the right to reject any claim asserted after this time, if the Contracting Officer decides the facts justify such action, he may receive and act upon any such claim asserted at any time prior to final payment under this contract.

(c) Failure to agree to any adjustment under paragraph (b) of this clause shall be a dispute concerning a question of fact within the meaning of the "Disputes" clause of this contract.

(d) If a stop work order is not canceled and the work covered by such order is terminated for the convenience of the Government, the reasonable costs resulting from the stop work order shall be allowed in arriving at the termination settlement.

(End of clause)

§ 12-7.151-13 Value engineering clauses.

A value engineering incentive clause and/or a value engineering program requirement clause shall be included in the contract in accordance with the instructions for its use in DOTPR 121.5202 and DOTPR 12-1.5206.

(a) Value engineering incentive clause. (1) In accordance with DOTPR 12-1.5202 the following clauses are to be used in fixed price or fixed price with prospective price redetermination supply and service contracts:

VALUE ENGINEERING INCENTIVE

(a) Application. This clause applies to a contractor developed and documented Value Engineering Change Proposal (VECP) which:

(i) Requires a change to this contract to implement the VECP, and

(ii) Reduces the overall costs to the agency without impairing essential functions or characteristics: Provided, That it is not based:

(A) Solely on a change in deliverable end item quantities; or

(B) A change in R&D end item or test quantities due solely to results of previous testing under this contract; or

(C) Solely on a change to the contract type.

(b) Documentation. As a minimum, the following information shall be submitted by the Contractor with each VECP:

(i) A description of the difference between the existing contract requirement and the proposed change, and the comparative advantages and disadvantages of each, justification when a function or characteristic of an item is being altered, and the effect of the change on the performance of the end item;

(ii) An analysis and itemization of the requirements of the contract which must be

changed if the VECP is accepted and a recommendation as to how to make each such change (e.g., a suggested specification revision);

(iii) A separate detailed cost estimate for both the existing contract requirement and the proposed change to provide an estimate of the reduction in costs, if any, that will result from acceptance of the VECP, taking into account the costs of development and implementation by the Contractor (including any amount attributable to subcontracts in accordance with paragraph (h) below);

(iv) A prediction of any effects the proposed change would have on collateral costs to the agency 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 contract modification accepting the VECP must be issued so as to obtain the maximum cost reduction, noting any effect on the contract completion time or delivery schedule; and

(vi) Identification of any previous submission of the VECP, including the dates submitted, the agencies involved, the numbers of the Government contracts involved, and the previous actions by the Government, if known.

(c) Submission. VECPs shall be submitted to the Contracting Officer (CO). VECPs shall be processed expeditiously; however, the Government shall not be liable for any delay in acting upon any VECP submitted pursuant to this clause. The Contractor has the right to withdraw, in whole or in part, any VECP not accepted by the Government within the period specified in the VECP.

(d) Acceptance. The Contracting Officer may accept, in whole or in part, by contract modification either before or within a reasonable time after performance has been completed under this contract, any VECP submitted pursuant to this clause. Until a contract modification applies a VECP to this contract, the Contractor shall remain obligated to perform in accordance with the terms of the existing contract. Contract modifications made pursuant to this clause will so state. The decision of the Contracting Officer as to the acceptance of any VECP under this contract (including the decision as to which clause is applicable to the proposal if this contract contains both a "Value Engineering Incentive" and a "Value Engineering Program Requirement" clause) shall be final and shall not be subject to the "Disputes" clause of this contract.

(e) Sharing. If a VECP submitted by the Contractor pursuant to this clause is accepted, the Contractor shall share in savings realized by the Government in accordance with the following provisions:

1. Instant contract (i) Definitions. (A) Instant contract savings to the Contractor

(ICS) is the unit cost reduction times the number of units affected in the instant contract. The proposed unit cost reduction includes estimated allowable contractor development and implementation costs (CC). The Contractor's development and implementation costs include any subcontractor development and implementation costs and any subcontractor incentive payments (see (h) below). For purposes of this clause, contractor development costs are those costs incurred after the Contractor has identified a specific VE project and prior to acceptance by the Government.

(B) Government Costs (GC) are those costs which directly result from development and implementation of the VECP, such as test and evaluation of the VECP, and any increased costs in DOT operations, maintenance, and logistics support.

(ii) Calculations and actions. (a) Calculate GC and ICS.

(B) If ICS exceeds GC, calculate fifty percent (50%) (Government share) of the sum of ICS and GC, i.e. (0.5 (ICS plus GC)), unless this is a VE Program Requirement Change (VEPRC) in which case calculate (0.75 ICS plus 0.25 GC). In either case, subtract the result from the contract price.

(C) If GC exceeds ICS, but acceptance of the VECP is still desirable due to concurrent or future savings, reduce the instant contract price by the amount of ICS and offset the amount by which GC exceeds ICS against concurrent or future savings.

(D) If the Contractor's cost of developing and implementing the VECP would result in an increase in the instant contract price, but the VECP is still desirable due to concurrent or future savings, equitably adjust the instant contract price in accordance with the "Changes" clause. In addition, offset the increase in the instant contract price and any GC against concurrent or future contract savings.

(E) See (e) (3) (ii) for those actions to be taken when a future contract is expected.

2. Concurrent contracts. (i) If the VECP accepted under this contract is also used on concurrent contracts of the purchasing office for essentially the same items, the Contractor shall be paid a share of any savings as calculated in (ii) below.

(ii) Calculations: (A) Determine the reduction in the price of each concurrent contract(s) as a result of incorporating the VECP.

(B) Subtract from the total amount in (A) any government costs (GC) not yet offset (if GC was greater than ICS) in (e) (1) (ii) (C) or (D) above, and any increase in the instant contract price, i.e., if ICS was negative in (e) (1) (ii) (D). If the resulting number is positive, multiply it by fifty percent (50%) (25% if this a VEPRC). Add this amount to the instant contract price.

3. Future contracts. Definition. The term unit cost reduction for future contract sharing shall be the unit cost reduction under this instant contract without deducting any cost of development or implementation.

(ii) If the VECP accepted under this contract is used on future purchases of essentially the same item by the purchasing office, or its successor, the Contractor shall share in the savings on all affected end items scheduled for delivery not later than three (3) years after acceptance of the first item incorporating the VECP, or until the originally scheduled delivery date of the last affected end item under the instant contract, whichever is later. When sharing on future contracts is expected, the Contractor shall be responsible for the following:

(A) Maintaining records adequate to support identification of the first delivered unit to which the VECP applies. These records are considered an integral part of contract documentation and shall be maintained for a period of three years after final payment on the contract under which the VECP was accepted.

(B) Annotating the receiving report or invoice, which applies to the initial unit covered by the VECP with the following statement:

"This is the initial unit delivered which incorporates VECP No. Contract Modification No. dated (iii) Calculations. At the time each eligible future contract is awarded:

(A) Determine the number of units scheduled to be delivered prior to expiration of the contractor sharing period determined in (ii) above. Multiply this by the unit cost reduction as defined in (e) (3) (i).

(B) Subtract from the total amount in (A) any Government costs or instant contract increases not yet offset in (e) (1) (ii) (C) or (D) or in (e) (2) (ii) (B), or in other contracts awarded since acceptance of the VECP. If the resulting number is positive, multiply it by fifty percent (50%) (25% if this is a VEPRC) and add the result to the instant contract price.

4. Collateral savings. If an accepted VECP results in a measurable net reduction in the agency's overall documentable projected costs of maintenance, operation, logistic support or Government-furnished property, which exceeds any increase in costs attributable to incorporation of such VECP, including acquisition costs, the contract shall be increased by twenty percent (20%) of the projected net reduction in ascertainable collateral costs (i.e., savings determined to be realized during an average year of use of the item in which the change is incorporated) and, if applicable, of the actual savings accruing from a change or reduction of Government-furnished property under the instant contract. However, such increase rep

resenting the Contractor's share of collateral savings shall, in no event exceed the price of this contract or $100,000 whichever is greater. The determination of the amount of collateral savings, if any, will be made solely by the Government and shall not be subject to the "Disputes" clause of this contract. In all cases, degradation of performance, service life, or capability shall be a consideration in the determination of actual savings to the agency.

(f) Payment. The Contractor's concurrent and future contract shares should be paid upon modification of concurrent contracts or future contract award, or within six (6) months thereafter. However, any such payments are subject to the condition that to the extent the Government does not receive delivery of and accept all items on which the share is paid, the contractor shall reimburse the Government the proportionate share of the payments. If this clause is modified to provide for lump sum payments, such payments shall be made upon modification of the instant contract.

(g) Operation and maintenance contracts. If this is a contract for overhaul or maintenance (including repair, alteration, modification or modernization), the Contractor will be paid a share of future contract savings realized by the Government only on overhaul and maintenance of the designated items accomplished by purchase, under contract, by the designated purchasing office. Only collateral savings will be paid on application of accepted VECPs to overhaul and maintenance of items within Government resources.

(h) Subcontracts. The Contractor shall include appropriate VE arrangements in any subcontract of $100,000 or greater, and may include such arrangements in contracts of lesser value. To compute any adjustment in the contract price under paragraph (e)(1) above, the Contractor's cost of development and implementation of a VECP which is accepted under this contract shall include any development and implementation costs of a subcontractor and any VE incentive payments to a subcontractor, which clearly pertain to such VECP. However, no such payment or accrual to a subcontractor will be permitted, either as a part of the contractor's development or implementation costs or otherwise, to reduce the Government's share on collateral savings or additional purchases as contemplated by paragraph (e)(2), (3), or (4) of this clause.

(i) Data. The Contractor may restrict the Government's right to use any sheet of a VECP or of the supporting data, submitted pursuant to this clause, in accordance with the terms of following legend if it is marked on such sheet:

"This data furnished pursuant to the Value Engineering clause of contract shall not be disclosed outside the Govern

ment, or duplicated, used, or disclosed, in whole or in part, for any purpose other than to evaluate a VECP 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, or is otherwise available, from the Contractor or from another source, without limitations. If such a VECP is accepted by the Government under 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 reasonably necessary to the full utilization of such VECP as accepted, in any manner and for any purpose whatsoever, and have others so do."

In the event of acceptance of a VECP, the Contractor hereby grants to the Government all rights to use, duplicate or disclose, in whole or in part, in any manner and for any purpose whatsoever, and to have or permit others to do so, any data reasonably necessary to fully utilize such VECP.

(j) Miscellaneous Provisions. (1) For purposes of sharing under paragraph (e)(1) above, the term "instant contract" shall not include any modifications of the instant contract, executed after acceptance of the particular VECP, by which the Government increases the quantity of any item, or adds any item, nor shall it include any extension of the instant contract through exercise of an option provided under this contract after acceptance of the VECP. Such modifications and extensions shall be considered "future contracts" within the provisions of paragraph (e)(3) of this clause.

(2) If this is an indefinite delivery type contract, the term "instant contract" for purposes of sharing under paragraph (e)(1) above shall include only those orders actually placed by the Government up to the time the particular VECP is accepted. All orders placed subsequent to the acceptance of the particular VECP shall be considered "future contracts" within the provisions of paragraph (e)(3) of this clause.

(3) If this clause is included in a basic ordering agreement, the term "instant contract", for purposes of sharing under paragraph (e)(1) above, shall be the order under which the particular VECP is approved. Other orders under the same agreement shall be considered either "concurrent contracts" (if awarded prior to acceptance of the VECP) or "future contracts" (if awarded after acceptance of the VECP), within the provisions of paragraph (e)(2) or (e)(3) of this clause respectively.

(4) If this clause is included in a multiyear contract, "instant contract" for the purpose of sharing under paragraph (e)(1) above, shall be the funded contract at the time the VECP is approved, and items purchased under subsequent funding under this con

tract shall be treated under the future contract VE sharing provisions in paragraph (e)(3) of this clause. The sharing period shall be the entire life of the multi-year contract, or three (3) years after delivery of the first item incorporating the VECP, whichever is longer.

(5) If this clause is included in a fixed price contract providing for prospective price redetermination, the term "instant contract" for purposes of sharing under paragraph (e)(1) above shall be that period for which firm prices have been established. The remaining periods under this contract shall be treated under the future contract VE sharing provisions in paragraph (e)(3) of this clause.

(6) Those portions of an accepted VECP which are rewardable under other performance incentive provisions of this contract shall be rewarded under the provisions of this clause to the extent that they are not rewarded under the other performance incentive provisions.

(7) The Contracting Officer may require the Contractor to provide written notification prior to risking significant expenditures for VECP effort.

(End of clause)

(2) Fixed-price incentive firm target) contracts. Substitute the following "sharing" provisions for paragraph (e) of the clause in paragraph (a)(1) of this section:

(e) Sharing. If a VECP submitted by the Contractor 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, the Contractor shall share in savings realized by the Government in accordance with the following provisions:

(1) Instant contract.

(i) Definitions.

(A) Instant contract savings to the Contractor (ICS) is the unit cost reduction times the number of units affected in the instant contract. The proposed unit cost reduction includes estimated allowable Contractor development and implementation costs (CC). The Contractor's development and implementation costs include any subcontractor development and implementation costs and any subcontractor incentive payments (see (h) below). For purposes of this clause, Contractor development costs are those costs incurred after the Contractor has identified a specific VE project and prior to acceptance by the Government.

(B) Government Costs (GC) are those which directly result from development and implementation of the VECP, such as test and evaluation of the VECP, and any in

creased costs in DOT operations, maintenance, and logistic support.

(ii) Calculations and actions.

(A) If there is a reduction in costs, reduce the total target cost of items affected by the VECP by ICS. If there is an increase in cost, see (E) below.

(B) If ICS exceeds GC, add 35% (20% if this is a VE Program Requirement Change (VEPRC)) of the excess to total target profit relating to such items.

(C) If GC exceeds ICS, but acceptance of the VECP is still desirable due to concurrent or future savings, do not adjust total target profit relating to such items, and offset the amount by which GC exceeds ICS against concurrent or future contract savings.

(D) Subtract 65% (80% if this is a VEPRC) of ICS from the maximum dollar limit on the total final price of such items.

(E) If the Contractor cost of developing and implementing the VECP would result in an increase in the instant contract target cost, but the VECP is still desirable due to concurrent or future savings, equitably adjust the total target costs, total target profit and maximum dollar limit on the total final price of the items affected by the VECP in accordance with the "Changes" clause. Offset this increase and any GC against concurrent or future savings.

(F) See (e)(3)(ii) for those actions to be taken when a future contract is expected. (2) Concurrent contracts.

(i) If the VECP accepted under this contract is also used on concurrent contracts of the purchasing office for essentially the same items the Contractor shall be paid a share of any savings as calculated in (ii) below.

(ii) Calculations.

(A) Determine the reduction in the price of each concurrent contract(s) as a result of incorporating the VECP.

(B) Subtract from the total amount in (A) any government costs not yet offset (if GC was greater than ICS) in (e)(1)(ii) (C) or (E) above, and any increase in the instant contract price, i.e., if ICS was negative in (e)(1)(ii)(E). If the resulting number is positive, multiply it by 35% (20% if VEPRC). Add this amount to the instant contract as a separate line item independent of the incentive sharing arrangement and without adjustment to any of the contract incentive parameters.

(3) Future contracts.

(i) Definition. The term unit cost reduction for future contract sharing shall be the unit cost reduction under this instant contract without deducting any cost of development or implementation.

(ii) If the VECP accepted under this contract is used on future purchases of essentially the same item by the purchasing

office, or its successor, the Contractor shall share in the savings on all affected end items scheduled for delivery not later than 3 years after acceptance of the first item incorporating the VECP, or until the originally scheduled delivery date of the last affected end item under the instant contract, whichever is later. When sharing on future contracts is expected, the Contractor shall be responsible for the following:

(A) Maintaining records adequate to support identification of the first delivered unit to which the VECP applies. These records are considered an integral part of contract documentation and shall be maintained for a period of three years after final payment on the contract under which the VECP was accepted.

(B) Annotating the receiving report or invoice, which applies to the initial unit covered by the VECP with the following statement:

"This is the initial unit delivered which incorporates VECPP No. Contract Modification No. ——, dated

(iii) Calculations. At the time each eligible future contract is awarded:

(A) Determine the number of units scheduled to be delivered prior to expiration of the Contractor sharing period determined in (ii) above. Multiply this by the unit cost reduction as defined in (e)(3)(i).

(B) Subtract from the total amount in (A) any government costs or instant contract increases not yet offset in (e)(1)(ii) (C) or (E) or in (e)(2)(ii)(B), or in other contracts awarded since acceptance of the VECP. If the resulting number is positive, multiply it by 35% (20% if VEPRC). Add this amount to the instant contract as a separate line item independent of the incentive sharing arrangement and without adjustment to any of the contract incentive parameters.

(4) Collateral savings. If an accepted VECP results in a measurable net reduction in the agency's overall documentable projected costs of maintenance, operation, logistics support or Government-furnished property, which exceeds any increase in costs attributable to incorporation of such VECP, including acquisition costs, the contract shall be increased by twenty percent (20%) of the projected net reduction in ascertainable collateral costs (i.e., savings determined to be realized during an average year of use of the item in which the change is incorporated), and, if applicable, of the actual savings accruing from a change or reduction of Government-furnished property under the instant contract. Add this amount to the instant contract as a separate line item independent of the incentive sharing arrangement and without adjustment to any of the contract incentive parameters. However, such increase representing the Contractor's share of collateral savings shall, in no event, exceed the price of this

contract or $100,000, whichever is greater. The determination of the amount of collateral savings, if any, will be made solely by the Government and shall not be subject to the "Disputes" clause of this contract. In all cases, degradation of performance, service life, or capability shall be a consideration in the determination of actual savings to the agency.

(End of clause paragraph)

(3) Fixed-price incentive (successive target) contracts. Substitute the following "sharing" provision for paragraph (e) of the clause in paragraph (a)(1) of this section:

(e) Sharing. If a VECP submitted by the Contractor pursuant to this clause and affecting any of the items described in paragraph (a) of the "Incentive Price Revision (Successive Target)" clause of this contract is accepted, the Contractor shall share in savings realized by the Government in accordance with the following provisions: (1) Instant contract.

(i) Definitions.

(A) Instant contract savings to the Contractor (ICS) is the unit cost reduction times the number of units affected in the instant contract. The proposed unit cost reduction includes estimated allowable Contractor development and implementation costs (CC). The Contractor's development and implementation costs include any subcontractor development and implementation costs and any subcontractor incentive payments (see (h) below). For purposes of this clause, Contractor development costs are those costs incurred after the Contractor has identified a specific VE project and prior to acceptance by the Government.

(B) Government Costs (GC) are those costs which directly result from development and implementation of the VECP, such as test and evaluation of the VECP, and any increased costs in DOT operations, maintenance and logistics support.

(ii) Calculations and actions.

(A) If the VECP is accepted and applied to this contract before the establishment of a firm fixed price in accordance with paragraph (c) of the "Incentive Price Revision (Successive Targets)" clause of this contract:

(I) If there is a reduction in cost, reduce the then total target cost of items affected by the VECP by ICS. If there is an increase in cost see (V) below.

(II) If ICS exceeds GC, add 35% (20% if this is a VE Program Requirements change (VERPC)) of the excess to the then target profit relating to such items (if a firm profit adjustment formula is established in accordance with paragraph (a) of the "Incentive Price Revision (Successive Targets)" clause