The Impact of Required Contract Clauses on System Acquisition Policies

Examines the history of value engineering (VE) clauses in Defense Department contracts and the role they can be expected to play in the design-to-cost policy. Despite high-level support, savings are disappointing, partly because VE clauses were complex and confusing. More fundamentally, VE clauses are second- or third-rank incentives, often conflicting with the main incentives. Suggestions for improvement include: (1) more use of firm fixed-price contracts, (2) incremental acquisition, with competition continued through various stages, (3) keeping government options open by requiring the right to have another source produce the winning design, (4) competitive reprocurement, (5) continuous use of dual sources, and (6) increased emphasis on standardization and interchangeability. Incentive rewards should only be made for clearly demonstrated achievement. Since costs rather than profits are excessive, contract renegotiation has outlived its usefulness and should be abolished. Efficient contract performance should be attractively rewarded. (Prepared for the Fourth Annual Department of Defense Procurement Research Symposium, Air Force Academy, October 1975.)