the value engineering function and to other
personnel responsible for developing, reviewing and analyzing
value engineering actions.
(3) Report and update the name, address and telephone number of
the person responsible for each agency's value engineering
program to the Office of Federal Procurement Policy, Office
of Management and Budget.
(4) Ensure that funds necessary for operating agency value
engineering programs are included in annual budget requests,
and provide annual summary value engineering program
information to the Office of Management and Budget as
requested.
(5) Establish criteria and guidelines to identify those programs
and projects that are most appropriate for value engineering
studies. The criteria and guidelines should recognize that
the potential savings are generally greatest during the
planning, design, and other early phases of project/program
development.
(6) Require that files be documented to explain why value
engineering studies were not performed or required for any
programs/projects meeting the agency criteria.
(7) Establish guidelines to evaluate and process value
engineering proposals.
b. Procurement Practices. Present procurement policies and practices
for the use of value engineering are set forth in Parts 48 and 52
of the Federal Acquisition Regulation (FAR). Part 48 provides two
basic incentive approaches for using value engineering. The first
approach uses a Value Engineering Incentive (VEI) clause. In this
approach the contractor's participation is voluntary and the
contractor uses its resources to develop and submit VECPs. A
contract clause provides that when a VECP is accepted any
resulting savings are shared with the contractor on a
preestablished - usually a percentage - basis set forth in the
contract.
The second approach uses a Value Engineering Program Requirement
(VEPR) clause and requires the contractor to conduct a specific
value engineering effort within the contract, i.e., an effort to
identify and submit to the Government methods for performing more
economically. In this second approach, the contractor also shares
in any savings resulting from the VECP, but at a lower percentage
rate than under the voluntary approach. This effort generally is
directed at the major cost items of a system or project.
The FAR presently permits agency heads to exempt their agencies
from using value engineering provisions in contracts. The
authority to totally exempt agencies from using value engineering
provisions will be rescinded and the FAR will be modified to
require that contracting activities include value engineering
provisions in contracts except where exemptions are granted on a
case-by-case basis or for specific classes of contracts. One time
agency-wide exemptions will no longer be permitted. In addition,
agency contracting activities will:
(1) Actively elicit VECPs from contractors.
(2) Promote value engineering through contractor meetings and the
dissemination of promotional and informational literature
regarding the value engineering provisions of contracts.
(3) Establish guidelines for processing value engineering change
proposals and require that contract files list all change
proposals requiring more than 45 days to accept or reject.
(4) Document all contract files to explain the rationale for
accepting or rejecting value engineering change proposals.
(5) Use the value engineering clauses provided in the FAR for
appropriate supply, service, architect-engineer and
construction contracts.
(6) Use the value engineering program requirement clause (FAR
52.248-1 alternatives I or II) in initial production
contracts for major systems programs and for contracts for
research and development except where the controlling program
officer determines and documents the file to reflect that
such use is not appropriate (see Section 4 of Public Law
93-400, as amended (41 U.S.C. 403) for definitions of major
systems).
5. Sunset Review. The policies contained in this Circular will be
reviewed by the Office of Management and Budget three years from the
date of issuance.
6. Inquiries. Further information about this Circular may be obtained by
contacting the Office of Federal Procurement Policy, 726 Jackson Place,
NW, Washington, DC 20503, Telephone (202) 395-6803.
James C. Miller III
Director
Format for DOE Annual Feeder Report
Submitting Field Element - DOE Albuquerque Field Office
Reporting period - FY 1987
Contact Person and telephone number - Jerry Wilson, FTS 844-3291
A. Estimated Total amount of funds invested in VE this FY - $375K
1. Funds invested in DOE-sponsored programs - $375K
2. Funds invested by contractors (VECP costs) - $0
B. Estimated VE savings achieved this FY - $20 Million (M)
1. Savings achieved by implemented DOE-sponsored studies -
$20M
2. Savings generated by accepted VECPs - $0
C. Total employees assigned to VE - Federal 1 Contractor 0
1. Number of full-time employees - Federal 1 Contractor 0
2. Number of FTEs - Federal 1 Contractor 0
D. Number of Department employees receiving 8 hours or more of VE
training this FY - Federal 42 Contractor 76
E. Number of Department employees receiving under 8 hours of VE
training this FY - Federal 22 Contractor 0
F. Number of VE proposals received this FY - VEPs 135 VECPs 0
G. Number of VE proposals approved this FY - VEPs 70 VECPs 0
1. Funds Invested. Estimates should include salaries and overhead
expenses of value engineering employees, value engineering training
costs, costs for contracting for value engineering services, VEP or
VECP development and implementation costs, and any other costs directly
associated with your value engineering program. Overhead may be
estimated at 50% of salaries.
2. Savings. Savings are defined as a reduction in or the avoidance of
expenditures that would have been incurred except for the value
engineering program. Savings should be reported in the year incurred;
i.e., in the year that the reduction or cost avoidance actually occurs.
Recurring savings resulting from a specific VE effort should be
reported for a maximum of three years - the initial year and the two
subsequent years. Procurement savings resulting from value engineering
efforts should be calculated in accordance with FAR 52.248-1(g).
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