Department of the Interior
Departmental Manual
Effective Date: 10/6/98
Series: Management Systems and Procedures
Part 369: Value Engineering
Chapter 1: General Criteria and Policy
Originating Office: Office of Managing Risk and Public Safety
369 DM 1
1.1 Purpose. This part implements the Value Engineering (VE) provisions of Public Law 104-106 and Office of Management and Budget (OMB) Circular No. A-131, Value Engineering. It establishes policy, assigns responsibilities, and defines objectives, goals, and actions required to establish and maintain a productive VE program. For the purposes of this Departmental Manual value analysis, value planning, value management and value control all use the value process/methodology and are considered synonymous with VE.
1.2 Scope. The VE program is a mandatory program that applies to all Department of the Interior (DOI) bureaus and offices. All DOI bureaus/offices shall use VE methodology and analysis techniques as a management instrument in performing or contracting for the planning, design, construction, repair and rehabilitation/renovation of facilities, and in administrative and management programs to improve operations, identify and remove nonessential capital and operating costs, and improve and maintain optimum quality of program and acquisition functions. Bureaus/Offices which administer Federal grant programs involving construction, repair and rehabilitation of facilities shall encourage grantees to implement VE wherever possible. All bureaus/offices having contractual authority for procurement and/or construction will implement contractor Value Engineering Change Proposal (VECP) programs in accordance with references 1.3C, 1.3D, 1.3E, and 1.3F.
1.3 References.
A. Public Law 104-106, Defense Authorization Act, Section 4306 - Value Engineering for Federal Agencies, February 10, 1996.
B. OMB Circular No. A-131, Value Engineering.
C. Federal Acquisition Regulation (FAR), Title 48, Part 48 (Value Engineering), and value engineering clauses in Part 52.
D. FAR, Title 48, Part 31, Contract Cost Principles and Procedures.
E. Title 43, (Public Lands: Interior), Part 12, Subpart C, Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments.
F. Department of the Interior Acquisition Regulation (DIAR), Part 48, Value Engineering.
G. DOI Value Engineering Guidance Handbook (Copies may be obtained from the Office of Managing Risk and Public Safety).
1.4 Definitions.
A. Administration and Management Programs. Include all activities, organizations and personnel that manage and perform tasks to meet the missions of the various bureaus/offices within DOI. Program activities include administration, supervision, labor, procurement, operations and maintenance, and similar activities needed to produce the products and services required by customers.
B. Certified Value Specialist (CVS). A designation recognizing those practitioners who have fulfilled the certification requirements as established by the CVS Board of the Society of American Value Engineers, International (SAVE, International), reflecting world-wide expectations of a professional Value Engineer.
C. Construction Program. Comprises planning, design, construction, maintenance, building, alteration or repair of buildings, structures, or other real property, and includes all preparatory conceptual design activities. Structures include but are not limited to, buildings, pavement, bridges, dams, irrigation systems, water supply and sewer systems, power generation and transmission systems, hatcheries, recreation facilities, and installation of fixed equipment.
D. Cost Avoidance. An action taken in the immediate time frame that will decrease costs in the future. For example, an engineering improvement that increases the mean time between failures and thereby decreases operation and maintenance costs is a cost avoidance action. Another example would be performing value engineering during the planning stages of a construction project. If a VE study reveals a different alternative that is lower cost and is consistent with project required performance, reliability, quality, and safety, then the change in project estimated cost would constitute a cost avoidance. Cost avoidance is the cost differential between the proposed project configuration developed by the planning efforts and the actual project configuration that is sent forward for design.
E. Cost Savings. A reduction in actual expenditures below the projected level of costs to achieve a specific objective. Examples of cost savings are: revisions to the design of an authorized and funded project such that actual expenditure for the project is less than the amount which was funded and scheduled to be expended; or, a measurable reduction in personnel requirements needed to conduct a specific required activity or project function.
F. Life Cycle Cost (LCC). The total cost of a system, facility, or other product, computed over its useful life. It includes all relevant costs involved in acquiring, owning, operating, maintaining, and disposing of the system or product over its useful life or other specified period of time, including environmental and energy costs. Economic analysis is used in determining LCC.
G. Program/Project/Activity (PPA). Any item specifically identified in tables or written material set forth in the Interior and Related Agencies Appropriations Act or accompanying reports.
H. Return on Investment (ROI). The ratio of the dollars saved through implementation of VE proposals versus the cost of performing the VE study or program (normally expressed similar to the following: ROI= $5:1).
I. Value (V). The relationship of worth to cost as seen by the user in regard to his/her needs and resources in a given situation. Worth for this purpose is defined as the lowest LCC that satisfactorily performs the function. When cost exceeds worth, poor value occurs. When cost is less than worth, good value exists.
J. Value Analysis/Management (VA/VM). The application of analysis techniques, such as functional analysis, cost evaluation, life-cycle costing, and creative techniques of "brainstorming" in an organized effort focused on improving (adding value to) non-construction processes, procedures and systems at reduced cost and/or resources while maintaining equal or improved services or products. The term value analysis or value management is often used when conducting value engineering study of administrative procedures, organizational structures, or management systems.
K. Value Engineering (VE). An organized team effort directed at analyzing the functions of processes, systems, equipment, facilities, services, and supplies for the purpose of achieving the essential functions at the lowest life-cycle cost consistent with required performance, reliability, quality, and safety. These organized efforts can be performed by in-house agency personnel and/or by contractor personnel.
L. Value Engineering Change Proposal (VECP). A proposal submitted by a contractor under the VE provisions of the Federal Acquisition Regulations (FAR) Part 48 that, through a change in a project's plans, designs or specifications as defined in the contract, would lower the project's cost to the Government. VE contract clauses are listed in FAR 52.
M. Value Engineering Proposal (VEP). A recommendation resulting from using VE methodology to study an item. It is developed by Government in-house employees and/or Government and non-Government contract personnel in the performance of a VE study.
N. Value Engineering Program Coordinator (VEPC). Manages the VE program at the bureau/office level.
O. Value Engineering Program Manager (MRPS-VEPM). Manages and oversees the DOI VE program in the Office of the Secretary, Office of Managing Risk and Public Safety (MRPS).
P. Value Engineering Review Board (VERB). A board composed of those individuals who head organizations that are responsible for implementing VE recommendations. A VERB must consist of personnel having decision-making authority that allows immediate action to be taken on each VE proposal/recommendation presented before it.
1.5 Policy.
A. All DOI bureaus/offices, in accordance with P.L. 104-106, this Part and the DOI VE Guidance Handbook, shall:
(1) Establish VE programs to ensure realistic budgets, identify and remove nonessential capital and operating costs, and improve and maintain optimum quality of program and acquisition functions;
(2) Utilize VE as an analytical technique in pursuing PPA and system improvements;
(3) Ensure VE program continual support with necessary funding and trained staff; and
(4) Maintain constant management support.
B. VE is applicable to any or all phases of PPA's. Review of VE proposals and recommendations should be prompt and objective with the intent to implement them to the maximum extent possible. Results shall be documented by the bureau/office VEPC and reported annually to MRPS-VEPM through bureau/office heads.
C. Responsibility and authority for the VE program are assigned to each of the DOI Assistant Secretaries. Goals, responsibility and authority will be suballocated to bureau/office heads and the VE program coordinators. Meeting VE goals shall be a performance measure of bureau/office heads and appropriate managers responsible for the mandatory VE program.
1.6 Objectives. VE program objectives are to:
A. Increase productivity, innovation, communication, personal growth, and teamwork within the total organization through the use of VE principles, methodology and management.
B. Reduce costs to bureaus/offices while maintaining quality in fulfilling their missions by performing VE studies, promoting contractor VECP's and implementing VEP's and VECP's.
C. Encourage the application of VE to Federal grants, loans and cooperative agreements as a way to provide additional program benefits for a given funding amount.
D. Establish and maintain VE procedures and processes to provide for the systematic development and maintenance of the most effective, efficient, and economical arrangements for conducting the work of bureaus and offices, and to provide for identifying and reporting VE program accomplishments.
1.7 Goals.
A. Construction Programs/Projects/Activities. All bureaus/offices with mandatory VE program responsibility, as set forth in 369 DM 1.2, shall set as an annual fiscal year (FY) cost savings goal, the amount equal to four (4) percent of the aggregate value of all construction, repair, rehabilitation, and renovation projects that are over $500,000 in estimated project costs. All projects over $1,000,000 shall be subjected to VE study.
Projects between $500,000 and $1,000,000 may be excluded from VE analysis if it is determined that estimated VE savings do not economically justify study and redesign costs. Justification for VE analysis exclusion shall be reviewed and approved by the bureau/office VERB and reported to the MRPS-VEPM. Regarding those projects requiring several years to construct, the savings may be uniformly prorated over the construction period. Bureaus/Offices will use value engineering studies and contractor generated VECP's to meet the goal. The 4-percent goal will be evaluated after three (3) years to determine if it should be adjusted. In addition, each bureau/office shall have a goal to encourage contractor participation in the VECP program sufficiently to produce one VECP for every active contract over one million dollars ($1,000,000) that they administer.
B. Nonconstruction Programs/Projects/Activities. The bureaus/offices shall utilize VE methodology and analysis techniques in conjunction with other management improvement techniques to improve operations and reduce cost. When effectively applied, VE techniques streamline operations, increase productivity, and improve quality. These include organizational development, production, specifications, standards, contract requirements, and other acquisition program documentation. VE can be incorporated into the business practices improvement process by using it as an analytical technique in process/product improvement. There is no minimum dollar amount threshold for requiring application of VE to a nonconstruction PPA.
C. Disposition of VE Savings. Subject to the PPA's appropriation language, money saved from VE efforts may remain with the bureau/office to be used within discretionary authority as follows:
(1) Fund authorized but underfunded or unfunded elements of the PPA where the VE savings accrued;
(2) Fund other VE reviews within that PPA;
(3) Fund authorized but underfunded or unfunded elements of another PPA through a reprogramming action;
(4) Fund other VE program activities of another authorized PPA through a reprogramming action if necessary; or
(5) Return surplus savings to U.S. Treasury.
1.8 Procedures.
A. Bureau/Office heads shall prepare and implement an Annual VE Plan of Action. The VE Plan of Action should list and prioritize specific projects or programs for VE study. Bureau/Office heads who administer Federal grant programs exceeding one million dollars ($1,000,000) in Federal funds per grant should prepare and implement a VE Plan of Action for promoting and encouraging VE and identify specific grant projects which will employ VE techniques. The development of an annual VE Plan of Action is required to aid in VE program planning and implementation; and shall be submitted to the MRPS-VEPM.
B. VEPC's will ensure VE activities are pursued below the $500,000 threshold whenever poor value is identified by the use of cost/worth determinations. Projects should be examined for unnecessary costs by people trained in VE. Studies will be performed if the ROI promises savings of $5:1 over study and redesign costs; if the project is over budget; or if requested by management. Studies mandated by this Part will be performed at a development stage when concept and estimated costs are sufficiently detailed for comparison of alternatives. However, VE studies may be performed at any phase of a PPA cycle to correct poor value. Voluntary VE studies do not supplant the mandated requirement, but any savings generated may be counted in meeting bureau/office goals defined in 1.7 above.
C. Architect-Engineer (A-E) design contracts for construction projects one million dollars ($1,000,000) or more must stipulate an independent VE study be performed on the design, preferably at the 25-40 percent design completion stage. Sufficient time should be scheduled to appraise the VE study and redirect design efforts, if necessary, before final design begins. VE studies may be conducted by Government personnel and/or by A-E firms with fully qualified VE capabilities and total independence of the design firm. VE actions that change approved design and procedures must include review by the authorities who approved the original design or procedures. The ultimate approval authority resides with the appropriate VERB.
D. VE costs will be accounted for and will be deducted from gross VE cost savings to show net return. VE costs include those for implementing VE proposals such as redesign, additional field and laboratory investigations, additional reviews, and other implementation costs. All VE costs will be identified in a manner to monitor program effectiveness. Funds for VE programs shall be included in the annual budget requests.
E. VE cost savings, cost avoidance, and cost savings sharing with contractors shall be reportable in the summary report of VE activities immediately following completion of the PPA design, award, adoption, or implementation as applicable.
F. VEPC's will accumulate, consolidate and forward the original copy of the annual summary of VE activities to MRPS-VEPM, Washington, DC, in the content and general format shown in the DOI Value Engineering Guidance Handbook or as requested. Reports will be submitted to reach MRPS-VEPM within 90 days after the end of the Fiscal Year (FY). VEPC's will submit additional reports as requested by the MRPS-VEPM. Any corrections or revisions to past reports should be forwarded to the MRPS-VEPM at the time they are made.
1.9 Responsibilities.
A. The Office of Managing Risk and Public Safety (MRPS) will:
(1) Oversee the entire DOI VE program; formulate, establish and maintain DOI policy on VE; establish goals; measure progress against the goals; evaluate program effectiveness; and submit reports required by OMB, the Congress, and others.
(2) Review Plans of Action, staffing, and funding to assure VE programs are being fully supported and utilized throughout DOI. Advise Assistant Secretaries and bureau/office heads of deficiencies and recommend corrective actions.
(3) Designate a full-time VE Program Manager, the MRPS-VEPM, and support staff as required, to develop and manage the DOI VE Program. The MRPS-VEPM will serve as the point of contact on VE matters for all elements within DOI and other agencies or elements interfacing with DOI.
(4) Report to OMB on VE Program goals and accomplishments as required by OMB Circular No. A-131. Establish report formats and schedules to be prepared and submitted by DOI elements.
(5) Promote a high level of professional VE competence within DOI. Advise selection committees on qualifications needed for key VE personnel. Establish and chair meetings with bureau/office VE Program Coordinators, at least annually.
(6) Utilize a crossfeed system and ensure it provides ideas and VE program information to all VE Program Coordinators. Coordinate, consolidate and schedule VE training programs for all bureaus/offices.
B. Program Assistant Secretaries are responsible for VE program efficiency and productivity in all bureaus/offices within their jurisdiction. The Assistant Secretaries will:
(1) Demonstrate support for the VE program to ensure total top management commitment for the program.
(2) Direct bureau/office heads to designate a VE position to be filled by a VEPC.
C. Bureau/Office Heads will:
(1) Assign all necessary resources and staffing to establish and maintain a VE program that fully complies with the requirements of this Part. Designate a VEPC individual.
(2) Ensure a VE organizational and management structure that supports a long-term program.
(3) Budget sufficient funds to pay for all VE activities, including: VE staff; VE studies conducted by Government personnel and/or A-E firms under contract; VECP processing; VE related technical assistance; review of VE proposals; redesign to incorporate accepted recommendations; VE related training; and incidental costs such as testing, travel and professional activities related to VE.
(4) Direct that a VE Plan of Action is prepared each year which describes the bureau/office VE goals and objectives. The plan should be submitted and reviewed by MRPS-VEPM and the Assistant Secretary. Direct corrective actions in plan execution when advised of inadequacies by MRPS-VEPM or by VEPC.
(5) Establish a VERB(s), as appropriate, within bureaus/offices with mandatory VE program responsibility to advise the VEPC, make recommendations on VE study proposals and provide management assistance in implementing proposals and recommendations.
(6) Provide training in VE techniques to bureau/office staff responsible for coordinating and monitoring VE efforts and for staff responsible for conducting VE studies and developing, reviewing, analyzing, and carrying out VE proposals, change proposals, and evaluations.
(7) Develop internal criteria and guidelines necessary to ensure accomplishment of VE requirements contained in this Part.
(8) Assign responsibility to the senior management official designated pursuant to section 1.9C(1) above, to grant exclusions to the requirement to conduct VE studies on certain programs and projects.
D. Bureau/Office VEPC's will:
(1) Maintain and monitor an active and effective VE program conforming to the requirements of P.L. 104-106, this Part, the DOI VE Guidance Handbook, the FAR and DIAR;
(2) Develop and assemble Plans of Action and summary reports of VE activities and other reports as requested;
(3) Coordinate and maintain a VE training program;
(4) Evaluate VE program effectiveness and recommend remedial or improvement actions to the bureau/office head; and
(5) VEPC's should strive to attain CVS status (Certified Value Specialist, as recognized by SAVE, International).
10/6/98 #3226
Replaces 5/18/95 #3039