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 significant 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 appropriately. 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 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 requirement.

(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.

§ 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:

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

(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).

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.

§ 12-1.5302 Solicited refunds.

Voluntary refunds may be requested during or after contract performance. They shall be requested only when it is considered that the Government was overcharged under a contract or was inadequately compensated for the use of Government-owned property, or in the disposition of contractor inventory, retention by the contractor or subcontractor of the amount in question would be contrary to good conscience and equity. Generally, retention by the contractor or subcontractor shall not be considered contrary to good conscience and equity, and thus a voluntary refund shall not be requested unless the overcharged or inadequate compensation was due, at least in part, to the fault of the contractor or subcontractor. The decision to solicit a voluntary refund shall be made by the head of the procuring activity.

§ 12-1.5303 Disposition of voluntary refunds.

(a) If a refund is offered prior to final payment, it is preferable that the contract price be appropriately modified to reflect the refund. In such a case, the amount of the refund shall be credited to the applicable appropriation cited in the contract.

(b) In cases where the refund is to be made by check rather than by an adjustment in the contract price, the check shall be made payable to the Treasurer of the United States, and shall be forwarded in accordance with the procedures of each Administration.

(a) Whenever procurement is to be made of items of equipment normally available for both lease and purchase, a determination shall be made as to whether acquisition by lease, purchase, or lease with option to purchase is most advantageous to the Government. The determination shall be supported by comparisons of costs of the various acquisition alternatives. The extent of the cost comparison required to support the determination will be a matter of judgment, depending primarily on the estimated cost of the equipment.

(b) For equipments of relatively high dollar values, considerations shall be given to including the following cost elements in the cost comparison:

(1) Purchase price delivered to the point of installation.

(2) Leasing cost including delivery charges to the Department and cost of return to the vendor.

(3) Present value of money to be used in the acquisition of the equipment. The present value computation is applicable to all costs over the life of the equipment.

(4) Maintenance costs to the Government under lease and under purchase. When maintenance is to be performed by the Government, these costs would include:

(i) Cost of direct labor.

(ii) Cost of parts and supplies, including investment costs and warehousing and distribution costs.

(iii) Cost of additional tools and repair equipment needed for maintenance of the equipment.

(iv) Cost of training maintenance personnel.

(v) Cost of repair manuals.

(vi) Cost of any applicable overhead. (5) Installation and dismantling costs.

(6) Residual value of equipment after expected use period, including possible continued use by the Government in another application or program.

(7) Operating costs (exclusive of maintenance costs) in those instances where, under the lease method, the vendor would perform part or all of the labor incident to the operation of the equipment.

(c) For equipments of small dollar value, the cost comparison can be limited to the cost of purchase and an estimate of installation and maintenance cost versus the cost of lease, as described in FPMR Subpart 101-25.5.

(a) The purchase method is preferred when all of the following conditions exist:

(1) There is little or no doubt that the equipment to be procured can be efficiently and effectively utilized, cost and other factors considered.

(2) A comparative cost analysis of the alternative methods of acquisition indicates that a cost advantage will accrue over the anticipated useful life of the equipment by using the purchase method.

(3) The capabilities of the equipment will continue to be needed and will be sufficient to satisfy the requirements of the Government, current and projected, for a period beyond the point in time at which the purchase method begins to provide a cost advantage. The possibility that future technological advances would make the selected equipment comparatively less desirable before the cost advantage point is reached should not rule out purchase if the selected equipment is expected to be able to satisfy the Government's requirements economically.

§ 12-1.5501 Description of multi-year procedure.

Multi-year procurement is a method for competitive contracting for known requirements for supplies, in quantities and total cost not in excess of planned requirements for 5 years set forth in approved programs, even though the total funds ultimately to be obligated by the contract are not available to the contracting officer at the time of entering into the contract. Under this method, contract quantities are budgeted for and financed in accordance with the program year for

which each quantity is authorized. This procedure provides for solicitation of prices based either on award of the current 1-year program quantity only, or, in the alternative, on the total multi-year quantities. Award is made on whichever of these two alternative bases reflects the lowest unit prices to the Government. If award is made on the multi-year basis, funds are obligated only for the first year's quantity, with succeeding years' contract quantities funded annually thereafter. In the event funds are not made available to support one or more succeeding year's quantities, cancellation is effected. The contractor is protected against loss resulting from cancellation by contract provisions allowing reimbursement of unrecovered nonrecurring costs included in prices for canceled items.

(a) Nonrecurring costs are distributed over a larger number of units, thus narrowing any price advantage of a firm already in production;

(b) There is greater assurance of depreciation recovery for capital investment; and

(c) The competitive base is broadened with better prospects for lower prices, where firms otherwise might be unwilling or unable to compete.

§ 12-1.5502-3 Cost savings factors to consider.

Another major objective is to obtain lower prices in those procurements which do not necessarily involve high startup cost but which do provide opportunity for substantial cost savings and other advantages through assurance of continuity of production over longer periods of time. In determining whether substantial cost savings and related advantages can be realized, consideration may be given to wheth

er:

(a) Production or performance closeout or shut-down costs, including employee severance pay, represent a substantial cost contingency in prices quoted on only 1 year's program;

(b) Stabilization of work forces will provide greater assurance of sustaining and improving production efficiency and quality;

(c) Substantial cost and quality advantage will accrue through avoidance of the possible need for establishing and "proving out" quality control techniques and procedures for a new contract each year;

(d) Costly preproduction or pilot testing will be avoided;

(e) The ability to recruit and retain highly skilled personnel will be enhanced through assurance to employees of longer periods of employment than would be the case in single-year procurement, thereby avoiding costs of repeated training of new personnel;

(f) The ability to vary production rates during peak and off-peak periods in each program year will result in economies; and

(g) Substantial in-house savings in maintenance and supply operations will accrue from standardization of supplies accomplished by procurement