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CONTRACT CLAUSES AND SOLICITATION PROVISIONS

(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 DoD which directly result from development

and implementation of the VECP, such as test and evaluation of the VECP, and

any increased costs in DoD 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 concur

rent 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 con

tract 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 cost, 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. 1 (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 I instant contract as a separate line item independent of the incentive sharing ar

rangement and without adjustment to any of the contract incentive paramenters. (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,

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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 DD Form 250, Material Inspection and Receiving Report, 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
(ii) 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 arrange

ment 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 cognizant Military Department's overall documentable projected costs of maintenance, operation, lo gistic 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 Military Department. (1976 JUL)

(End of clause paragraph)

(a)(3) In fixed-price incentive (successive target) contracts, substitute the following “Sharing” provision for paragraph (e) of the clause in (1) above.

(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 DoD costs which directly result from

development and implementation of the VECP, such as test and evaluation of

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ARMED SERVICES PROCUREMENT REGULATION

CONTRACT CLAUSES AND SOLICITATION PROVISIONS

the VECP, and any increased costs in DoD operations, maintenance and logistic

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 Revi-
sion (Successive Targets)" clause of this contract:
(1) If there is a reduction in cost, reduce the then total target cost of items af-

fected by the VECP by ICS. If there is an increase in cost sec (V) below.
(II) If ICS exceeds GC, add 35% (20% if this is a VE Program Requirements

change (VEPRC)) 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 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 con

current 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 ac

cordance with paragraph (c) of the “Incentive Price Revision (Successive Tar-
gets)" clause of this contract:

(1) 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 con

current 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 (c)(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:

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(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 DD Form 250, Material Inspection and Receiving Report, which

applies to the initial unit covered by the VECP with the following statement: “This is the intital 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)(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 contract in

centive parameters. (4) Collateral Savings. If an accepted VECP results in a measurable net reduction in the cognizant Military Department'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,

a

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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 Military Department. (1976 JUL)

(End of clause paragraph)

(a)(4) In accordance with 1-1704.4, substitute the following provisions for paragraph (e)(3) “Future Contracts” of the clause in (1) above 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 develop

ment 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 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)

(a)(5) With respect to the future contract sharing provisions paragraph (e)(3) of the clause in (1) above, or as those provisions may be modified by the lump sum provisions in (4) above, when, in the judgment of the Contracting Officer, 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:

(i) 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 implementation) 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 process.

(End of clause paragraph)

(a)(6) When the sharing provisions applicable to incentive contracts are to be modifird in accordance with 1-1704.1(c), clause paragraph (e) in (a)(2) or (a)(3) above, whichever is applicable, shall be further modified as follows:

(a)(6)(i) Modifications to clause paragraph (e) of (a)(2):

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