GAO-03-590R Value Engineering 

United States General Accounting Office 

Washington, DC 20548 

May 23, 2003 

The Honorable John Ensign 

Chairman 

The Honorable Daniel Akaka 

Ranking Minority Member 

Subcommittee on Readiness and Management Support 

Committee on Armed Services 

United States Senate 

Subject: Use of Value Engineering in Defense Acquisitions 

Value engineering (VE) is a recognized technique for reducing costs while 

maintaining or improving productivity and quality. DOD’s VE program consists of 

both government- and contractor-developed cost-reduction projects designed to 

reduce a system’s life-cycle costs. In response to your request, we agreed to provide 

information on (1) the role the VE program has played in supporting cost reduction in 

DOD weapons system programs and (2) the alternative measures program managers 

take to reduce costs and/or incentivize contractors. This letter transmits the 

information we presented to your staff at a briefing on February 27, 2003 (see encl. I). 

To complete our review, we identified the extent VE projects were being undertaken 

at several buying activities.1

 We also reviewed the relevant statute, regulations, and 

guidance and interviewed key DOD and contractor officials. We also made use of our 

work on commercial best practices that identified opportunities leading organizations 

use to reduce life-cycle costs. We did not rely on DOD reports of VE savings because 

the DOD inspector general had determined in earlier audits that the reports included 

savings from other, non-VE initiatives. To identify the measures program managers 

take to reduce costs, we reviewed the approaches taken on 11 weapons system 

programs. At the buying activities we covered, we selected programs for review that 

were in production and/or previously reported VE savings. We performed our work 

between August 2002 and March 2003 in accordance with generally accepted 

government auditing standards. 

 

1

 These buying activities were the Army Aviation Missile Command, Army Tank and Automotive 

Command, Air Force Materiel Command, Space and Naval Warfare System Command, and Naval Sea 

Systems Command. They were selected to cover all services and a range of programs. 
 

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Summary 

In summary, we found that the VE program has made a minimal contribution to cost 

reduction in DOD. Value engineering is only one of a number of approaches used by 

the services to control costs, and its use varied significantly from project to project. 

In part, its limited use is attributable to new cost-reduction initiatives introduced by 

the department since the 1990s and in part due to the cumbersome processes 

required to implement the program. Perhaps, more importantly VE projects are 

typically undertaken during production or after a system has been fielded. At this 

point, opportunities for substantially reducing costs are more limited. Our work on 

commercial best practices suggests that the opportunities to significantly influence 

costs occur earlier in the life cycle of a system.2

 

Generally we found significant variance in both the use and support of value 

engineering throughout the services. For example, neither the Air Force or the Navy 

have full-time staff resources dedicated to the VE program and consider VE just one 

of many tools available to reduce costs. At one Navy buying activity, we could not 

identify any VE projects, while at other Air Force and Navy buying activities we 

identified isolated instances where VE projects were being undertaken. In contrast, 

the Army has a more structured program with staff resources committed to managing 

the program and developing VE projects. However, even within the Army, there were 

variances in management emphasis from command to command. 

For the 11 weapons system programs we examined, we found that DOD program 

managers use a variety of strategies as alternatives to or in conjunction with VE. But 

how or when VE or other strategies are used varies by project. Like VE, other 

strategies often seek to motivate contractors to submit cost-reduction ideas and 

sometimes provide opportunities for contractors to share in the savings. Some 

program managers said they consider the VE tool or methodology, but said they use 

other approaches better suited to their programs or integrated into their management 

approach. 

The limited use of the VE program has been the result of a changing acquisition 

environment and the administrative burdens associated with the program. DOD 

introduced a variety of new cost-reduction initiatives in the 1990s as it looked for 

ways to reduce costs and create a more efficient acquisition environment. DOD also 

changed its procedures and processes to foster greater efficiency and cost 

effectiveness. For example, DOD encouraged programs to replace military 

specifications and standards with performance specifications, giving contractors 

configuration control and resulting in less need for contractors to submit changes to 

DOD for approval. Administrative requirements also contributed to limited contractor 

participation in the VE program. The proposal process is seen as complex and 

resource intensive. 

 

2

 U.S. General Accounting Office, Best Practices: Setting Requirements Differently Could Reduce 

Weapon Systems’ Total Ownership Costs, GAO-03-57 (Washington D.C.: Feb. 11, 2003). 
 

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We are not making recommendations in this letter. We believe that program 

managers should continue to have the option of using VE where appropriate. 

However, given the varied use of VE and the availability of other cost-savings 

measures, management emphasis on VE as a preferred approach to reducing costs is 

not justified. 

Agency Comments and Our Evaluation 

In its written comments (see encl. II) on a draft of this letter, DOD stated that it 

agrees that VE is a useful tool for reducing costs. However, DOD also commented 

that our report did not consider that the fiscal year 2002 VE statistics showed $2.5 

billion of VE savings and costs avoidances. 

We reviewed but did not rely on the annual reports in making our assessment of VE. 

The DOD Inspector General had found that past reports did not accurately reflect VE 

savings. The fiscal year 2002 report, as in prior years, includes savings from a number 

of initiatives, not just VE. The data request for fiscal year 2002 referenced criteria 

contained in an audit resolution agreement with the Inspector General. The 

agreement states “...DOD Components should be encouraged to integrate VE with 

other similar programs and capture the savings in the annual VE report whenever 

possible.” 

--- - -- --- -- -- 

We are sending copies of this report to the Secretary of Defense; the Director, Office 

of Management and Budget; and interested congressional committees. We will also 

make copies available to others upon request. In addition, the report will be available 

at no charge on the GAO Web site at http://www.gao.gov. 

Should you or your staff have any questions on matters discussed in this report, 

please contact me on (202) 512-4383 or Karen Zuckerstein at 202-512-6785. Principal 

contributors to this report were Maria Durant, Jean Harker, Carlos Garcia, Noel 

Lance, and Bradley Terry. 

Katherine V. Schinasi 

Director, Acquisition and Sourcing Management 

Enclosures 
Enclosure I Enclosure I 

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