OFPP freshens up time-tested cost-savings technique

Obama administration officials want to update their policies on making each component of an agency’s operations worthwhile.

According to a Federal Register notice released June 8, the Office of Federal Procurement Policy has proposed several revisions to its value engineering model, a World War II-era approach to saving money when resources are tight.

In value engineering, officials analyze their systems, equipment and services to find the essential functions for making them work at the lowest life-cycle cost. The approach helps agencies save on program and acquisition costs, while improving performance and quality and fostering innovation.

While agencies are using value engineering now, officials want Circular A-131 to reflect present-day buying strategies and practices, such as performance-based service contracting. Industry began using the technique during the second World War, but government didn't use it officially until 1988, when the circular was originally released. Its most recent revision came in 1993.

For the proposal, OFPP wants to:

• Reinforce the need to use value engineering to save money and improve performance. The technique weeds out the nonessential processes from management work, as well as contracts for supplies and services and construction projects.
• Explain that agencies can use value engineering with various contract types and methods of contracting. Officials can incorporate it into acquisition strategies.
• Make clear that agencies can use value engineering with other management tools.
• Increase the threshold to use the technique. The proposal would raise the minimum threshold for agency projects that require value engineering from $1 million to $2 million, primarily to take into account inflation through the years.
• Reduce reporting requirements. Under the proposal, OFPP would only require agencies to report on five projects annually, instead of 20 projects as the circular currently calls for. The changes would also update the reporting format to include how officials arrived at the calculated savings.
• Remove outdated terminology and update references.
• End automatic reviews by inspectors general, although OFPP wants agency officials to still work with their IGs to consider when reviews may be necessary.
• Strengthen employee training.

OFPP said the value engineering has been working. The Defense Department reported savings of nearly $2 billion in fiscal 2009 and $3.4 billion in fiscal 2010. The Transportation Department's Federal Highway Administration reported that annual savings for federally-funded state construction projects have ranged from $1.8 billion to $3.2 billion between 2005 and 2009.