OFPP challenges agencies, contractors with performance-enhancing policy

Office of Management and Budget officials revised a program performance-enhancing policy that hasn’t been updated since President Bill Clinton was settling into the White House in 1993.

In long-awaited regulatory revisions, OMB essentially told agencies to seriously consider why they’re spending their money on a program and if they’re taking the most efficient approach to their project. The process is called value engineering, although it has nothing to do with typical engineering. At its core, VE is a management tool that can unclog bottlenecks in processes and places a value on each part, advocates for the process say.

“VE challenges agencies to continually think about their mission and functions,” Joe Jordan, former administrator of the Office of Federal Procurement Policy, wrote in a Federal Register notice released Dec. 26.

VE revisions

OFPP updated the OMB Circular A-131 to ensure agencies have the ability and tools to consider using VE for new and ongoing projects. The revisions give agencies more flexibility to make their own decisions. Inspectors general no longer must automatically audit VE projects. Agencies now can start using VE when a project is valued at $5 million or more. Before, agencies had to review $1 million projects. For existing projects, officials can choose how they can apply VE.

OMB wants to convey the importance of VE. OMB now requires agencies to make a senior official responsible for the VE assessments, maintaining guidelines for using VE assessments, and keeping documentation on waivers. Officials also wanted to modernize the circular’s terminology. VE works in tandem with acquisition and commodity management, such as strategic sourcing and modular contracting—both important Obama administration policies.

VE revisions are largely for agencies, but they also affect contractors.

“The federal government subsequently adopted this tool as a mechanism to incentivize contractors to continually think of ways to drive greater efficiency in their production methodologies by allowing them to share with the government in the savings generated by their value engineering change proposals,” Jordan wrote.

The revisions emphasize ‘‘share-in-savings.’’ They encourage contractors to identify ways to reduce the cost of performance on a program. The Federal Acquisition Regulation allows companies to voluntarily offer value engineering change proposals (VECPs). If accepted, savings resulting from the change are shared between the contractor and government.

Confusion

However, current VECP regulations are confusing and thus mostly forgotten. Contractors have not used VECPs often because they don’t understand them, said Robert Burton, former deputy OFPP administrator and now partner at the Venable law firm.

OMB heard from the industry about VECPs’ complexity.

“We think there may be opportunities to simplify the FAR coverage so that it is clearer and easier to use,” an OMB spokesman said. OFPP officials intend to work with the FAR Council to address how to share the savings and simplify the VECP process. They also want to boost federal employee training.

‘Function-inspired change’

VE actually has nothing to do with engineering. Industry knows it as value methodology, or management. VE takes officials through each step of creating and managing a program or project. VE can be done by a team of contractors and agency employees with various disciplines. They can hash out where to find the savings after analyzing the functions, brainstorming new ideas, and developing those ideas into reasonable alternatives to the current approach, said Mary Ann Lewis, executive vice president of SAVE International, a society devoted to advancing VE in industry and government.

A VE analysis looks at each step of a process, or part of a project, and questions its value and usefulness. If the value isn’t there, it’s eliminated. Lewis called it “function-inspired change.”

By analyzing the most basic functions, “you can find opportunities to create change, or find an alternate way to do something,” said Lewis, who has worked alongside OFPP since 1997 on VE.

But she also emphasized VE’s main intent. “This is not meant to be a cost-cutting measure,” she said. “It’s about performance enhancement and meeting the customer’s needs.”

Federal forgetfulness

VE has been a huge success in industry since World War II. Departments have had successes too. The Defense Department saved a cumulative $10 billion in fiscal 2011 and 2012. The Federal Highway Administration reported savings of roughly $1 billion to $2 billion in fiscal 2010 and 2012 on construction projects.

“Despite the demonstrated ability of VE to facilitate more fiscally responsible management and smarter buying, and its continued popularity in the private sector, federal agency use of VE has waned in recent years,” Jordan wrote.

Lewis said officials have let it lapse because the circular has not been updated for so long. They’ve also been awaiting OFPP’s final revisions. Other agencies have simply failed to employ VE. Confusion has played its role too.

In an austere economy, VE will become more important, especially with OMB’s emphasis and interest in updating the circular, Burton said.

“VE sounds deadly boring, but it’s really interesting when you look at how effective it is,” he said. “You sit down and ask, how can we do it better and cheaper, or even ask, do we need to do it at all.”