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Chapter 21 - Performance-Based Contracting and Service Level Agreements

21.9 Selecting the PBC incentive strategy

21.9.6 Value engineering

Value engineering, sometimes referred to as “value methodology,” is a well-planned and thought out, structured approach to analyzing function to cost in order to achieve cost savings without compromising performance. This evaluation looks at the life cycle of the project, what is to be achieved and how costs can be reduced by eliminating unnecessary expenditures, thereby adding value, but without losing the required performance, quality and reliability of the goods/services/systems being procured. This methodology offers concepts like engineering re-use that the supplier and/or the agency can utilize to avoid duplicative expenses for existing or repeatable engineering, software or products instead of paying for it all over again for the new project. An incentive fee may be much less costly than paying for something that the supplier may have done for another customer and that they have the rights to use for their other customers. From the agency perspective, another state may have a reusable technology component they allow other states to reuse at no cost, but by simply signing an agreement with that state. In this case, there would not be any incentive to the supplier, but a direct cost savings to the project’s budget. Refer to section 21.10.3 of this chapter for more discussion of reusable technology as it relates to technology transfers.