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"FPR 1-1.310-6" shall be changed to read “FPR 1-1.1202".

Subpart 12-1.16—Report of Identical


(2) Assure contractors a substantive share in cost savings, ie., a fair proportion of the savings applied to a substantial base.

(3) Objectively and expeditiously process value engineering change proposals (VECPs) submitted by contractors.

(4) Encourage subcontractor participation through extension of VE incentives, by prime contractors, to appropriate subcontractors.

§ 12-1.1603 Reporting requirement.

§ 12-1.1603-3 Submission of reports.

The report required by FPR 11.1603-3(b) shall be sent by each Administration directly to the Attorney General. An information copy shall be sent to the Director of Installations and Logistics, OST.

§ 12-1.5202 Value engineering incentives.

Subpart 12-1.52-Value Engineering

8 12-1.5201 Policy.

(a) Value engineering (VE) is concerned with the elimination or modification of anything that contributes to the cost of a contract item or task but is not necessary for needed performance, quality, maintainability, reliability, or interchangeability. Specifically, (VE) as contemplated by this subpart constitutes a systematic and creative effort, not required by any other provision of the contract, directed toward analyzing each contract item or task to ensure that its essential function is provided at the lowest overall cost. Overall cost may include, but need not be limited to, the costs of acquiring, operating, and logistically supporting an item or system. VE provisions may be incorporated into a contract by using the VE incentive clause which set forth the methods by which a contractor may propose ways to perform the contract more economically and share in any resulting cost saving, or by using the VE program requirement clause which requires the contractor to establish a VE program aimed at identifying more economical ways to perform the contract and which may include incentive sharing.

(b) In order to realize fully the cost saving potential of VE, it is DOT policy to:

(1) Incorporate provisions which encourage or require VE into all contracts for supplies, services and construction of sufficient size and duration which offer reasonable likelihood for cost savings.

12-1.5202-1 Description.

(a) The objective of a VE incentive provision is to encourage the contractor to submit VECPs by permitting the contractor to share in cost savings. To be acceptable, a VECP must involve some change in the contract specifications, purchase description, or statement of work; this may include the elimination or modification of any requirement found to be in excess of actual needs in the areas of, for example, design, components, materials, material processes, tolerances, packag. ing requirements, technical data requirements, or testing procedures and requirements, and consequent reduction in the contract cost. Furthermore, even when the contract cost may be increased, the incentive provisions encourage contractors to submit VECPs that are likely to lead to overall savings resulting from significant net reductions in collateral costs of Government-furnished property, operational requirements of logistic support requirements.

(b) VE proposals which satisfy the above requirements shall not be rejected on the ground that they also involve a termination, in whole or in part, of contract line items; moreover, the cost savings resulting from such quantitative reductions shall be shared with the contractor. On the other hand, contractor proposals which concern the quantitative requirements of the Government but do not satisfy the above criteria are not within the intent of the VE provisions, and the contractor will not share, under the VE Incentive clause, in savings resulting solely from such quantitative proposals.

(C) In all cases, the contractor's share in overall cost savings resulting from the Government's acceptance of a VECP shall be determined as provided in the VE Incentive clause.

quirements and specifications (such as packaging specifications); and

(8) Contract for personal services.

8 12-1.5202-3 Value engineering clauses.

In accordance with this Subpart 121.5202 and 12-1.5206, the VE clauses set forth in $$ 12-7.151-13, 12-7.251-9 and 12-7.651-16 are to be used as applicable.

8 12–1.5202-2 Use of value engineering in

centive clause. (a) Except as provided in paragraph (b) of this section, a VE incentive clause shall be included in all advertised and negotiated supply and service contracts, and construction contracts in excess of $100,000, unless it is determined by the contracting officer that VE offers no potential for cost reduction, as for example, where a particular contract or class of contracts is of insufficient duration to allow VECPs to be processed, or where the item or class of items being procured is a commercial product whose design and cost are primarily controlled by the commercial market. A VE clause should be included in contracts under $100,000 if the contracting officer foresess a potential for significant savings.

(b) Normally, a VE incentive clause shall not be included in the following type contracts unless the contracting officer affirmatively determines that the contract has a clear potential for VE cost savings and that a VE incentive clause will provide the effective stimulus to the contractor:

(1) Contracts for research or exploratory development;

(2) Contract for engineering services from “not-for-profit” organizations;

(3) Cost reimbursement type contracts other than cost plus incentive fee or cost plus award fee type contracts;

(4) Contracts for architect-engineer services;

(5) Contracts containing a VE Program Requirement clause except as provided by § 12-1.5206 below;

(6) Contracts providing for product or component improvement unless the VE incentive clause application is restricted to areas not covered by provisions for product or component improvement;

(7) Contracts for commercial items (See FPR 1-3.807-1(b)(2) being procured without invoking special re

§ 12-1.5202-4 Types of savings to be

shared with the contractor. (a) There are two types of savings to be shared between the Government and the contractor. These are acquisition savings and collateral savings.

(b) Acquisition savings are those which accrue from the net reduction in the contract price for supplies, service and construction. Acquisition savings may include instant, concurrent and future savings.

(1) "Instant contract savings” are those net measurable reductions in the price of the contract under which a VECP has been submitted by the contractor and accepted by the Government. In the case of requirments or other indefinite delivery type contracts, basic ordering agreements, multi-year contracts, fixed-price contracts providing for prospective price redetermination, or contracts in which supplemental agreements or other modifications increase the quantity of items or add items to the contract, see paragraph (j) of the clause in 127.151-13(a) for the appropriate definition of "instant contract."

(2) "Concurrent contract savings” are those net measurable reductions in the price of a concurrent contract let by the same procuring activity.

(3) "Future contract savings" are either those measurable net reductions in the price of a future contract (other than the contract under which the VECP was accepted) or a lump sum payment paid to the contractor at the time the VECP is accepted and based upon estimated future applications.

(c) Collateral savings are those ascertainable net reductions in the Government's overall documented projected costs including but not limited to costs of operations, maintenance, lo

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.

8 12-1.5203 Sharing arrangements.

8 12-1.5203-1 Sharing rates.

(a) The sharing rates used in the various VE clauses for acquisition savings are shown below. These rates are common for all acquisition savings, i.e., instant concurrent and future contract savings.

Type of contract

Incentive Program

clause clause (Govern (Government/

ment/ contractor) contractor)

50/50 45/55



Fixed price (other than incentive)....
Fixed price (construction)...
Fixed-Price-Incentive (FPI) or

cost-plus-incentive-tee (CPIF).... Cost-plus-award-tee (CPAF). Cost reimbursement (other than

65/35 75/25

80/20 85/15



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

§ 12-1.5203-2 Sharing base.

The sharing base is def ed 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.


§ 12-1.5203–3 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.

1 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 appropriately. 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

(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

§ 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 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.

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.

§ 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.

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