VEVALUE (Engineering)

What is VEVALUE (Engineering)?

VEVALUE (Engineering) represents the anticipated net cost savings resulting from the implementation of value engineering proposals within government contracts. It quantifies the value derived from contractor-suggested modifications to design specifications or other contract requirements that lead to cost reductions or performance improvements. VEVALUE is a critical metric for assessing the effectiveness of value engineering initiatives and is used to determine the appropriate cost savings shared between the government and the contractor.

Definition

VEVALUE (Engineering) is calculated by subtracting the costs associated with implementing a Value Engineering Change Proposal (VECP) from the total cost savings realized over the life cycle of the contract. The FAR (Federal Acquisition Regulation) Subpart 48 addresses value engineering, encouraging its use in government contracts to reduce costs and improve performance. When a VECP is accepted, the VEVALUE becomes the basis for determining the contractor's share of the savings. The specific sharing percentages are usually negotiated and outlined in the contract. VEVALUE analysis requires detailed cost accounting and may involve coordination with the Defense Contract Audit Agency (DCAA) to ensure the accuracy of cost data.

Key Points

• Cost Reduction: VEVALUE directly measures the monetary benefits achieved through value engineering.
• Contractor Incentive: It provides a financial incentive for contractors to actively seek out and propose cost-saving and performance-enhancing modifications.
• Life-Cycle Costing: VEVALUE considers the total cost impact over the entire life cycle of the product or service, including initial procurement, operation, maintenance, and disposal.
• Negotiated Savings Share: The division of cost savings between the government and the contractor is subject to negotiation, influencing contractor enthusiasm for proposing VECPs.

Practical Examples

1. Construction Project: A contractor working on a federal building proposes a new type of window insulation that reduces energy consumption. The VEVALUE is calculated by projecting the long-term energy savings, subtracting the cost of installing the new insulation, and then determining the government's net savings.
2. Software Development: A software vendor proposes a more efficient coding method for a government application. The VEVALUE is determined by calculating the reduction in server costs due to lower processing requirements, minus any costs associated with retraining personnel or re-testing the application.
3. Equipment Procurement: A contractor proposes a modification to the design of a piece of military equipment that reduces manufacturing costs without sacrificing performance. The VEVALUE is the difference between the original manufacturing cost and the new, lower cost, less the cost to implement the change.