The Impact of Required Contractual Clauses on System Acquisition Policies

The Case of Value Engineering

by Geneese G. Baumbusch

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This study examines the role that value engineering (VE) clauses may be expected to play in design-to-cost contracting. Encouraged by Armed Services Procurement Regulations incentives, contractor VE efforts are supposed to result in proposals for contract changes that reduce some aspects of the cost associated with developing, producing, or operating a particular item. While VE clauses have produced some savings, there have also been certain costs associated with the use of a complex contractual device. This report suggests that cost saving will be much more likely to occur with increased use of fixed-price contracting for discrete phases of development and production, along with more competition. Based on an analysis of past experience with VE clauses, the central conclusion of this study is that while the cost-saving intent of value engineering should be an essential ingredient in design-to-cost strategy, the contractual clauses themselves will at best be marginally effective and may even hinder implementation of design-to-cost programs.

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