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Federal Value Engineering Requirements

Got a Federal or state value study to perform? We can help.

The Federal government created the name of Value Engineering (VE) to describe their application of the Value Method process. Due to the influence of the Federal sector, this is the most common name that is used to describe the process. The Federal government application was originally done voluntarily. They wanted to decrease cost requirements. But only a couple of organizations applied it fairly consistently. Those that consistently used it were very successful in reducing costs and billions of dollars were saved each year. But even with its audited and verified success, many agencies started and dropped its application with little thought. In 1995, less than 5-percent of all Federal activities were value studied.

Since the Federal Value Engineering application has helped many agencies save so much money, and few of us like the level of taxation we deal with for governmental services, a growing movement has been present to force agencies to use Value Engineering more. The purpose behind this is that Value Engineering helps the agency improve its performance of its mission and reduces the costs associated with its performance.

General Federal Law Requiring VE Application

Due to its success in private industry, and the limited amount that it has been applied in government, in February 1996 the US Congress passed a law that requires the "establishment of effective programs to apply the practice of Value Engineering" in all executive agencies. The requirement was buried in the 1996 funding authorization for the defense department. Here is a copy of the sections in that law that relate to Value Engineering:

Public Law 104-106, National Defense Authorization Act For Fiscal Year 1996
Page 110 STAT. 186


Subtitle A--Additional Acquisition Reform Provisions


(a) Use of Value Engineering.--The Office of Federal Procurement Policy Act (41 U.S.C. 401 et seq.), as amended by section 4203, is further amended by adding at the end the following new section:


``(a) In General.--Each executive agency shall establish and maintain cost-effective value engineering procedures and processes.
``(b) Definition.--As used in this section, the term `value engineering' means an analysis of the functions of a program, project, system, product, item of equipment, building, facility, service, or supply of an executive agency, performed by qualified agency or contractor personnel, directed at improving performance, reliability, quality, safety, and life cycle costs.''.

Page 110 STAT. 666

(b) Clerical Amendment.--The table of contents for such Act, contained in section 1(b), is amended by adding at the end the following new item:
``Sec. 36. Value engineering.''.

(c) Regulations.--Each Secretary shall prescribe regulations to carry out this section. Such regulations shall be prescribed in consultation with the Director of the Office of Management and Budget (see the OMB regulation discussion below).

(Full text of this law is available from the House of Representatives Law Library Internet site.)

Other Federal Laws

Some other notable general legislation relating to the agencies and value engineering is its stipulation that it can be used as a "performance parameter." Some of the laws related to this are: "Budget Enforcement Act of 1990," "Omnibus Budget Reconciliation Act of 1993," "Government Performance and Results Act of 1993," and the "Federal Acquisition Act of 1994."

Some specific activity types of legislation has been present for many years. For example, since the 1970's every water and waste water treatment plant to be issued a Federal grant of $10 million or more has had a requirement that Value Engineering be performed before funds could be released for the construction activity. This has helped many municipalities to discover the benefits of the Value Engineering process for their other activities.

The inclusion of a requirement for Federal grantees continues to gain momentum each year. In 1992, Congress directed the Federal Highway Administration to generate a policy regulation establishing value engineering for themselves and those that receive Federal funds. After several years with limited  movement, Congress bypassed what some members of Congress specified as agency dawdling by passing a law that stipulates that all grantees of Federal funds of $25 million or more from the highway fund perform Value Engineering on that project.

Notable Regulations

OMB Circular A-131

In an apparent effort to avoid passage of a law, since Reagan's time, every US President has issued executive orders and directives issued that specify that application of the Federal Value Engineering version of the Value Method is encouraged or required. The most notable of these is the Office of Management and Budget (a part of the executive office directly under the President) Circular A-131. First issued in 1988, it was last updated in 1993 and is due to be revised in 1998-1999. This directive has specific application and the establishment of a value program requirements to be addressed. This includes agency goals, performance standards, and responsibilities. In addition, it requires a summary report of the agency's performance in meeting those goals be forwarded to the OMB at end of each year and an independent Office of the Inspector General (OIG) audit of the results be performed every three to five years.


Federal Acquisition Regulations (FARs) are the Federal governments regulatory specification of how they plan to meet legislation requirements contained in laws passed by Congress. The Federal government procures massive amounts of services and materials. The FARs stipulate how they are to do it within the laws. The main series of FARs that related to Value Engineering is the Value Engineering Clause that is to be present in any contract over $100,000. This clause allows a contractor to submit a change to the contract that saves money for the government while  maintaining the performance characteristics. This is called a Value Engineering Change Proposal (VECP). To give everyone an incentive to go to the trouble, both the contractor and government share the savings. It is a true win-win. A more detailed discussion about this is available within this site on other web pages.

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