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(c) In all cases, the contractor's quirements and specifications (such as share in overall cost savings resulting packaging specifications); and from the Government's acceptance of (8) Contract for personal services. a VECP shall be determined as provided in the VE Incentive clause.

§ 12-1.5202-3 Value engineering clauses.

In accordance with this Subpart 12§ 12-1.5202-2 Use of value engineering in

1.5202 and 12-1.5206, the VE clauses centive clause.

set forth in $ $ 12-7.151-13, 12–7.251-9 (a) Except as provided in paragraph and 12-7.651-16 are to be used as ap(b) of this section, a VE incentive plicable. clause shall be included in all advertised and negotiated supply and serv. 12-1.5202-4 Types of savings to be ice contracts, and construction con shared with the contractor. tracts in excess of $100,000, unless it is

(a) There are two types of savings to determined by the contracting officer

be shared between the Government that VE offers no potential for cost re

and the contractor. These are acquisiduction, as for example, where a par

tion savings and collateral savings. ticular contract or class of contracts is

(b) Acquisition savings are those of insufficient duration to allow

which accrue from the net reduction VECPs to be processed, or where the

in the contract price for supplies, servitem or class of items being procured is

ice and construction. Acquisition sava commercial product whose design

ings may include instant, concurrent and cost are primarily controlled by

and future savings. the commercial market. A VE clause

(1) “Instant contract savings” are should be included in contracts under

those net measurable reductions in $100,000 if the contracting officer

the price of the contract under which foresess a potential for significant sav

a VECP has been submitted by the ings.

contractor and accepted by the Gov(b) Normally, a VE incentive clause

ernment. In the case of requirments or shall not be included in the following

other indefinite delivery type contype contracts unless the contracting

tracts, basic ordering agreements, officer affirmatively determines that

multi-year contracts, fixed-price conthe contract has a clear potential for

tracts providing for prospective price VE cost savings and that a VE incen

redetermination, or contracts in which tive clause will provide the effective

supplemental agreements or other stimulus to the contractor:

modifications increase the quantity of (1) Contracts for research or explor

items or add items to the contract, see atory development;

paragraph (j) of the clause in § 12(2) Contract for engineering services 7.151-13(a) for the appropriate definifrom “not-for-profit” organizations;

tion of "instant contract.” (3) Cost reimbursement type con (2) "Concurrent contract savings” tracts other than cost plus incentive are those net measurable reductions in fee or cost plus award fee type con the price of a concurrent contract let tracts;

by the same procuring activity. (4) Contracts for architect-engineer (3) “Future contract savings” are services;

either those measurable net reduc(5) Contracts containing a VE Pro tions in the price of a future contract gram Requirement clause except as (other than the contract under which provided by $ 12-1.5206 below;

the VECP was accepted) or a lump (6) Contracts providing for product sum payment paid to the contractor at or component improvement unless the the time the VECP is accepted and VE incentive clause application is re- based upon estimated future applicastricted to areas not covered by provi- tions. sions for product or component im- (c) Collateral savings are those asprovement;

certainable net reductions in the Gov(7) Contracts for commercial items ernment's overall documented project(See FPR 1-3.807-1(b)(2) being pro- ed costs including but not limited to cured without invoking special re- costs of operations, maintenance, lo

(d) The method of computing a contractor's share of acquisition and collateral savings in provided in the VE clauses in DOTPR Part 7.

gistics support, and Government furnished property where such collateral savings result from a VECP submitted by the contractor. A contractor may share in collateral savings in addition to sharing in instant contract savings. However, when a contracting officer determines that there is no reasonable potential for significant collateral savings, the collateral savings provision may be omitted from the VE incentive clause.

812–1.5203-2 Sharing base.

The sharing base is defined to be the affected end items on contracts of the procurement office or its successor approving the VECP. This base may be expanded to include contracts of other procurement offices. Such expansion of the base shall be specified in the contract.

$ 12–1.5203 Sharing arrangements.

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$ 12–1.5203–3 Sharing period.

(a) 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. The contractor shall be responsible for maintaining adequate records to identify the first unit delivered which incorporates the applicable VECP. These records must be maintained for a period of three years after final payment on the contract under which the VECP was accepted. For the purpose of establishing the starting date of the sharing period, the contractor shall identify the first unit incorporating the VECP on the applicable invoice or inspection and receiving report.

(b) When the contract is for items which require an extended period of time for production (e.g., ship construction), it may be desirable to provide for future sharing on items accepted under all contracts awarded within the sharing period, even if the scheduled delivery date is outside the sharing period.


Not applicable.

(b) The contractor's share of collateral savings is 20 percent of the estimated savings to be realized during an average or typical year of use, as determined by the Procuring Activity except that such share shall not exceed the price of the contract on which the VECP is submitted or $100,000, whichever is greater.

(c) The clauses in $ $ 12-7.151-13 and 12–7.251-9 (specifically the sharing provisions of paragraph (e)), may be modified when used in incentive contracts to provide no adjustment to targets or ceilings when a VEPC is approved. This permits instant VE savings to be rewarded under the overall contract cost incentive. Appropriate substitute clause language is in 127.151-13(e) and § 12-7.251-9. Concurrent and future contract rates shall be the same as specified in (a) above, unless modified in accordance with § 12-1.5203-4(c).

8 12–1.5203-4 Methods of sharing for

future acquisitions. (a) Methods. There are two methods of sharing future acquisition savings. The clause in § 12-7.151-13(a)(1) provides for contractor sharing in savings by the procurement office, or its successor, on future purchases of essentially the same end item utilizing the VECP. Payments are not made until such future contracts are actually

unit cost target requirement, but no incentive in this regard, it may be desirable to share future VECP savings only on the amount that the achieved unit production cost is lower than the target unit production cost. If the design to cost requirement is incentivized, care should be taken to insure that no duplication in incentive awards exists, before sharing any future VECP savings.

awarded. The lump sum method, which is optional, provides for a single payment at the time of VECP approval by a contract modification, based upon estimated application of the VECP to other projected procurements by the procurement office or its successor (i.e., five-year plan, or other suitable projection). To use the lump sum method, substitute $ 12-7.15113(a)(4) for paragraph (e)(3) of the clause in § 12–7.151-13(a)(1). In deciding whether to use the lump sum method, the contracting officer shall consider:

(1) The accuracy with which the number of items to be procured during the sharing period can be estimated and the probability of actual production of the projected procurement;

(2) The availability of funds for a lump sum payment;

(3) Whether disclosure of estimated future requirements would compromise national security; and

(4) The administrative expense of using the future payment method.

(b) Calculations. The contractor's share of future acquisition savings is based upon the sharing percentage (specified in the clause), the unit cost reduction, and the number of units involved. The calculations are in the clauses in § 12-7.151-13. However, the contracting officer should carefully select the definition of the future contracts unit cost reduction to be used. Normally this is the unit cost reduction in the instant contract without considering any cost of contractor development and implementation (see paragraph (e)(3)(i) of the clauses in § 12-7.151-13(a), (1), (2), (3) or (4)). However, if significant future contract unit cost changes (e.g., item still in design or early production, or signifi. cant changes in the rate of production) are expected, it may be desirable to reflect this in the clause by substituting the definition in 12-7.15113(a)(5).

(c) Modifications for design to cost. For design and development contracts with design to cost features (e.g., future unit production cost targets or thresholds are specified), the future acquisition sharing portion of the clause should be modified appropriate ly. If the contract has a production

$ 12–1.5204 Submission and processing.

(a) Instructions for submission and processing of VECPs are provided in the clauses.

(b) The contracting officer, with the necessary technical and other support, shall be responsible for expeditiously evaluating and determining the acceptability of all VECPs submitted under a contract. The contracting officer's decision shall be final and shall not be subject to the Disputes clause of the contract.

(c) If a VECP is not accepted, the contracting officer shall notify the contractor in writing giving reason why the VECP was rejected.

(d) Before accepting a VECP which involves sharing collateral savings, the contracting officer must make sure that sufficient funds are available under the instant contract or from other sources to cover any increase in the contract price.

& 12-1.5205 Future payment funding and

notice for future acquisition contracts. The future payments will be made pursuant to the contract under which the VECP was accepted; however, they shall be funded from the appropriation supporting any succeeding conation supporting any suco tract which utilizes the VECP. In order to provide guidance on the proper citation of appropriations, insert the following notice in each contract for additional purchase of items on which future payments will be made. The notice should be inserted directly following the citation of appropriation and accounting data or, if space does not permit such insertion, the notice should be referred to there.

Notice of Value Engineering Payments. Award of this contract obligates the Government to make payments to the contrac

tor under Contract No. --.? In accordance with the Value Engineering provisions of that contract. These payments are to be made from appropriations currently available for the procurement of items under this contract. To the extent that the Government does not, in fact, receive delivery of and accept all items on which payment is made, the Government is entitled to reimbursement of a proportionate share of the payment from the contractor to whom it was paid.

8 12-1.5206 Value engineering program re

quirement. (a) The purpose of the VE program requirement clause is to apply VE methods early in the project life (i.e., in the initial stages of design development or production), so that specifications, drawings, and production methods will reflect the full benefit of VE. The clause requires the contractor to establish a VE program and engage in a sustained VE effort, as specified in the contract. The VE program requiremend shall be shown as a separately priced line item in the contract and may apply to all or to selected phases of contract performance. This clause is designed primarily for contracts covering conceptual, validation and fullscale development phases of a program. It may also be used in production or service contracts.

(b) If this clause is restricted to well defined areas of performance under the contract, a VE incentive clause consistent with $ 12-1.5202 should be included for the remaining requirements of the contract.

(1) If this is an incentive type contract, should the modified instant sharing be used? See § 12-1.5203-1(c)

(2) Should the sharing base be expanded? See § 12-1.5203-2

(3) Should the sharing period be modifed? See § 12-1.5203-3

(4) Should the lump sum method of payment be used for future acquisition sharing? See § 12-1.5203-4(a)

(5) Should the clause for future acquisition sharing be modified to reflect major differences in instant contract unit cost reduction and future contract unit cost reduction? See $ 121.5203-4(b)

(6) (Development Contracts Only) Should the future acquisition sharing be modified to accommodate design to cost requirements or incentives? See § 12-1.5203-4(c)

(7) Should collateral savings be omitted? See § 12-1.5202-4(c)

(c) In addition, should the contractor be requested to submit notification of a potential VECP prior to risking significant expenditures? (Note this can be invoked at any time during the contract). See paragraph (j)(7) of the clause in § 12-7.151-13(a)(1).

& 12-1.5207 Contracting officer decision

check list. Application of the clauses in g 127.151-13 to a specific contract requires at least two decisions by the contracting officer. Additional decisions may be made to vary the clause to fit the individual contact at hand.

(a) Mandatory decisions: Should a VE clause be used? If so, what kind? (See paragraph 12-1.5202).

(b) Additional decisions to modify coverage:

Subpart 12-1.53—Voluntary Refunds $ 12–1.5301 General.

A voluntary refund is a payment or credit, not required by any contractual or other legal obligation, made to the Government by a contractor or subcontractor either as a payment or as an adjustment under one or more contracts or subcontracts. It may be unsolicited or it may be made in response to a request by the Government. Where it is desired to solicit a voluntary refund from a subcontractor, the prime contractor should be encouraged to facilitate the making of such refund. In deciding whether to solicit a voluntary refund or to accept an unsolicited refund, the contracting officer shall ask legal counsel to review the contract or contracts and all data relevant thereto to determine whether the Government's rights would be jeopardized or impaired by the contracting officer's proposed action.

2 Insert the number of the contract under which the pertinent VE change proposal was accepted.

8 12–1.5302 Solicited refunds.

§ 12-1.5402 Telewriting equipment and Voluntary refunds may be requested

office copying machines. during or after contract performance. Guidelines for making lease/purThey shall be requested only when it chase determinations in the acquisiis considered that the Government tion of telewriting equipment and was overcharged under a contract or office copying machines are specified was inadequately compensated for the in the Federal Property Management use of Government-owned property, or

or Regulations (FPMR), Subpart 101

25.5. in the disposition of contractor inventory, retention by the contractor or

$ 12–1.5403 Automatic data processing subcontractor of the amount in ques

equipment. tion would be contrary to good con

See FPMR Part 101-32 (referred to science and equity. Generally, retention by the contractor or subcontrac

in FPR Subpart 1-4.1). tor shall not be considered contrary to

8 12-1.5404 Lease/purchase determinagood conscience and equity, and thus a

tions. voluntary refund shall not be request

(a) Whenever procurement is to be ed unless the overcharged or inad

made of items of equipment normally equate compensation was due, at least

available for both lease and purchase, in part, to the fault of the contractor

a determination shall be made as to or subcontractor. The decision to solic

whether acquisition by lease, purit a voluntary refund shall be made by

chase, or lease with option to purchase the head of the procuring activity.

is most advantageous to the Govern

ment. The determination shall be sup§ 12-1.5303 Disposition of voluntary re

ported by comparisons of costs of the funds.

various acquisition alternatives. The (a) If a refund is offered prior to extent of the cost comparison required final payment, it is preferable that the to support the determination will be a contract price be appropriately modi- matter of judgment, depending prified to reflect the refund. In such a marily on the estimated cost of the case, the amount of the refund shall equipment. be credited to the applicable appropri. (b) For equipments of relatively ation cited in the contract.

high dollar values, considerations shall (b) In cases where the refund is to

be given to including the following be made by check rather than by an

cost elements in the cost comparison: adjustment in the contract price, the

(1) Purchase price delivered to the check shall be made payable to the

point of installation. Treasurer of the United States, and

(2) Leasing cost including delivery shall be forwarded in accordance with

charges to the Department and cost of the procedures of each Administra

return to the vendor. tion.

(3) Present value of money to be used in the acquisition of the equip

ment. The present value computation Subpart 12-1.54—Acquisition of is applicable to all costs over the life

Equipment by Lease, Purchase, or of the equipment.
Lease With Option To Purchase

(4) Maintenance costs to the Gov

ernment under lease and under pur8 12–1.5401 General.

chase. When maintenance is to be perThis subpart prescribes DOT policy

formed by the Government, these and procedures with respect to deter

costs would include: mination of whether to lease, pur

(i) Cost of direct labor. chase, or lease with option to pur

(ii) Cost of parts and supplies, in

cluding investment costs and warechase, when acquiring equipment for

housing and distribution costs. Department use, where these options

(iii) Cost of additional tools and are available.

repair equipment needed for maintenance of the equipment.

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