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Profiting Through Submittal of a Value Engineering Change Proposal (VECP).

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Visit our new VECP generation and monitoring resource, vecp.com.

SAMI VE LLC is highly skilled in identifying opportunities for submitting a VECP that will increase your profit. Our tremendous expertise has been used to create VECP documents that has made millions in added profits for our clients. Further, our expertise is so recognized that we have served as expert witnesses in VECP issues. Your cost to obtain an increased profit is based upon our success in your VECP.


What is a VECP?

A Value Engineering Change Proposal (VECP) is a contractual mechanism provided by Federal, state, and private businesses. It gives a financial incentive to get contractors and subcontractors to reduce the cost of systems, supplies, and services for contracts in-progress. To qualify as VECP, a proposal must, at a minimum, require a change to a contract to implement, and save money. It must lower overall the overall cost; without degrading performance, reliability, maintenance, or safety. In the Federal government, a VE Incentive Clause is required in all contracts over $100,000 and can be requested in smaller ones (usually all contracts over $10,000). No obligation to accept a VECP is present and the risk for the contractor's development costs resides with the contractor.


Why should a contractor bother?

Contractors who submit an accepted VECP-- share in any gross savings! Some contracts base the share on the financial risk of the agency or organization involved. Most have a set percentage of the gross savings (usually 55-percent) plus reasonable development costs. Some contracts allow the contractor to obtain a percentage of "collateral costs." The return for these can easily exceed the contractor's entire expected profit for the contract service they are providing. Typically, the contractor receives all or a portion of their cost to develop the proposal. If the government agency involved in the instant contract provides VECP development services, the contractor's share is reduced to 25-percent of the gross savings (nearly 55-percent of the net savings).

Why do they include this clause in their contracts?

After contract award, there is little reason for the contractor to reduce acquisition or life-cycle cost. Since profits are derived from the contract cost, reducing that cost should reduce the expected profit. The VE Incentive Clause dramatically changes this situation. It allows the contractor to increase their profit by sharing the net savings in four areas: their instant contract, concurrent contracts, future contracts (usually limited to a duration of three years in the future), and collateral (maintenance, operations, and support) savings. Exact shares are defined in the regulations implementing the clause. In the Federal government, this is the Federal Acquisition Regulations (FAR's). In the Federal government, the VECP generated nearly one billion in cost savings in 1996 alone. In one office of an agency, the office generated over $460 million in net VECP savings (1991-1993 period) and shared $158 million with their prime contractors and subcontractors.

Does your contract qualify?

The VE Incentive Clause applies to all Federal contracts except those that are Research and Development (R&D) and for professional services only (such as engineering design and planning services). The highest probability for obtaining successful VECP's is the construction contract, renovation contracts, and similar supply type contracts. The VECP must be submitted by the contractor that is the prime contractor and must be for a contract that is in place (instant contract).


How does SAMI fit in this?


Identifying, generating, and assisting in transmitting a VECP

Systematic Analytic Methods and Innovations understands the VE Incentive Clause, contracts, and business operations. We are highly skilled in identifying opportunities for submitting a VECP that will increase your profit and submitting the result. We will enter into a partnership with you to achieve a successful VECP. We meet with you and your employees and operate "value sessions" as necessary to generate as many VECP's as we can.

In most cases, the VE Incentive Clause puts the VECP development risk on the contractor. We minimize this risk and share in it. As a result, we share in the added profit too. We will perform a review of VECP potential at no cost to you. If we think there is potential for increased profits through the VECP process, you pay our travel to the site and a minimal charge for oversite of a development review. This is done so you can claim the review costs, of our contract with you, under the VE Incentive Clause development stipulations. Once the VECP is accepted, the net savings for the contract for which the VECP is being submitted, is negotiated. This is your increased profit (it will include a reimbursement for our initial development review). You keep 85-percent of the net savings. This is a profit you didn't expect to obtain at all. SAMI receives 15-percent of this net negotiated increased profit. (This percentage fee is not reimbursable in the "instant contract" under the VE Incentive Clause, as our contract is with you.) In this way, we don't get a profit unless you win an increased profit through the VECP.

Already have an idea on your contact but don't know the best way to proceed?

If you already have your concept, we can help you put it together into a proposal that has a high probability of acceptance. In this situation, a daily services fee may be used in place of the sharing of the return. (Since we didn't share in the concept generation and its risk.) These consultation services are usually fully reimbursable when the VECP is accepted.

Cautions. To be accepted as a VECP, your concepts cannot propose a change in contract-type only, deliverable end-item quantity only, or a change to R&D test quantities due solely to results of previous testing.

Prefer to go it alone?

Use of VECP's can significantly improve a contractor's financial position. The Federal government, many local governments, and businesses use the VE Incentive Clause to encourage contractors to submit cost reduction ideas. Contractors who voluntarily use their own resources to develop and submit VECP's gain the most. They usually obtain 55% of the savings. However, to maximize impact the contractor needs to manage the VECP operations carefully. If the government initially funds the idea development cost, the contractor only shares 25%. To obtain success, the contractor needs make proposals easy to understand and present them in a form that speeds technical and financial evaluation. Training in both the contractual aspects of Value Engineering and the Value Method is recommended by the government. SAMI can train your staff for this purpose. Also, you can use our new resource, vecp.com to obtain your VECP.

Please visit VECP.com for additional details.




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