percentage of contractor sharing shall be stated in the solicitation, although this percentage may be a subject of negotiation prior to award. In the case of firm fixed-price contracts, fixed-price contracts providing for escalation; and fixed-price contracts providing for prospective redetermination, the contractor's share shall in no event be greater than 25 percent. In the case of an incentive-type contract, if it is determined that reasonable certainty exist that cost savings can be accurately estimated, the contractor's share may be up to 25 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. In the cast of costplus-fixed fee contracts, the contractor's share of the savings shall normally be 10 percent and shall not exceed this figure.

(d) When a value engineering program requirement is to be included in a contract that will also 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) Except to the extent that the price or estimated cost of a contract includes an amount specifically to cover a required value engineering program, the inclusion of a value engineering program requirement should not in itself 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 anal

ysis is required, cost allowability will be determined in accordance with normal application of the principles and procedures provided in Part 15 of this chapter. Accordingly, when a contractor already has his own value engineering program, the Government will also bear a reasonable and allocable share of the cost of such program, to the extent not included in the cost of the value engineering program required by the contract. Inordinate value engineering

cost increases in the contractor's own program, incurred solely because of inclusion in the contract of the value engineering program requirement, shall not be allowed. Similarly, when a contractor does not have his own value engineering program in existence, proper allocable costs of instituting a reasonable value engineering program to the extent not included in the program required by the contract are allowable.

§ 1.1703-3 Limitations.

Normally, value engineering program requirements shall not be included in procurements for construction (including architect-engineering), research, or exploratory development. A value engineering program requirement shall not be used in formally advertised contracts, and generally should not be used in negotiated contracts where award will be made solely on the basis of price competition.

[29 F.R. 11814, Aug. 19, 1964]

§ 1.1704 Data and technical information.

A "Data" clause (see § 9.203 of this chapter) shall be included in all contracts containing value engineering provisions, except in the case of overseas contracts, in which case the "Technical Information" clause (see § 9.206 of this chapter) shall be included. Where a "Data" clause is included in a contract solely because of a value engineering provision, the following should be inserted immediately after the caption of the clause: "This clause applies only to data submitted to the Government in connection with a cost reduction proposal under the provisions of this contract regarding value engineering."

§ 1.1705 Value engineering incentive clauses.

If it is determined, in accordance with § 1.1702, to include a value engineering incentive provision in a contract, the applicable clause set forth below shall be used.

§ 1.1705-1 Value engineering incentive clause for firm fixed-price contracts and fixed-price contracts providing for escalation.

VALUE ENGINEERING INCENTIVE (AUG. 1963) (a) This clause applies to cost reduction proposals initiated and developed by the Contractor for changing the drawings, designs, specifications, or other requirements

of this contract. This clause does not, however, apply to any such proposal unless it is identified by the Contractor at the time of its submission to the Contracting Officer, as a proposal submitted pursuant to this clause. The cost reduction proposals contemplated are those that:

(1) Would result in less costly items than those specified herein without impairing any of their essential functions and characteristics such as service life, reliability, economy of operation, ease of maintenance, and necessary standardized features, and

(11) Would require, in order to be applied to this contract, a change order to this contract.

(b) Cost reduction proposals as defined herein will be processed expeditiously and in the same manner as prescribed for any other proposal which would likewise necessitate issuance of a contract change order. minimum, the following information will be submitted by the Contractor with each proposal:

As a

(1) A description of the difference between the existing contract requirement and the proposed change, and the comparative advantages and disadvantages of each;

(11) An itemization of the requirements of the contract which must be changed if the proposal is adopted and a recommendation as to how to make each such change (e.g., suggested revision);

(iii) An estimate of the reduction in performance costs that will result from adoption of the proposal taking into account the costs of implementation by the Contractor, and the basis for the estimate;

(iv) A prediction of any effects the proposed change would have on other costs to the Government, such as Government-furnished property costs, costs of related items, and costs of maintenance and operation;

(v) A statement of the time by which a change order adopting the proposal must be issued so as to obtain the maximum cost reduction during the remainder of the contract, noting any effect on maintaining the contract delivery schedule; and

(vi) The dates of any previous submissions of the proposal, the numbers of any Government contracts under which submitted, and the previous actions by the Government, if known.

(c) The Government shall not be liable for any delay in acting upon, or for any failure to act upon, any proposal submitted pursuant to this clause. The decision of the Contracting Officer as to the acceptance of any such proposal under this contract shall be final and shall not be subject to the "Disputes" clause of this contract. Unless and until a change order applies such a proposal to this contract, the Contractor shall remain obligated to perform in accordance with its existing terms. The Contracting Officer may accept in whole or in part any cost reduction proposal submitted pursuant to this clause by issuing a change order which will identify

the cost reduction proposal on which it is based.

(d) If a cost reduction proposal submitted pursuant to this clause is accepted under this contract, an equitable adjustment in the contract price and in any other affected provisions of this contract shall be made in accordance with this clause and the "Changes" clause of this contract. If the equitable adjustment involves a reduction in the contract price, it shall be established by determining the amount of the total estimated decrease in the Contractor's cost of performance resulting from the adoption of the cost reduction proposal, taking into account the cost of implementing the change by the Contractor, and reducing the contract price by percent (----%) of such decrease. If the equitable adjustment involves an increase in the contract price, such increase shall be established under the "Changes" clause rather than under this paragraph (d). The resulting contract modification will state that it is made pursuant to this clause.

(e) Cost reduction proposals submitted under the provisions of any other contract also may be submitted under this contract for consideration pursuant to the terms of this clause.

(f) The Contractor may restrict the Government's right to use any sheet of a value engineering proposal or of the supporting data, submitted pursuant to this clause, in accordance with the terms of the following legend if it is marked on such sheet. This data furnished pursuant to the value engineering incentive clause of contract

shall not be disclosed outside the Government, or be duplicated, used, or disclosed, in whole or in part, for any purpose other than to evaluate a value englneering proposal submitted under said clause. This restriction does not limit the Government's right to use information contained in this data if it is or has been obtained from another source, or is otherwise available, without limitations. If such a proposal is accepted by the Government by issuance is a change order under the "Changes" clause of said contract after the use of this data in such an evaluation, the Government shall have the right to duplicate, use, and disclose any data pertinent to the proposal as accepted, in any manner and for any purpose whatsoever, and have others so do.

After the issuance of a change order accepting a value engineering proposal, but not prior thereto, such proposal and the supporting data shall, for the sole purpose of supplementing the rights granted to the Government under this paragraph, be considered "Subject Data" within the meaning of the "Data" clause of this contract.

Insert the appropriate percentage, i.e., the contractor's share (see § 1.1702-2(c)).

If the contract is to include a "Technical Information" clause rather than a "Data" clause, substitute "technical information" for "Subject Data" and "Technical Information" for "Data" in the last sentence of the clause above. See Subpart B, Part 9 of this chapter. § 1.1705-2 Value engineering incentive clause for fixed-price incentive contracts (firm targets).

For fixed-price incentive contracts (firm targets), insert the clause set forth in § 1.1705-1, modified by the substitution of the following paragraph (d) thereof:

(d) If a cost reduction proposal submitted pursuant to this clause and affecting any of the items described in paragraph (a) of the "Incentive Price Revision (Firm Target)" clause of this contract is accepted under this contract, an equitable adjustment in the total target price of such items and in any other affected provision of this contract shall be made in accordance with this clause and the "Changes" clause of this contract. The equitable adjustment in such total target price shall be established by (1) determining the amount of the total estimated decrease in the Contractor's cost of performance resulting from adoption of the cost reduction proposal, taking into account the cost of implementing the change by the Contractor, and (ii) deducting the full amount of this estimated decrease from the total target cost and adding ----- percent (--%)1 of such amount to the total target profit relating to such items The maximum dollar limit on the total final price of such items shall be decreased by percent (------% )2 of this decrease. the equitable adjustment involves an increase in the contract price, such increase shall be established under the "Changes" clause rather than under this paragraph (d). The resulting contract modification will state that it is made pursuant to this clause. (May 1964).

[29 F.R. 9748, July 21, 1964]

§ 1.1705-3 Value engineering incentive clause for fixed-price incentive contracts (successive targets).

For fixed-price incentive (successive targets) contracts, insert the clause in § 1.1705-1, modified to substitute the following for paragraph (d) thereof:

(d) (1) If a cost reduction proposal submitted pursuant to this clause and affecting any of the items described in paragraph (a) of the "Incentive Price Revision (Suc

'Insert the appropriate percentage, 1.e., the contractors share (see § 1.1702–2(c)). Insert the appropriate percentage, 1.e., the Government's share (see § 1.1702-2(c)).

cessive Targets)" clause of this contract is accepted under this contract, an equitable adjustment in the total initial or firm target price of such items and in any other affected provision of this contract shall be made in accordance with this clause and the "Changes" clause of this contract. Except as otherwise provided in paragraphs (2) and (3) below the equitable adjustments in such total initial or firm target price shall be established by (1) determining the amount of the total estimated decrease in the Contractor's cost of performance resulting from adoption of the cost reduction proposal, taking into account the cost of implementing the change by the Contractor, and (ii) deducting the full amount of this estimated decrease from the initial or firm total target cost of such items (whichever is in effect at the time of adjustment), and adding ----- percent (------%), or such other percentage as may be applicable pursuant to paragraph (2) below, of such amount to the initial or firm target profit relating to such items (whichever is in effect at the time of adjustment). Except where a firm fixed-price has been established in accordance with paragraph (c) of said price revision clause, if such a cost reduction proposal is accepted under this contract either before or after the establishment of a firm profit adjustment formula in accordance with said paragraph (c), the maximum dollar limit on the total final price of such items shall be decreased by (‒‒‒‒‒‒%) of the decrease.

percent

(2) If a cost reduction proposal submitted pursuant to this clause and affecting any of the items referred to in paragraph (1) above is accepted under this contract after the establishment of a firm fixed-price in accordance with paragraph (c) of the "Incentive Price Revision (Successive Targets)" clause of this contract, an equitable adjustment in the contract price and in any other affected provisions of this contract shall be made in accordance with this clause and the "Changes" clause of this contract. If the equiptable adjustment involves a reduction in the contract price, it shall be established by determining the amount of the total estimated decrease in the Contractor's cost of performance resulting from the adoption of the cost reduction proposal, taking into account the cost of implementing the change by the Contractor, and reducing the contract price by --- percent (------ %) of such decrease. If a firm profit adjustment formula is established in accordance with said paragraph (c), the percentage set forth in paragraph (1)(ii) above may be modified for application to cost reduction proposals, submitted pursuant to this clause and affecting any of the items referred to in paragraph (1) above, which are accepted under

-----

1 Insert the appropriate percentage, 1.e., the contractor's share (see § 1.1702-2(c)).

Insert the appropriate percentage, 1.e., the Government's share (see § 1.1702-2 (c)).

this contract after the establishment of said formula.

(3) If an equitable adjustment pursuant to paragraph (1) or (2) above should involve an increase in the contract price, such increase shall be established under the "Changes" clause rather than this paragraph (d). The resulting contract modification shall state that it was made pursuant to this clause. (May 1964)

[29 F.R. 9749, July 21, 1964]

§ 1.1705-4 Value engineering incentive clause for fixed-price contracts providing for prospective price redetermination.

For fixed-price contracts providing for prospective price redetermination, insert the clause set forth in § 1.1705-1, modified by adding the following to the second sentence of paragraph (d) thereof:

Provided, That for any redetermination of price, under the "Price Redetermination" clause of this contract, having an effective date subsequent to the effective date of any change order issued pursuant to this clause, the redetermined price shall not be reduced as a consequence of such change order by more than percent (‒‒‒‒ %)* of the estimated decrease in that part of the Contractor's cost of performance that is attributable to the pertinent price redetermination period.

For cost-plus-incentive-fee contracts, insert the clause set forth in § 1.1705-1, modified to substitute the following paragraph (d) thereof:

(d) If a cost reduction proposal submitted pursuant to this clause is accepted, an equitable adjustment in target cost and fee and in any other affected provision of this contract shall be made in accordance with this clause and the "Changes" clause of this contract. The equitable adjustment in target cost and fee shall be established by (1) determining the amount of the total estimated decrease in the Contractor's cost of performance resulting from adoption of the cost reduction proposal, taking into account the cost of implementing the change by the Contractor; and (ii) deducting the full amount of this estimated decrease from the target cost and adding percent

-----

(------ %)** of such amount to the minimum, target and maximum fees. If the equitable adjustment involves an increase in the cost of performance of the contract, such increase shall be established under the

Insert the appropriate percentage, 1.e., the Government's share (see § 1.1702-2(c)). **Insert the appropriate percentage, 1.e., the contractor's share (see § 1.1703-2(c)).

"Changes" clause rather than under this paragraph (d). The resulting contract modification will state that it is made pursuant to this clause.

§ 1.1706

Value engineering program requirement clauses.

If it is determined in accordance with §1.1703 to include a Value Engineering Program Requirement in a contract, the applicable clause of those set forth below shall be used.

§ 1.1706-1 Value engineering program requirement clause for use in costplus-fixed-fee contracts.

VALUE ENGINEERING PROGRAM REQUIREMENT (AUG. 1963)

(a) The Contractor shall engage in a value engineering program, and submit progress reports thereon, as specified in the Schedule. In addition, the Contractor shall submit any cost reduction change proposals resulting from the required program. This clause does not, however, apply to any such proposal unless it is identified by the Contractor at the time of its submission to the Contracting Officer, as a proposal submitted pursuant to this clause. The cost reduction change proposals contemplated by this clause are those that:

(1) Would result in less costly items than those specified herein without impairing any of their essential functions and characteristics, such as service life, reliability, economy of their essential functions and characterissary standardized procedures; and

(ii) Would require, in order to be applied to this contract, a change order to this contract.

(b) Cost reduction proposals as defined herein will be processed expeditiously and in the same manner as prescribed for any other proposal which would likewise necessitate issuance of a contract change order. As a minimum, the following information will be submitted by the Contractor with each proposal:

(1) A description of the difference between the existing contract requirement and the proposed change, and the comparative advantages and disadvantages of each;

(ii) An itemization of the requirements of the contract which must be changed if the proposal is adopted and a recommendation as to how to make each such change (e.g., suggested revision);

(iii) An estimate of the reduction in performance costs that will result from adoption of the proposal taking into account the costs of implementation by the Contractor, and the basis for the estimate;

(iv) A prediction of any effects the proposed change would have on other costs to the Government, such as Government-furnished property costs, costs of related items and costs of maintenance and operation;

(v) A statement of the time by which a change order adopting the proposal must be

issued so as to obtain the maximum cost reduction during the remainder of the contract, noting any effect on maintaining the contract delivery schedule; and

(vi) The dates of any previous submissions of the proposal, the numbers of any Government contracts under which submitted, and the previous actions by the Government, if known.

(c) The Government shall not be liable for any delay in acting upon, or for any failure to act upon, any proposal submitted pursuant to this clause. The decision of the Contracting Officer as to the acceptance of any such proposal under this contract shall be final and shall not be subject to the "Disputes" clause of this contract. Unless and until a change order applies such a proposal to this contract, the Contractor shall remain obligated to perform in accordance with its existing terms. The Contracting Officer may accept in whole or in part any cost reduction proposal submitted pursuant to this clause by issuing a change order which will identify the cost reduction proposal on which it is based.

(d) If a cost reduction proposal submitted pursuant to this clause is accepted under this contract, an equitable adjustment in the fixed fee and in any other affected provision of this contract shall be made in accordance with this clause and the "Changes" clause of this contract. If the adjustment involves a reduction in the cost of the contract, the equitable adjustment in the fixed fee shall be established by (1) determining the amount of the total estimated decrease in the Contractors cost of performance resulting from adoption of the cost reduction proposal, taking into account the cost of implementing the change by the Contractor; and (ii) adding percent (‒‒‒‒%) of such amount to the fixed fee. If the equitable adjustment involves an increase in the cost of performance of the contract, such increase shall be established under the "Changes" clause rather than under this paragraph (d). The resulting contract modification will state that it is made pursuant to this clause.

(e) Cost reduction proposals submitted under the provisions of any other contract may also be submitted under this contract for consideration pursuant to the terms of this clause.

(f) Any progress reports submitted pursuant to (a) above, and any value engineering proposal, including supporting data, submitted pursuant to this clause shall constitute "Subject Data" under the "Data" clause of this contract, whether or not change orders or contract modifications result therefrom. Notwithstanding any other provisions of this contract, the Government shall have the unrestricted right to apply any data pertinent to any cost reduction proposal in any manner and for any purpose whatsoever unless the Contracting Officer specifically agrees otherwise in writing.

a

If the contract is to include a "Technical Information" clause rather than "Data" clause, substitute "Technical Information" for "Subject Data" and "Technical Information" for "Data" in the first sentence of paragraph (f) of the clause above. See Subpart B, Part 9 of this chapter.

§ 1.1706-2 Value engineering program requirement clause for use in costplus-incentive-fee contracts.

For cost-plus-incentive-fee contracts, insert the clause set forth in § 1.1706-1 except that paragraph (d) shall be deleted and paragraph (d) as set forth under § 1.1705-5 substituted in lieu thereof. The percentages inserted in said paragraph (d) shall be in accordance with § 1.1703-2.

§ 1.1706-3 Value engineering program requirement clause for use in fixedprice incentive (firm targets) con

tracts.

For fixed-price incentive (firm targets) contracts, insert the clause set forth in § 1.1706-1 except that paragraph (d) shall be deleted and paragraph (d), as set forth under § 1.1705-2, substituted in lieu thereof. The percentages inserted in paragraph (d) shall be in accordance with § 1.1703-2.

§ 1.1706-4 Value engineering program requirement clause for use in fixedprice incentive (successive targets)

contracts.

For fixed-price incentive (successive targets) contracts, insert the clause set forth in §1.1706-1 except that paragraph (d) shall be deleted and paragraphs (d) (1) and (2), as set forth under § 1.1705-3, substituted in lieu thereof. The percentages inserted in paragraph (d) (1) shall be in accordance with § 1.1703-2. § 1.1706-5 Value engineering program requirement clause for use in fixedprice contracts other than fixed-price incentive contracts.

For fixed-price contracts other than fixed-price incentive contracts, insert the clause set forth in § 1.1706-1 except that paragraph (d) shall be deleted and paragraph (d) of the clause set forth under § 1.1705-1 substituted in lieu thereof. The percentages inserted in said paragraph (d) shall be in accordance with § 1.1703-2. In addition, for fixedprice contracts providing for prospective redetermination, the following shall be