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Value Engineering Program

Audit Report No. 260
May 2, 1997

Executive Summary

Our audit of the Commission's value engineering (VE) program found that it needs improvement to fully realize the benefits of VE and comply with OMB-Circular A-131. Our recommendations include inserting value engineering clauses into all appropriate contracts over $1 million; designating a senior official to implement the program; training staff in value engineering; and developing annual VE plans and reports.

The Office of the Executive Director and the Office of Administrative and Personnel Management provided written comments (attached) on our draft report. Generally, they concurred with our findings and recommendations.

Scope and Objectives

Our objectives were to validate the accuracy of reported value engineering savings and assess the adequacy of Commission value engineering policies, procedures and implementation of revised Circular A-131. We were unable to validate the accuracy of reported VE savings, because the Commission did not prepare required reports.

During the audit, we interviewed Commission staff, and reviewed relevant documentation, including contract files. The audit was performed between November 1996 and March 1997 in accordance with generally accepted government auditing standards.

Background

OMB Circular A-131, as revised May 21, 1993, states that value engineering is an effective technique for reducing costs, increasing productivity, and improving quality. It can be applied to hardware and software; development, production, and manufacturing; specifications, standards, contract requirements, and other acquisition program documentation; and facilities design and construction.

The Circular states that Federal agencies are to use value engineering as a management tool, where appropriate, to ensure realistic budgets, identify and remove nonessential capital and operating costs, and improve and maintain optimum quality of program and acquisition functions. Agencies are to establish and maintain value engineering programs, which are to be audited by the agencies’ Inspector General.

Audit Results

We found that the Commission's value engineering program needs improvement to fully realize the benefits of VE and comply with OMB-Circular A-131. Value engineering clauses were included in the Commission's largest contract (the EDGAR project) and one other contract, while they were omitted in four contracts over $1 million (the minimum threshold established by Circular A-131). In addition, the Commission has not taken the following actions required by Circular A-131:

Designated a senior management official to coordinate the program;

Developed criteria for identifying projects with the most potential to yield VE savings;

Provided training to all appropriate staff;

Developed annual plans for using VE; and

Reported annually to the Office of Management and Budget (OMB) on VE activities.

Commission officials indicated that opportunities for VE savings in ADP projects are limited at this agency, and that guidance for VE in construction contracts is more extensive than that for ADP projects.

One Commission official is currently participating in an Office of Management and Budget VE Task Group, which plans to improve VE guidance. According to this official, all Commission leasing construction build-out and renovation contracts contained value engineering clauses. Also, he indicated that value engineering was used many times in construction contracts. For example, he stated that the headquarters lighting retro-fit energy project, completed in September 1996, improved lighting quality. With a pay-back of .88 years, it generates energy savings of over $125,000 per year.

Recommendation A

The Office of the Executive Director should designate a senior management official to coordinate the VE program.

Recommendation B

The Office of Administrative and Personnel Management should develop procedures to ensure that VE clauses are inserted into all appropriate contracts.

Recommendation C

The Office of Administrative and Personnel Management should issue guidance on the VE program, including criteria for identifying projects with the most potential to yield VE savings.

Recommendation D

The Office of Administrative and Personnel Management should provide VE training to appropriate staff.

Recommendation E

The Office of Administrative and Personnel Management should develop annual plans for using VE.

Recommendation F

The Office of Administrative and Personnel Management should submit required annual reports on VE activities to OMB.