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“FPR 1-1.310-6" shall be changed to (2) Assure contractors a substantive read "FPR 1-1.1202”.

share in cost savings, ie., a fair propor

tion of the savings applied to a subSubpart 12-1.16—Report of Identical stantial base. Bids

(3) Objectively and expeditiously process value engineering change pro

posals (VECPs) submitted by contrac8 12-1.1603 Reporting requirement.

tors. $ 12–1.1603-3 Submission of reports.

(4) Encourage subcontractor partici

pation through extension of VE incenThe report required by FPR 11.1603-3(b) shall be sent by each Ad

tives, by prime contractors, to appro

priate subcontractors. ministration directly to the Attorney General. An information copy shall be

§ 12-1.5202 Value engineering incentives. sent to the Director of Installations and Logistics, OST.

§ 12-1.5202-1 Description.

(a) The objective of a VE incentive Subpart 12-1.52—Value Engineering

provision is to encourage the contrac

tor to submit VECPs by permitting 8 12-1.5201 Policy.

the contractor to share in cost savings. (a) Value engineering (VE) is con- To be acceptable, a VECP must incerned with the elimination or modifi volve some change in the contract cation of anything that contributes to specifications, purchase description, or the cost of a contract item or task but statement of work; this may include is not necessary for needed perform the elimination or modification of any ance, quality, maintainability, reliabil. requirement found to be in excess of ity, or interchangeability. Specifically, actual needs in the areas of, for exam(VE) as contemplated by this subpart ple, design, components, materials, constitutes a systematic and creative material processes, tolerances, packag. effort, not required by any other pro- ing requirements, technical data revision of the contract, directed toward quirements, or testing procedures and analyzing each contract item or task requirements, and consequent reducto ensure that its essential function is tion in the contract cost. Furthermore, provided at the lowest overall cost. even when the contract cost may be Overall cost may include, but need not increased, the incentive provisions enbe limited to, the costs of acquiring, courage contractors to submit VECPs operating, and logistically supporting that are likely to lead to overall savan item or system. VE provisions may ings resulting from significant net rebe incorporated into a contract by ductions in collateral costs of Governusing the VE incentive clause which ment-furnished property, operational set forth the methods by which a con- requirements of logistic support retractor may propose ways to perform quirements. the contract more economically and (b) VE proposals which satisfy the share in any resulting cost saving, or above requirements shall not be rejectby using the VE program requirement ed on the ground that they also inclause which requires the contractor volve a termination, in whole or in to establish a VE program aimed at part, of contract line items; moreover, identifying more economical ways to the cost savings resulting from such perform the contract and which may quantitative reductions shall be include incentive sharing.

shared with the contractor. On the (b) In order to realize fully the cost other hand, contractor proposals saving potential of VE, it is DOT which concern the quantitative repolicy to:

quirements of the Government but do (1) Incorporate provisions which en not satisfy the above criteria are not courage or require VE into all con within the intent of the VE provisions, tracts for supplies, services and con- and the contractor will not share, struction of sufficient size and dura- under the VE Incentive clause, in sav. tion which offer reasonable likelihood ings resulting solely from such quantifor cost savings.

tative proposals.

(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 128 12–1.5202-2 Use of value engineering in

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

set forth in 88 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- 812-1.5202-4 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 sav. a 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 defini. from “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 fur nished 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.

$ 12–1.5203–2 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.

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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 pay. ment 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 de. termined 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 sav. ings to be rewarded under the overall contract cost incentive. Appropriate substitute clause language is in 8 127.151-13(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 sav 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 procure ments 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 signific 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

8 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.

8 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 contract 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. —-.2 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.

$ 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 require. ments 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).

Subpart 12-1.53—Voluntary Refunds

8 12-1.5207 Contracting officer decision

check list Application of the clauses in § 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:

8 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 volun. tary 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 offi. cer 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.

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