Michael P. Fischetti, J.D, CPCM, is executive director of the National Contract Management Association, with membership comprising 115 chapters worldwide. Previously, he was the acquisition executive and head of contracting activity for the Defense Department's Military Healthcare System. Fischetti has more than 30 years of leadership, operations and policy experience across multiple government, civilian and industry sectors. (Jenifer Morris)
Value engineering change proposal (VECP), a very technical-sounding term buried in FAR Part 48, is the government’s voluntary (or sometimes mandatory) suggestion program for improving contract performance.
If a VECP is accepted, the contract pays the contractor’s allowable development and implementation costs and both government and contractor share in resulting savings. Value engineering attempts to eliminate—without hurting the essentials—anything that unnecessarily increases program acquisition, operation, or support costs.
Theoretically, government contracts are “performance-based.” The government wants a deliverable and doesn’t specify how the contractor arrives at it. However, in reality there are often boundaries the government sets detailing how the contractor “gets there.” Any contract requirement can be improved. If the contractor has a better idea, there should be an incentive for them to propose it; even under cost-reimbursement contracts that pay allowable costs, regardless of the efficiency of developing deliverables. Thus the first step is (1) to offer an incentive fee for cost contracts when costs can be reasonably estimated based on various sources of data and (2) to promote VE when they can be fixed price.
Yes, VE can be abused. Contractors could identify improvements before contract award, but often they wait until after they receive the contract award to do so. This can be unethical and illegal, but it’s difficult to control. Conversely, the government could accept a contractor’s great idea, but then simply apply it to program savings, justifying it as a proposal anyone could have or should have thought of (including them) and thus not worthy of shared savings. However, alternative forms of contract consideration can be explored.
The reality of today’s government is the involvement of contractors in all facets of program execution. As their experience and knowledge grows, contractors can become closer to the mission and how it is accomplished than the government staff overseeing their performance. Therefore, contractors could be better incentivized with improving how programs are executed beyond the potential for follow-on contract awards.
VE in both the government and private sector already saves billions. The potential to do far more beyond its traditional role in construction, when reviewing the vast expanse of commodities and services the government routinely procures, is huge. However, realizing increased savings and success requires a re-acquaintance with FAR Part 48, analysis of VE’s potential contribution to specific program outcomes (i.e., cost, schedule, and performance); developing trust and communication between the government and the contractor; and from there, mutual understanding and agreement as to program and contract requirements to best balance costs with savings and maximize benefits for both parties.
In the current budgetary environment, we should increase innovation in structuring federal contracts. VE is an already available, but often overlooked, innovation. If both parties to the contract can agree, everyone can improve their bottom line and be a winner—especially the taxpayer!