made by the Government after the date of this Agreement in the name of or to the Transferor shall have the same force and effect as if made to said Transferee and shall constitute a complete discharge of the Government's obligations under the Contracts, to the extent of the amounts so paid or reimbursed.

15. The Transferor and the Transferee hereby agree that the Government shall not be obligated to pay or reimburse either of them for, or otherwise give effect to, any cost, taxes or other expenses, or any increases therein, directly or indirectly arising out of or resulting from (i) said assignment, conveyance and transfer, or (ii) this Agreement, other than those which the Government, in the absence of said assignment, conveyance and transfer, or this Agreement, would have been obligated to pay or reimburse under the terms of the Contracts.

16. The Transferor hereby guarantees payment of all liabilities and the performance of all obligations which the Transferee (1) assumes under this Agreement, or (11) may hereafter undertake under the Contracts as they may hereafter be amended or modified; and the Transferor hereby waives notice of and consents to any such amendment or modification.

17. Except as herein modified, the Contracts shall remain in full force and effect.

In witness whereof, each of the parties hereto has executed this Agreement as of the day and year first above written.

UNITED STATES OF AMERICA

[27 F.R. 11647, Nov. 27, 1962, as amended at 30 F.R. 6967, May 25, 1965]

§ 1.1603 Agreement to recognize change of name of contractor.

(a) Where only a change of name is involved, so that the rights and obligations of the parties remain unaffected, an agreement between the Department concerned (see § 1.1604) and the contractor shall be executed effecting the amendment of all existing contracts between the parties so as to reflect the contractor's change of name. Prior to the execution of such agreement, one copy of each of the following shall be deposited by the contractor with the Department concerned:

(1) A copy of the instrument by which the change of name was effected, authenticated by a proper official of the State having jurisdiction;

(2) Opinion of counsel for the contractor as to the effective date of the change of name and that it was properly effected in accordance with applicable law; and

(3) A list of all contracts and purchase orders which have not been finally settled between the Department concerned and the transferor, showing the contract number, the name and address of the purchasing office involved, the total dollar value of each contract as amended, and the balance remaining unpaid.

(b) A format for such an agreement which shall be adapted for specific cases is set forth below.

AGREEMENT (SEPT. 1962)

This agreement, entered into as of

19. by and between the ABC Corporation (formerly the XYZ Corporation and hereinafter sometimes referred to as the "Contractor"), a corporation duly organized and existing under the laws of the State of and the United States of America, represented by the Department of the (hereinafter referred to as the "Government").

with the XYZ Corporation, [namely: ----] or [as set forth in the attached list marked "Exhibit A" to this agreement and herein incorporated by reference;] and the term "the Contracts" as hereinafter used means the above contracts and purchase orders, and all other contracts and purchase orders, including modifications thereto, entered into between the Government, represented by various Contracting Officers of the Department of the and the Contractor (whether or not performance and payment have been completed and releases executed, if the Government or the Contractor has any remaining rights, duties, or obligations thereunder);

11)

2. Whereas, the XYZ Corporation, by an amendment to its certificate of incorporation, dated has changed its corporate name to ABC Corporation;

3. Whereas, a change of corporate name only is accomplished by said amendment, so that rights and obligations of the Government and of the Contractor under the Contracts are unaffected by said change; and

4. Whereas, there has been filled with the Government documentary evidence of said change in corporate name;

Now therefore, in consideration of the premises, the parties hereto agree that the Contracts covered by this agreement are hereby amended by deleting therefrom the name "XYZ Corporation" wherever it appears in the Contracts and substituting therefor the name "ABC Corporation."

In witness whereof, each of the parties hereto has executed this Agreement as of the day and year first above written.

ing a novation or change of name agreement, the documents pertaining thereto shall be forwarded to the appropriate addressee in paragraph (c) of this section. This addressee may authorize the procuring activity of its Department having the largest unsettled (unbilled plus billed but unpaid) dollar balance with the contractor or contractors to process and execute the agreement.

(b) Notwithstanding paragraph (a) of this section, if a novation or change of name agreement involves contracts of only one Defense Supply Center, that Center shall retain the case and process and execute the agreement.

(c) When more than one Department has outstanding contracts with the contractor or contractors seeking a novation or change of name agreement, a single agreement covering all such contracts shall be executed by the Department having the largest unsettled (unbilled plus billed but unpaid) dollar balance with the contractor or contractors. Such agreements shall be executed by a duly authorized official or the appropriate office listed below:

Department of the Army, Headquarters, U.S. Army Materiel Command, Attention: AMCGC-P, Washington, D.C., 20315. Department of the Navy, Office of Naval Material, Attention: MAT 215, Washington, D.C., 20360.

Department of the Air Force, Headquarters, U.S. Air Force Systems Command, Attention: SCKPP, Washington, D.C., 20331. Defense Supply Agency, Attention: DSAHPPO, Cameron Station, Alexandria, Va., 22314.

Defense Communications Agency, Attention: Code 260, Washington, D.C., 20305.

(d) The Department processing a proposed novation agreement shall promptly provide notice of the proposed agreement, including the list of contracts as required by § 1.1602 (b) (2), to the other Departments and Defense agencies having contracts with the contractor or contractors concerned. Such notice shall be transmitted to the appropriate addressee listed in paragraph (c) of this section. Within 30 days after receipt of such notice, the Department may submit comments to the processing Department, which comments shall be considered prior to execution of the proposed agreement. The absence of comment from a Department within 30 days after its receipt of notice of a proposed novation agreement shall be construed as approval by that Department. Where only

a single Department is concerned, the procuring activity processing a proposed novation agreement shall give similar notice of it to all other interested procuring activities in that Department.

(e) Where substantial alterations or additions to the formats set forth in §§ 1.1602 (c) and 1.1603(b) are considered appropriate by the Department processing the proposed agreement, that Department shall coordinate the agreement with the other Departments prior to execution. Any objection shall be resolved before the agreement is executed.

(f) Executed novation agreements or change of name agreements shall be distributed by the processing Department as follows:

(1) The original signed copy to the Finance Center listed below which services the Disbursing Office designated in the contract to make payment:

Army

Commanding General

Finance Center, U.S. Army Processing & Disposition Branch Retained Accounts Division Indianapolis, Ind. 46249

Navy

Commanding Officer

U.S. Navy Finance Center (SMV) Cleveland, Ohio 44114

Air Force

Air Force Accounting & Finance Center 3800 York Street

Denver, Colo. 80205

(2) The duplicate signed copy shall be retained in the Office executing the agreement.

(3) The triplicate signed copy shall be forwarded to the contractor.

(4) Where more than one Department is involved, two copies of the multiservice agreement to the appropriate addressee listed in paragraph (c) of this section.

(g) After execution and distribution of an agreement, an administrative change (DD Form 1319) shall be prepared by the processing activity incorporating a summary of the agreement and attaching thereto a complete list of the contracts affected. For single service agreements, three copies of the DD Form 1319 shall be furnished for each contract to the procuring activities concerned, and for multiservice agreements, to the appropriate addressee listed in paragraph (c) of this section.

(h) Novation and change of name agreements amending contracts for the storage of household goods entered

into pursuant to Commercial Warehousing and Related Services for Household Goods of Military Personnel (DOD Regulation 4145.16-R) shall be forwarded by household goods field officers to Headquarters, Military Traffic Management and Terminal Service, Attention: MTMTS-HG, Building T-7, Washington, D.C., 20315, for appropriate execution without regard to the provisions of paragraphs (a), (c), (d), and (g) of this section.

[30 F.R. 6967, May 25, 1965, as amended at 30 F.R. 14077, Nov. 7, 1965]

Subpart Q-Value Engineering

SOURCE: The provisions of this Subpart Q appear at 29 F.R. 2824, Feb. 29, 1964, except as otherwise noted.

(a) General. Value engineering is concerned with elimination or modification of anything that contributes to the cost of an item but is not necessary to required performance, quality, maintainability, reliability, standardization, or interchangeability. Value engineering usually involves an organized effort directed at analyzing the function of an item with the purpose of achieving the required function at the lowest overall cost. As used in this subpart, "value engineering" means a cost reduction effort not required by any other provision of the contract. It is the policy of the Department of Defense to incorporate provisions which encourage or require value engineering in all contracts of sufficient size and duration to offer reasonable likelihood for cost reduction. Normally, however, this likelihood will not be present in contracts for architectengineering, research, or exploratory development. Value engineering contract provisions are of two kinds:

(1) Value engineering incentives which provide for the contractor to share in cost reductions that ensue from change proposals he submits; and

(2) Value engineering program requirements which obligate the contractor to maintain value engineering efforts in accordance with an agreed program, and provide for limited contractor sharing in cost reductions ensuing from change proposals he submits.

Many types of contracts, when properly used, provide the contractor with an incentive to control and reduce costs while performing in accordance with specifications and other contract requirements. However, the practice of reducing the contract price (or fee, in the case of cost-reimbursement type contract) under the "Changes" clause tends to discourage contractors from submitting cost reduction proposals requiring a change to the specifications or other contract requirements even though such proposals could be beneficial to the Government. Therefore, the objective of a value engineering incentive provision is to encourage the contractor to develop and submit to the Government cost reduction proposals which involve changes in the contract specifications, purchase description, or statement of work. Such changes may include the elimination or modification of any requirements found to be in excess of actual needs regarding for, example, design, components, materials, material processes, tolerances, packaging requirements, or testing procedures and requirements. If the Government accepts a cost reduction proposal through issuance of a change order, the value engineering incentive provision provides for the Government and the contractor to share the resulting cost reduction in the proportion stipulated in the value engineering incentive provision.

§ 1.1702-2 Application.

(a) Except as limited by § 1.1702-3, a value engineering incentive provision shall be included in all advertised and negotiated procurements in excess of $100,000 unless (a) a value engineering program requirement is included in the contract in accordance with § 1.1703-2, or (b) the head of the procuring activity has determined that value engineering offers no potential for cost reduction, as, for example, where a particular contract or class of contracts is of insufficient duration to allow value engineering proposals to be processed, or where the item or class of items being procured is a commercial product whose design and cost are controlled by the commercial

market. Value engineering incentive provisions also may be included in contracts of less than $100,000 at the discretion of the contracting officer.

(b) Contract clauses providing for value engineering incentives are set forth in § 1.1705.

(c) The precise extent to which the contractor should share in cost reductions must be tailored to the particular procurement. For advertised contracts, the percentage of contractor sharing shall be stated in the "Value Engineering Incentive" clause in the invitation for bids. For negotiated contracts, the percentage of contractor sharing shall be stated in the solicitation, although this percentage may be a subject of negotiation prior to award. In two-step formal advertising, although discussion of the appropriate percentage of contractor sharing is permissible in connection with the first step, a single percentage shall be stipulated in the invitation for bids that is issued at the beginning of the second step. In the case of firm fixedprice contracts, fixed-price contracts providing for escalation, and fixed-price contracts providing for prospective redetermination, the contractor's share in any cost reduction normally should be 50 percent and in no event greater than 75 percent. However, if such contracts are not awarded on the basis of adequate price competition, a contractor's share of less than 50 percent may be appropriate. In the case of an incentive type contract, if it is determined that reasonable certainty exists that cost savings can be accurately estimated, the contractor's share may be up to 50 percent; if such a certainty does not exist, his share should be in accordance with the maximum over-all cost incentive pattern of the contract.

(d) When a value engineering incentive is to be included in a contract that also will include performance incentives that might be affected by changed specifications resulting from value engineering, the contract should include an appropriate provision to permit equitable revisions to the performance incentive provisions in the event that a cost-reduction proposal is adopted which affects the basis for computing the performance incentive so substantially that the performance incentive provisions would be rendered fundamentally unreasonable. or entirely beyond that contemplated by the parties at the time the contract was entered into.

(e) Since the value engineering incentive clause does not require the contractor to perform value engineering, it is intended that the inclusion of the value engineering incentive clause in itself will not increase costs to the Government beyond those considered reasonable for the conduct of the contractor's business or the performance of the contract. Where cost analysis is required, cost allowability will be determined in accordance with normal application of the principles and the procedures provided in Part 15 of this chapter. Accordingly, where a contractor already has a value engineering program, the Government will bear a reasonable and allocable share of the cost of this program, but inordinate value engineering cost increases incurred solely because of inclusion of the clause shall not be allowed. Similarly, where a contractor does not have a value engineering program in existence, proper allocable costs of instituting a reasonable value engineering program are allowable.

A value engineering program requirement is a contract provision that obligates the contractor to engage in a program requiring a specified level of value engineering effort. It differs from a value engineering incentive in that the scope and level of effort required by the Government are specifically stated as an item of work in the contract schedule. It also differs in that benefits are expected to result not only from the development of specific cost reduction change proposals, but from a continuous value engineering effort by the contractor in all or selected phases of contract performance and from the submission to the Government of reports reflecting the

results of such effort. The principal goal of a value engineering program requirement is to realize the potentialities of value engineering, insofar as practicable, at a time when it will do the most good, i.e., in the initial stages of the design-development-production cycle, so that specifications, production drawings and methods will reflect the full benefit of value engineering as early as possible. The particular value engineering program to be required should be tailored to the particular contract situation with a view toward this goal, and shall be set forth in the contract schedule as a line item. The "Value Engineering Program Requirement" clause provides for contractor sharing in savings ensuing from the adoption of resulting change proposals.

§ 1.1703-2 Application.

(a) Except as limited by § 1.1703-3, a value engineering program requirement shall be included in each cost-plusfixed-fee contract in excess of $1,000,000, unless the head of the procuring activity has determined that the potential for cost reduction does not justify the effort involved in the establishment of a special value engineering program. In addition, a value engineering program requirement may be included in cost-plusincentive fee contracts in excess of $1,000,000, if the contracting officer determines that the lack of a firm specification, precise purchase decription or detailed statement of work would be likely to render a value engineering incentive provision incapable of realizing the contract's potential for value engineering cost reduction. Under these same conditions, a value engineering program requirement may also be substituted for a value engineering incentive provision in a fixed-price type contract if approved by the head of the procuring activity or his designee. If a value engineering program requirement is otherwise applicable, it may be included in contracts of less than $1,000,000.

(b) Contract clauses providing for a value engineering program are set forth in § 1.1706.

(c) When a value engineering program requirement is included, the precise extent to which the contractor should share in cost reductions ensuing from the adoption of any acceptable change proposal must be tailored to the particular procurement situation. The