of this contract, the above percentage may be modified for application to VE cost reduction proposals, submitted pursuant to this clause, which are accepted under this contract after the establishment of said formula).

(III) If GC exceeds ICS, but acceptance of the VECP is still desirable due to concurrent or future savings, do not adjust the then target profit, and offset the amount GC exceeds ICS against concurrent or future contract savings.

(IV) Subtract 65% (80% if this is a VEPRC) of ICS from the maximum dollar limit on the total final price of such items. (V) If the Contractor cost of developing and implementing the VECP would result in an increase in the then instant contract target cost, but the VECP is still desirable due to concurrent or future savings, equitably adjust the then total target cost, the then target profit, and the then 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. (If a firm profit adjustment formula is established in accordance with paragraph (a) of the "Incentive Price Revision (Successive Targets)" clause of this contract, and the VECP significantly increases the target cost, the above percentage may be modified for application to the VECPS, submitted pursuant to this clause, which are accepted under this contract after the establishment of said formula.)

(B) If the VECP is accepted after the establishment of a firm fixed price in accordance with paragraph (c) of the "Incentive Price Revision (Successive Targets)" clause of this contract.

(I) Calculate GC and ICS.

(II) If ICS exceeds GC, calculate 50% (Government share) of the sum of ICS and GC, i.e. (.5 (ICS plus GC)), unless this is a VE Program Requirement change (VEPRC), in which case calculate (.75 ICS plus .25 GC). In either case, subtract the result from the contract price.

(III) 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.

(IV) 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.

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

(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)(A) (III) or (V) or (e)(1)(ii)(B) (III) or (IV) above, and any increase in the then instant contract target cost, i.e., if ICS was negative in either (e)(1)(ii)(A)(V) or (e)(1)(ii)(B)(IV). If the resulting number is positive, and the VECP was accepted under paragraph (e)(1)(ii)(A) multiply it by 35% (20% if this is a 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. If the resulting number is positive, but the VECP was accepted under paragraph (e)(1)(ii)(B), multiply it by 50% (25% if this is a VEPRC), and add this amount to the instant contract price.

(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 three 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 Modi

fication 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)(A) (III) or (V), or (e)(1)(ii)(B) (III) or (IV), or in (e)(2)(ii)(B), or in contracts awarded since acceptance of the VECP. If the resulting number is positive, and the VECP was accepted under paragraph (e)(1)(ii)(A), multiply it by 35% (20% if this was a VEPRC). If the resulting number was positive, but the VECP was accepted under paragraph (e)(1)(ii)(B), multiply it by 50% (25% if this was a VEPRC). In either case, add the amount to the instant contract as a separate line item independent of the incentive sharing arrangement and without adjustment to any of the contracts 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, 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. 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)

(4) Lump sum method of payment for future contract sharing. In accordance with § 12-1.5203-4 substitute the following provisions for paragraph (e)(3) "Future Contracts" of the clause in paragraph (a)(1) of this section for use of the Lump Sum Method

of payment for future contract sharing:

(3) Future contracts (lump sum). (i) Definition. The term unit cost reduction for lump sum sharing purposes shall be the unit cost reduction under this instant contract without deducting any cost of development or implementation.

(ii) If a VECP accepted under this contract is expected to be used on future purchases of essentially the same item by the purchasing office, or its successor, the Contractor shall share in the savings on the purchases which the purchasing office estimates will be delivered not later than three 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.

(iii) Lump sum base. The number of items the Government estimates will be delivered during the period specified in (ii) above is (insert the number of units).

(iv) Calculations and actions.

(A) Multiply the unit cost reduction in (i) by the number of units specified in (iii) above.

(B) Subtract from the total amount in (A) any Government costs (GC) not yet offset (if GC was greater than ICS) and any increase in the increase in the instant contract price, i.e., if ICS was negative. If the resulting number is positive, multiply it by the Contractor percentage share. Add this amount to the instant contract.

(End of clause paragraph)

(5) Future contract sharing provisions. With respect to the future contract sharing provisions paragraph (e)(3) of the clause in paragraph (a)(1) of this section, or as those provisions may be modified by the lump sum provisions in paragraph (a)(4) of this section, when, in the judgment of the Contracting Office, the unit costs under the instant contract will not be fairly representative of the unit costs to be expected under future contracts due for example to learning curve application (as will generally be the case with developmental or design contracts and may be the case with early production contracts), the definition in paragraph (e)(3)(i) shall be changed as follows:

(1) Definition. The term "unit cost reduction" for future contract purposes shall be the average amount of the decrease in unit cost of performance (without deducting any Contractor costs of development or imple

mentation) which the Contracting Officer estimates will result from utilization of the VECP on future purchases of the item. The item for design contracts will be the item to be produced as a result of the design proc

ess.

(End of clause paragraph)

con

(6) Modification of sharing provisions applicable to incentive tracts. When the sharing provisions applicable to incentive contracts are to be modified in accordance with 121.5203-1(c), clause paragraph (e) in paragraph (a)(2) or (a)(3) of this section, whichever is applicable, shall be further modified as follows:

(i) Modifications to clause paragraph (e) of paragraph (a)(2) of this section: (A) Change clause paragraph (e)(1)(ii) to provide substantially as follows:

(ii) If the cost reduction proposal submitted pursuant to this clause involves an anticipated decrease in the cost of performance of this contract and is accepted by the Government, the parties agree that neither the target cost, target profit, nor ceiling price of the instant contract shall be adjusted by reason of the acceptance of such proposal. The new requirement will be incorporated into the contract by a contract modification which will state that it is made pursuant to this Value Engineering clause. When the cost of performance of this contract is increased as a result of the changes, the equitable adjustment increasing the contract price shall be in accordance with the "Changes" clause rather than under this clause, but the resulting contract modification will state that it is made pursuant to this clause.

(End of clause paragraph)

(B) Change clause paragraph (e)(2)(ii)(B) to provide substantially as follows:

(B) Subtract from the total amount in (A) any government costs not yet offset and any increase in the instant contract price. 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.

(End of clause paragraph)

(C) Substitute the definition in paragraph (a)(5) of this section for the definition in clause paragraph (e)(3)(i).

(D) Change clause paragraph (e)(3)(iii)(B) to provide substantially as follows:

(B) Subtract from the total amount in (A) any government costs or instant contract increases not yet offset. 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.

(End of clause paragraph)

(ii) Modifications to clause paragraph (e) of paragraph (a)(3) of this section.

(A) Change clause paragraph (e)(1)(ii)(A) to provide substantially as follows:

(A) If the cost reduction proposal submitted pursuant to this clause involves an anticipated decrease in the cost of performance of this contract and is accepted by the Government, the parties agree that neither the target cost, target profit, nor ceiling price of the instant contract shall be adjusted by reason of the acceptance of such proposal. The new requirement will be incorporated into the contract by a modification which will state that it is made pursuant to this Value Engineering clause. When the cost of performance of this contract is increased as a result of the changes, the equitable adjustment increasing the contract price shall be in accordance with the "Changes" clause rather than under this clause, but the resulting contract modofication will state that it is made pursuant to this clause.

(End of clause paragraph)

(B) Change clause paragraph (e)(2)(ii)(B) to provide susbstantially as follows:

(B) Subtract from the total amount in (A) any government costs not yet offset and any increase in the then instant contract target cost. If the resulting number is positive, and the VECP was accepted before establishment of a firm fixed price under the instant contract, multiply it by 35 percent (20 percent if this is a 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. If the resulting number is positive, but the VECP was accepted after establishment of the firm fixed price under the instant contract, multiply it by 50 percent (25 percent if this is a VEPRC), and add this amount to the instant contract price.

90-140 0-82--8

(End of clause paragraph)

(C) Substitute the definition in paragraph (a)(5) of this section for the definition in clause paragraph (e)(3)(1).

clause

(D) Change paragraph (e)(3)(iii)(B) to provide substantially as follows:

(B) Subtract from the total amount in (A) any government costs or instant contract increases not yet offset. If the resulting number is positive, and the VECP was accepted before establishment of the firm fixed price under the instant contract, multiply it by 35 percent (20 percent if this was a VEPRC). If the resulting number is positive, but the VECP was accepted after establishment of the firm fixed price under the instant contract, multiply it by 50 percent (25 percent if this was a VEPRC). In either case, add the 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.

(End of clause paragraph)

(b) Value engineering program requirement. In accordance with § 12-1.5206 insert the following revised contact clause title and paragraph (a) of the clause in paragraph (a)(1) of this section:

VALUE ENGINEERING PROGRAM REQUIREMENT

(a) The Contractor shall engage in a value engineering program in accordance with requirements specified by the Contracting Officer, shall submit progress reports thereon as specified in the contract and shall submit to the Contracting Officer any value engineering change proposals (VECPS) resulting from the required program. This clause applies to all VECPS developed by the Contractor unless the Contracting Officer determines the proposal to be rewardable under the "Value Engineering Incentive" clause (if any) of this contract, which:

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

(ii) Reduce the overall costs to the cognizant agency, without impairing essential functions or characteristics, Provided, that they are 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.

In accordance with DOTPR 12-1.55 insert the following clauses:

LIMITATIONS OF PRICE AND CONTRACTOR
OBLIGATIONS

(a) This clause applies only in the event this contract is awarded on the alternative basis for award described in the Schedule as "Multi-Year Procurement."

(b) Funds are available for performance of this contract in the amount specifically described in the Schedule, as available for contract performance. The amount of funds so described at the time of award is not considered sufficient for the contract performance required by and described in the Schedule for any Program Year other than the First Program Year. Upon availability to the Contracting Officer of additional funds sufficient for performance of the full requirements for the next succeeding Program Year, the Contracting Officer shall, not later than the date specified in the Schedule, unless a later date is agreed to by the parties, so notify the Contractor in writing and the amount of funds described in the Schedule as available for contract performance shall be modified accordingly. This procedure shall apply for each successive Program Year.

(c) The Government is not obligated to the contractor for contract performance in any monetary amount in excess of that described in the Schedule or modifications thereto, as available for contract performance.

(d) The Contractor is not obligated to incur costs for the performance required for any Program Year after the first and until he has been notified in writing by the Contracting Officer of an increase in availability of funds in accordance with paragraph (b) of this clause. If so notified, the Contractor's obligation shall be increased only to the extent contract performance is required for the additional Program Year for which funds have been made available.

(e) In the event of termination pursuant to the "Termination for Convenience of the Government" clause of this contract, the term "total contract price" as used in that clause refers to the amount available for performance of this contract, as provided

for in this clause, plus the applicable amount established as the cancellation ceiling, and the term "work under the contract" as used in that clause refers to the work under Program Year requirements for which funds have been made available. In the event of termination for default, the Government's rights under this contract shall apply to the entire multi-year requirements.

(f) Notification to the Contractor of an increase or decrease in the funds available for performance of this contract as a result of a clause other than this clause (e.g., exercise of an option for increased quantities or the "Changes" clause) shall not constitute the notification contemplated by paragraph (b) of this clause.

(End of clause)

CANCELLATION OF ITEMS

(a) This clause applies only in the event this contract is awarded on the alternative basis for award described in the Schedule as "Multi-Year Procurement."

(b) As used herein, the term "Cancellation" means that the Government is cancelling, pursuant to this clause, its Program Year requirements for items set forth in the Schedule for all Program Years subsequent to that in which notice of cancellation is provided. Such cancellation shall occur only if, by the date or within the time period specified in the Schedule, or such further time as may be agreed to, the Contracting Officer: (i) Notifies the Contractor that funds will not be available for contract performance for any subsequent Program Year; or (ii) fails to notify the Contractor that funds have been made available for performance of the Program Year requirement for the succeeding Program Year.

(c) Except for cancellation pursuant to this clause or for termination pursuant to the "Default" clause, any reduction by the Contracting Officer in the quantities called for under this contract shall be considered a termination in accordance with the "Termination for Convenience of the Government" clause of this contract.

(d) In the event of cancellation pursuant to this clause, the Contractor will be paid, as consideration therefor, a cancellation charge not to exceed the cancellation ceiling described and separately set forth in the Schedule as being applicable at the time of cancellation.

(e) The cancellation charge is intended to cover (i) only costs reasonably necessary for production which would have been equitably amortized in the unit prices for the entire multiyear contract period, but which, because of the cancellation, are not so amortized and (ii) a reasonable profit on such costs. The cancellation charge shall be computed and claim therefor made as would be

applicable under the "Termination for Convenience of the Government" clause of this contract. The Contractor shall submit the claim promptly but in no event later than one year (i) from the date of notification of the nonavailability of funds, if issued pursuant to paragraph (b)(i), or (ii) from the date specified in the Schedule by which notification of the availability of additional funds for the next succeeding program year is required to be issued, whichever is earlier, unless one or more extensions in writing are granted by the Contracting Officer, upon request of the Contractor made in writing within such one year period or authorized extension thereof. The claim may include reasonable preproduction and other nonrecurring costs, incurred by the prime contractor of his subcontractor, applicable to and which normally would be amortized in all items to be furnished under the multiyear requirements, such as plant rearrangement, special tooling, preproduction engineering, initial rework, initial spoilage and pilot runs, as well as costs not amortized by the level contract unit price solely because the cancellation had precluded anticipated benefits of Contractor or subcontractor learning. The claim shall not include any amount for:

(1) Labor, materials, or other expenses incurred by the Contractor or its subcontractors for production of cancelled items;

(2) Any item or cost for which payment has already been made to the Contractor; or (3) Anticipated profit on the cancelled items.

(End of clause)

Where options are otherwise authorized, multiyear contracts may include an appropriate "Option to Increase Quantities" clause in which the period for exercise of the option is limited to the date set forth in the contract Schedule for notifying the contractor that funds are available for the requirements of the next succeeding program year. If such an option is inIcluded, the following paragraph (f) should be added to the clause set forth above.

(f) The Contractor agrees not to include in the price for option quantities any costs of a startup or nonrecurring nature, which costs have been fully provided for in the unit prices of the firm quantities of the Program Years, and further agrees that the prices offered for option quantities will reflect only those recurring costs, and a reasonable profit thereon, which are necessary to further the additional option quantities. Therefore, any quantities added to the original contract quantities through exer