1. Whereas, the Government, represented by various Contracting Officers of the Department of the has entered into certain contracts and purchase orders with the XYZ Corporation, [namely: ----] or [as set forth in the attached list marked "Exhibit A" to this agreement and herein incorporated by reference;] and the term "the Contracts" as hereinafter used means the above contracts and purchase orders, and all other contracts and purchase orders, including modifications thereto, entered into between the Government, represented by various Contracting Officers of the Department of the and the Con

tractor (whether or not performance and payment have been completed and releases executed, if the Government or the Contractor has any remaining rights, duties, or obligations thereunder);

2. Whereas, the XYZ Corporation, by an amendment to its certificate of incorporation, dated has changed its corporate name to ABC Corporation;

3. Whereas, a change of corporate name only is accomplished by said amendment, so that rights and obligations of the Government and of the Contractor under the Contracts are unaffected by said change; and

4. Whereas, there has been filed with the Government documentary evidence of said change in corporate name;

Now therefore, in consideration of the premises, the parties hereto agree that the Contracts covered by this agreement are hereby amended by deleting therefrom the name "XYZ Corporation" wherever it appears in the Contracts and substituting therefor the name "ABC Corporation."

In witness whereof, each of the parties hereto has executed this Agreement as of the day and year first above written.

§ 1.1604 Novation agreements and change of name agreements affecting more than one department.

(a) When more than one department has outstanding contracts with the contractor or contractors seeking a novation or change of name agreement, a single agreement covering all such contracts will be executed by the department having the largest unsettled (unbilled plus billed but unpaid) dollar balance with the contractor or contractors. Such agreements shall be executed at a level no lower than that of a head of a procuring activity.

(b) The department processing a proposed novation agreement shall promptly provide notice of the proposed agreement, including a list of the contracts involved, to the other departments having contracts with the contractor concerned. Such notice shall be transmitted, as appropriate, to the following: The Directorate of Procurement, ASA (I & L), Department of the Army, Washington, D.C., 20310, Attn: Chief, Contracts Division; Department of the Navy, Office of Naval Material, Attn: M36, Washington, D.C., 20360; Department of the Air Force, Headquarters, Air Force Systems Command (SCMKP), Andrews Air Force Base, Md., 20331; Defense Supply Agency, Directorate of Procurement and Production, Washington, D.C., 22314. Within 30 days after receipt of such notice, the department may submit comments to the processing department, which shall be considered prior to execution of the proposed agreement. The absence of comment from a department within 30 days after its receipt of notice of a proposed novation agreement shall be construed as approval by that department.

(c) Where substantial alterations or additions to the formats set forth in §§ 1.1602 (c) and 1.1603(b) are considered appropriate by the department processing the proposed agreement, that department shall coordinate the agreement with the other departments prior to execution. Any objections shall be resolved before the agreement is executed.

(d) Copies of executed novation agreements or change of name agreements shall be distributed by the processing department, or by the contractor if

agreed to by him, to the other departments concerned (see paragraph (b) of this section for addresses) in the following quantities:

(1) 2 copies for each Department of the Army contract,

(2) 5 copies for each Department of the Navy contract,

(3) 5 copies for each Department of the Air Force contract, and

(4) 2 copies for each Defense Supply Agency contract.

(e) Novation agreements and change of name agreements amending contracts for the storage of household goods entered into pursuant to Commercial Warehousing and Related Services for Household Goods of Military Personnel (DOD Regulation 4145.16-R) shall be forwarded by household goods field officers to the Commander, Defense Traffic Management Service (DSA), Attn: HO, Washington, D.C., 20305, for appropriate execution and distribution. Distribution of novation agreements and change of name agreements will be made by DSA/DTMS, in coordination with the military services, without regard to paragraph (d) of this section.

[29 F.R. 2823, Feb. 29, 1964, as amended at 29 F.R. 9748, July 21, 1964]

Subpart Q-Value Engineering SOURCE: The provisions of this Subpart Q appear at 29 F.R. 2824, Feb. 29, 1964, except as otherwise noted.

§ 1.1701 Policy.

(a) General. Value engineering is concerned with elimination or modification of anything that contributes to the cost of an item but is not necessary to required performance, quality, maintainability, reliability, standardization, or interchangeability. Value engineering usually involves an organized effort directed at analyzing the function of an item with the purpose of achieving the required function at the lowest overall cost. As used in this subpart, "value engineering" means a cost reduction effort not required by any other provision of the contract. It is the policy of the Department of Defense to incorporate provisions which encourage or require value engineering in all contracts of sufficient size and duration to offer reasonable likelihood for cost reduction. Normally, however, this likelihood will not be present in contracts for architectengineering, research, or exploratory

development. Value engineering contract provisions are of two kinds:

(1) Value engineering incentives which provide for the contractor to share in cost reductions that ensue from change proposals he submits; and

(2) Value engineering program requirements which obligate the contractor to maintain value engineering efforts in accordance with an agreed program, and provide for limited contractor sharing in cost reductions ensuing from change proposals he submits.

(b) Processing value engineering change proposals. In order to realize the cost reduction potential of value engineering, it is imperative that value engineering change proposals be processed as expeditiously as possible. [29 F.R. 11814, Aug. 19, 1964]

§ 1.1702 Value engineering incentives. § 1.1702-1 Description.

Many types of contracts, when properly used, provide the contractor with an incentive to control and reduce costs while performing in accordance with specifications and other contract requirements. However, the practice of reducing the contract price (or fee, in the case of cost-reimbursement type contract) under the "Changes" clause tends to discourage contractors from submitting cost reduction proposals requiring a change to the specifications or other contract requirements even though such proposals could be beneficial to the Government. Therefore, the objective of a value engineering incentive provision is to encourage the contractor to develop and submit to the Government cost reduction proposals which involve changes in the contract specifications, purchase description, or statement of work. Such changes may include the elimination or modification of any requirements found to be in excess of actual needs regarding for, example, design, components, materials, material processes, tolerances, packaging requirements, or testing procedures and requirements. If the Government accepts a cost reduction proposal through issuance of a change order, the value engineering incentive provision provides for the Government and the contractor to share the resulting cost reduction in the proportion stipulated in the value engineering incentive provision.

§ 1.1702-2 Application.

(a) Except as limited by § 1.1702–3, a value engineering incentive provision shall be included in all advertised and negotiated procurements in excess of $100,000 unless (a) a value engineering program requirement is included in the contract in accordance with § 1.1703-2, or (b) the head of the procuring activity has determined that value engineering offers no potential for cost reduction, as, for example, where a particular contract or class of contracts is of insufficient duration to allow value engineering proposals to be processed, or where the item or class of items being procured is a commercial product whose design and cost are controlled by the commercial market. Value engineering incentive provisions also may be included in contracts of less than $100,000 at the discretion of the contracting officer.

(b) Contract clauses providing for value engineering incentives are set forth in § 1.1705.

(c) The precise extent to which the contractor should share in cost reductions must be tailored to the particular procurement. For advertised contracts, the percentage of contractor sharing shall be stated in the "Value Engineering Incentive" clause in the invitation for bids. For negotiated contracts, the percentage of contractor sharing shall be stated in the solicitation, although this percentage may be a subject of negotiation prior to award. In two-step formal advertising, although discussion of the appropriate percentage of contractor sharing is permissible in connection with the first step, a single percentage shall be stipulated in the invitation for bids that is issued at the beginning of the second step. In the case of firm fixedprice contracts, fixed-price contracts providing for escalation, and fixed-price contracts providing for prospective redetermination, the contractor's share in any cost reduction normally should be 50 percent and in no event greater than 75 percent. However, if such contracts are not awarded on the basis of adequate price competition, a contractor's share of less than 50 percent may be appropriate. In the case of an incentive type contract, if it is determined that reasonable certainty exists that cost savings can be accurately estimated, the contractor's share may be up to 50 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.

(d) When a value engineering incentive is to be included in a contract that also will 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) Since the value engineering incentive clause does not require the contractor to perform value engineering, it is intended that the inclusion of the value engineering incentive clause in itself will not 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 analysis is required, cost allowability will be determined in accordance with normal application of the principles and the procedures provided in Part 15 of this chapter. Accordingly, where a contractor already has a value engineering program, the Government will bear a reasonable and allocable share of the cost of this program, but inordinate value engineering cost increases incurred solely because of inclusion of the clause shall not be allowed. Similarly, where a contractor does not have a value engineering program in existence, proper allocable costs of instituting a reasonable value engineering program are allowable.

§ 1.1703 Value engineering program requirements.

§ 1.1703-1 Description.

A value engineering program requirement is a contract provision that obligates the contractor to engage in a program requiring a specified level of value engineering effort. It differs from a value engineering incentive in that the scope and level of effort required by the Government are specifically stated as an item of work in the contract schedule. It also differs in that benefits are expected to result not only from the development of specific cost reduction change proposals, but from a continuous value engineering effort by the contractor in all or selected phases of contract performance and from the submission to the Government of reports reflecting the results of such effort. The principal goal of a value engineering program requirement is to realize the potentialities of value engineering, insofar as practicable, at a time when it will do the most good, i.e., in the initial stages of the design-development-production cycle, so that specifications, production drawings and methods will reflect the full benefit of value engineering as early as possible. The particular value engineering program to be required should be tailored to the particular contract situation with a view toward this goal, and shall be set forth in the contract schedule as a line item. The "Value Engineering Program Requirement" clause provides for contractor sharing in savings ensuing from the adoption of resulting change proposals.

§ 1.1703-2 Application.

(a) Except as limited by § 1.1703-3, a value engineering program requirement shall be included in each cost-plusfixed-fee contract in excess of $1,000,000, unless the head of the procuring activity has determined that the potential for cost reduction does not justify the effort involved in the establishment of a special value engineering program. In addition, a value engineering program requirement may be included in cost-plusincentive fee contracts in excess of $1,000,000, if the contracting officer determines that the lack of a firm specification, precise purchase decription or detailed statement of work would be likely to render a value engineering incentive provision incapable of realizing

the contract's potential for value engineering cost reduction. Under these same conditions, a value engineering program requirement may also be substituted for a value engineering incentive provision in a fixed-price type contract if approved by the head of the procuring activity or his designee. If a value engineering program requirement is otherwise applicable, it may be included in contracts of less than $1,000,000.

(b) Contract clauses providing for a value engineering program are set forth in § 1.1706.

(c) When a value engineering program requirement is included, the precise extent to which the contractor should share in cost reductions ensuing from the adoption of any acceptable change proposal must be tailored to the particular procurement situation. The 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.

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.

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

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

(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 re