OFPP updates rules for how agencies should analyze ways to lower costs

Management

OFPP updates rules for how agencies should analyze ways to lower costs

The Office of Federal Procurement Policy revised Circular A-131 for the first time in 20 years. A-131 promotes the use of value engineering (VE), which is an or...

Jason Miller@jmillerWFED

January 2, 2014 2:35 pm

4 min read

The Office of Federal Procurement Policy is reinvigorating the concepts of share- in-savings and lowering life-cycle costs of programs by analyzing all facets of the approach.

OFPP released the first update to Circular A-131 in more than two decades in the Federal Register on Dec. 26. The Office of Management and Budget first issued A-131 in 1988 and updated it in 1993, but since then has only offered memos encouraging its use.

A-131 promotes the use of value engineering (VE), which is an organized effort by an integrated product team to evaluate functions of systems, facilities, services and supplies with an eye toward lowering costs and maintaining performance, quality, safety and reliability.

“VE challenges agencies to continually think about their mission and functions — in the most basic terms — in order to determine if their requirements are properly defined and if they have considered the broadest possible range of alternatives to optimize value,” OFPP Administrator Joe Jordan wrote in the notice. “Most importantly, VE enables agencies to achieve greater fiscal responsibility and operate within tighter budgetary constraints. By identifying and eliminating unnecessary program and acquisition costs that do not contribute to the value, function and performance of the product or service, VE can permit programs to continue delivering the same, or an even higher, level of service for less money — a critical capability for managing in a fiscally austere environment.”

Jordan announced Dec. 20 he’s leaving OFPP at the end of January to be president of the public sector for FedBid, a reverse auction firm.

OFPP’s update to Circular A-131 makes it easier in some respects to use value engineering practices, but it also adds another layer of accountability to the process.

“Despite the demonstrated ability of VE to facilitate more fiscally responsible management and smarter buying, and its continued popularity in the private sector, Federal agency use of VE has waned in recent years,” OFPP wrote. “Insufficient management attention and questions about its applicability to performance based contracting and other buying practices have resulted in VE not being considered in situations where it could have helped agencies save resources. The revisions being made to the circular are designed to clarify the role of VE in helping agencies meet 21st century demands and deliver better value to the taxpayer.”

OFPP highlights the Defense Department’s use of value engineering to save or avoid spending about $10 billion in fiscal 2011 and 2012. The State Department found is saves $40 for every $1 invested in value engineering studies since 2008. And the Transportation Department’s Federal Highway Administration reported it has saved $1 billion to $2 billion annually between 2010 and 2012.

In order to encourage agencies to more readily consider and use value engineering, OFPP wants agency chief financial officers to name a senior official to be accountable for:

Maintaining agency guidelines for using VE;
Ensuring training is available on how to use these concepts;
Developing plans for using VE and ensuring the agency can pay for these studies;
Making sure the agency submits the proper documents to OMB about its use of value engineering.

At the same time OFPP is adding a layer of accountability, it also is increasing the program threshold to $5 million from $1 million for which agencies must apply value engineering.

OFPP said VE generally has had the greatest impact on higher value programs, but agencies should set their own, lower levels for review by taking into account their historical costs of major acquisitions and other issues.

“The final circular gives agencies discretion to determine the extent to which VE shall be applied to existing programs and projects, but requires agencies to establish criteria to help agency managers determine when VE may be suitable,” OFPP stated. “Criteria might include a combination of factors such as the priority of the program or project to the agency and the presence of cost overruns, performance shortfalls and/or schedule delays.”

Additionally, OFPP removed the requirement for agency inspector generals to review VE programs every two years, instead letting agency officials work with their IGs to consider when review of VE activities may be warranted and relying on review of agency VE programs through normal internal control processes.

The revised circular also emphasizes that agencies should use value engineering for acquisitions of commodity products and services through approaches such as strategic sourcing and modular contracting.

The rewrite of A-131 is step one of the process. OFPP says it plans to work with the Federal Acquisition Regulations Council to determine if regulations need to be revised. OFPP also will work with the Federal Acquisition Institute and the Defense Acquisition University to develop training materials for the acquisition workforce on how to use VE.

Contract savings ideas range from innovative to old-school

OFPP’s Jordan leaving for the private sector