Summary: Value engineering (VE) is a recognized technique for reducing costs while maintaining or improving productivity and quality. The Department of Defense's (DOD) VE program consists of both government- and contractor-developed cost-reduction projects designed to reduce a system's life-cycle costs. In response to Congress' request, we agreed to provide information on (1) the role the VE program has played in supporting cost reduction in DOD weapons system programs and (2) the alternative measures program managers take to reduce costs and/or incentivize contractors.
In summary, we found that the VE program has made a minimal contribution to cost reduction in DOD. Value engineering is only one of a number of approaches used by the services to control costs, and its use varied significantly from project to project. In part, its limited use is attributable to new cost-reduction initiatives introduced by the department since the 1990s and in part due to the cumbersome processes required to implement the program. Perhaps, more importantly VE projects are typically undertaken during production or after a system has been fielded. At this point, opportunities for substantially reducing costs are more limited. Our work on commercial best practices suggests that the opportunities to significantly influence costs occur earlier in the life cycle of a system. Generally we found significant variance in both the use and support of value engineering throughout the services. For example, neither the Air Force or the Navy have full time staff resources dedicated to the VE program and consider VE just one of many tools available to reduce costs. At one Navy buying activity, we could not identify any VE projects, while at other Air Force and Navy buying activities we identified isolated instances where VE projects were being undertaken. In contrast, the Army has a more structured program with staff resources committed to managing the program and developing VE projects. However, even within the Army, there were variances in management emphasis from command to command. For the 11 weapons system programs we examined, we found that DOD program managers use a variety of strategies as alternatives to or in conjunction with VE. But how or when VE or other strategies are used varies by project. Like VE, other strategies often seek to motivate contractors to submit cost-reduction ideas and sometimes provide opportunities for contractors to share in the savings. Some program managers said they consider the VE tool or methodology, but said they use other approaches better suited to their programs or integrated into their management approach. The limited use of the VE program has been the result of a changing acquisition environment and the administrative burdens associated with the program. DOD introduced a variety of new cost-reduction initiatives in the 1990s as it looked for ways to reduce costs and create a more efficient acquisition environment. DOD also changed its procedures and processes to foster greater efficiency and cost effectiveness. For example, DOD encouraged programs to replace military specifications and standards with performance specifications, giving contractors configuration control and resulting in less need for contractors to submit changes to DOD for approval. Administrative requirements also contributed to limited contractor participation in the VE program. The proposal process is seen as complex and resource intensive.
