52.248-1 Value Engineering.

As prescribed in 48.201 , insert the following clause:

Value Engineering (Jun 2020)

(a) General. The Contractor is encouraged to develop, prepare, and submit value engineering change

proposals (VECP’s) voluntarily. The Contractor shall share in any net acquisition savings realized

from accepted VECP’s, in accordance with the incentive sharing rates in paragraph (f) of this clause.

(b) Definitions.

Acquisition savings, as used in this clause, means savings resulting from the application of a VECP to

contracts awarded by the same contracting office or its successor for essentially the same unit.

Acquisition savings include-

(1) Instant contract savings, which are the net cost reductions on this, the instant contract, and

which are equal to the instant unit cost reduction multiplied by the number of instant contract units

affected by the VECP, less the Contractor’s allowable development and implementation costs;

(2) Concurrent contract savings, which are net reductions in the prices of other contracts that are

definitized and ongoing at the time the VECP is accepted; and

(3) Future contract savings, which are the product of the future unit cost reduction multiplied by the

number of future contract units in the sharing base. On an instant contract, future contract savings

include savings on increases in quantities after VECP acceptance that are due to contract

modifications, exercise of options, additional orders, and funding of subsequent year requirements

on a multiyear contract.

Collateral savings, as used in this clause, means those measurable net reductions resulting from a

VECP in the agency’s overall projected collateral costs, exclusive of acquisition savings, whether or

not the acquisition cost changes.

Contracting office includes any contracting office that the acquisition is transferred to, such as

another branch of the agency or another agency’s office that is performing a joint acquisition action.

Contractor’s development and implementation costs, as used in this clause, means those costs the

Contractor incurs on a VECP specifically in developing, testing, preparing, and submitting the VECP,

as well as those costs the Contractor incurs to make the contractual changes required by

Government acceptance of a VECP.

Future unit cost reduction, as used in this clause, means the instant unit cost reduction adjusted as

the Contracting Officer considers necessary for projected learning or changes in quantity during the

sharing period. It is calculated at the time the VECP is accepted and applies either-

(1) Throughout the sharing period, unless the Contracting Officer decides that recalculation is

necessary because conditions are significantly different from those previously anticipated; or

(2) To the calculation of a lump-sum payment, which cannot later be revised.

Government costs, as used in this clause, means those agency costs that result directly from
developing and implementing the VECP, such as any net increases in the cost of testing, operations,

maintenance, and logistics support. The term does not include the normal administrative costs of

processing the VECP or any increase in this contract’s cost or price resulting from negative instant

contract savings.

Instant contract, as used in this clause, means this contract, under which the VECP is submitted. It

does not include increases in quantities after acceptance of the VECP that are due to contract

modifications, exercise of options, or additional orders. If this is a multiyear contract, the term does

not include quantities funded after VECP acceptance. If this contract is a fixed-price contract with

prospective price redetermination, the term refers to the period for which firm prices have been

established.

Instant unit cost reduction means the amount of the decrease in unit cost of performance (without

deducting any Contractor’s development or implementation costs) resulting from using the VECP on

this, the instant contract. If this is a service contract, the instant unit cost reduction is normally

equal to the number of hours per line-item task saved by using the VECP on this contract, multiplied

by the appropriate contract labor rate.

Negative instant contract savings means the increase in the cost or price of this contract when the

acceptance of a VECP results in an excess of the Contractor’s allowable development and

implementation costs over the product of the instant unit cost reduction multiplied by the number of

instant contract units affected.

Net acquisition savings means total acquisition savings, including instant, concurrent, and future

contract savings, less Government costs.

Sharing base, as used in this clause, means the number of affected end items on contracts of the

contracting office accepting the VECP.

Sharing period, as used in this clause, means the period beginning with acceptance of the first unit

incorporating the VECP and ending at a calendar date or event determined by the contracting officer

for each VECP.

Unit, as used in this clause, means the item or task to which the Contracting Officer and the

Contractor agree the VECP applies.

Value engineering change proposal (VECP) means a proposal that-

(1) Requires a change to this, the instant contract, to implement; and

(2) Results in reducing the overall projected cost to the agency without impairing essential functions

or characteristics;provided, that it does not involve a change-

(i) In deliverable end item quantities only;

(ii) In research and development (R&D) end items or R&D test quantities that is due solely to results

of previous testing under this contract; or

(iii) To the contract type only.

(c) VECP preparation. As a minimum, the Contractor shall include in each VECP the information

described in paragraphs (c)(1) through (8) of this clause. If the proposed change is affected by

contractually required configuration management or similar procedures, the instructions in those
procedures relating to format, identification, and priority assignment shall govern VECP

preparation. The VECP shall include the following:

(1) A description of the difference between the existing contract requirement and the proposed

requirement, the comparative advantages and disadvantages of each, a justification when an item’s

function or characteristics are being altered, the effect of the change on the end item’s performance,

and any pertinent objective test data.

(2) A list and analysis of the contract requirements that must be changed if the VECP is accepted,

including any suggested specification revisions.

(3) Identification of the unit to which the VECP applies.

(4) A separate, detailed cost estimate for (i) the affected portions of the existing contract

requirement and (ii) the VECP. The cost reduction associated with the VECP shall take into account

the Contractor’s allowable development and implementation costs, including any amount

attributable to subcontracts under the Subcontracts paragraph of this clause.

(5) A description and estimate of costs the Government may incur in implementing the VECP, such

as test and evaluation and operating and support costs.

(6) A prediction of any effects the proposed change would have on collateral costs to the agency.

(7) A statement of the time by which a contract modification accepting the VECP must be issued in

order to achieve the maximum cost reduction, noting any effect on the contract completion time or

delivery schedule.

(8) Identification of any previous submissions of the VECP, including the dates submitted, the

agencies and contract numbers involved, and previous Government actions, if known.

(d) Submission. The Contractor shall submit VECP’s to the Contracting Officer, unless this contract

states otherwise. If this contract is administered by other than the contracting office, the Contractor

shall submit a copy of the VECP simultaneously to the Contracting Officer and to the Administrative

Contracting Officer.

(e) Government action.

(1) The Contracting Officer will notify the Contractor of the status of the VECP within 45 calendar

days after the contracting office receives it. If additional time is required, the Contracting Officer

will notify the Contractor within the 45-day period and provide the reason for the delay and the

expected date of the decision. The Government will process VECP’s expeditiously; however, it will

not be liable for any delay in acting upon a VECP.

(2) If the VECP is not accepted, the Contracting Officer will notify the Contractor in writing,

explaining the reasons for rejection. The Contractor may withdraw any VECP, in whole or in part, at

any time before it is accepted by the Government. The Contracting Officer may require that the

Contractor provide written notification before undertaking significant expenditures for VECP effort.

(3) Any VECP may be accepted, in whole or in part, by the Contracting Officer’s award of a

modification to this contract citing this clause and made either before or within a reasonable time

after contract performance is completed. Until such a contract modification applies a VECP to this

contract, the Contractor shall perform in accordance with the existing contract. The decision to
accept or reject all or part of any VECP is a unilateral decision made solely at the discretion of the

Contracting Officer.

(f) Sharing rates. If a VECP is accepted, the Contractor shall share in net acquisition savings

according to the percentages shown in the table below. The percentage paid the Contractor depends

upon-

(1) This contract’s type (fixed-price, incentive, or cost-reimbursement);

(2) The sharing arrangement specified in paragraph (a) of this clause (incentive, program

requirement, or a combination as delineated in the Schedule); and

(3) The source of the savings (the instant contract, or concurrent and future contracts), as follows:

Contractor’s Share of Net Acquisition Savings (Figure in Percent)

Contract Type Incentive (Voluntary) Program Requirement

(Mandatory)

Instant

Contract

Rate

Concurrent

and Future

Contract Rate

Instant

Contract

Rate

Concurrent

and Future

Contract Rate

Fixed-price (includes fixedprice-award-fee; excludes

other fixed-price incentive

contracts)

*50 *50 25 25

Incentive (fixed-price or

cost) (other than award

fee)

(**) *50 (**) 25

Cost-reimbursement

(includes cost-plus-awardfee; excludes other costtype incentive contracts)

***25 ***25 15 15

* The Contracting Office may increase the Contractor’s sharing rate to as high as 75 percent for

each VECP.

** Same sharing arrangement as the contract’s profit or fee adjustment formula.

*** The Contracting Office may increase the Contractor’s sharing rate to as high as 50 percent

for each VECP.

(g) Calculating net acquisition savings.
(1) Acquisition savings are realized when (i) the cost or price is reduced on the instant contract, (ii)

reductions are negotiated in concurrent contracts, (iii) future contracts are awarded, or (iv)

agreement is reached on a lump-sum payment for future contract savings (see paragraph (i)(4) of

this clause). Net acquisition savings are first realized, and the Contractor shall be paid a share,

when Government costs and any negative instant contract savings have been fully offset against

acquisition savings.

(2) Except in incentive contracts, Government costs and any price or cost increases resulting from

negative instant contract savings shall be offset against acquisition savings each time such savings

are realized until they are fully offset. Then, the Contractor’s share is calculated by multiplying net

acquisition savings by the appropriate Contractor’s percentage sharing rate (see paragraph (f) of

this clause). Additional Contractor shares of net acquisition savings shall be paid to the Contractor

at the time realized.

(3) If this is an incentive contract, recovery of Government costs on the instant contract shall be

deferred and offset against concurrent and future contract savings. The Contractor shall share

through the contract incentive structure in savings on the instant contract items affected. Any

negative instant contract savings shall be added to the target cost or to the target price and ceiling

price, and the amount shall be offset against concurrent and future contract savings.

(4) If the Government does not receive and accept all items on which it paid the Contractor’s share,

the Contractor shall reimburse the Government for the proportionate share of these payments.

(h) Contract adjustment. The modification accepting the VECP (or a subsequent modification issued

as soon as possible after any negotiations are completed) shall-

(1) Reduce the contract price or estimated cost by the amount of instant contract savings, unless this

is an incentive contract;

(2) When the amount of instant contract savings is negative, increase the contract price, target price

and ceiling price, target cost, or estimated cost by that amount;

(3) Specify the Contractor’s dollar share per unit on future contracts, or provide the lump-sum

payment;

(4) Specify the amount of any Government costs or negative instant contract savings to be offset in

determining net acquisition savings realized from concurrent or future contract savings; and

(5) Provide the Contractor’s share of any net acquisition savings under the instant contract in

accordance with the following:

(i) Fixed-price contracts-add to contract price.

(ii) Cost-reimbursement contracts-add to contract fee.

(i) Concurrent and future contract savings.

(1) Payments of the Contractor’s share of concurrent and future contract savings shall be made by a

modification to the instant contract in accordance with paragraph (h)(5) of this clause. For incentive

contracts, shares shall be added as a separate firm-fixed-price line item on the instant contract. The

Contractor shall maintain records adequate to identify the first delivered unit for 3 years after final

payment under this contract.
(2) The Contracting Officer shall calculate the Contractor’s share of concurrent contract savings by-

(i) Subtracting from the reduction in price negotiated on the concurrent contract any Government

costs or negative instant contract savings not yet offset; and

(ii) Multiplying the result by the Contractor’s sharing rate.

(3) The Contracting Officer shall calculate the Contractor’s share of future contract savings by-

(i) Multiplying the future unit cost reduction by the number of future contract units scheduled for

delivery during the sharing period;

(ii) Subtracting any Government costs or negative instant contract savings not yet offset; and

(iii) Multiplying the result by the Contractor’s sharing rate.

(4) When the Government wishes and the Contractor agrees, the Contractor’s share of future

contract savings may be paid in a single lump sum rather than in a series of payments over time as

future contracts are awarded. Under this alternate procedure, the future contract savings may be

calculated when the VECP is accepted, on the basis of the Contracting Officer’s forecast of the

number of units that will be delivered during the sharing period. The Contractor’s share shall be

included in a modification to this contract (see paragraph (h)(3) of this clause) and shall not be

subject to subsequent adjustment.

(5) Alternate no-cost settlement method. When, in accordance with section 48.104-4 of the Federal

Acquisition Regulation (FAR), the Government and the Contractor mutually agree to use the no-cost

settlement method, the following applies:

(i) The Contractor will keep all the savings on the instant contract and on its concurrent contracts

only.

(ii) The Government will keep all the savings resulting from concurrent contracts placed on other

sources, savings from all future contracts, and all collateral savings.

(j) Collateral savings. If a VECP is accepted, the Contracting Officer will increase the instant

contract amount, as specified in paragraph (h)(5) of this clause, by a rate from 20 to 100 percent, as

determined by the Contracting Officer, of any projected collateral savings determined to be realized

in a typical year of use after subtracting any Government costs not previously offset. However, the

Contractor’s share of collateral savings will not exceed the contract’s firm-fixed-price, target price,

target cost, or estimated cost, at the time the VECP is accepted, or $100,000, whichever is greater.

The Contracting Officer will be the sole determiner of the amount of collateral savings.

(k) Relationship to other incentives. Only those benefits of an accepted VECP not rewardable under

performance, design-to-cost (production unit cost, operating and support costs, reliability and

maintainability), or similar incentives shall be rewarded under this clause. However, the targets of

such incentives affected by the VECP shall not be adjusted because of VECP acceptance. If this

contract specifies targets but provides no incentive to surpass them, the value engineering sharing

shall apply only to the amount of achievement better than target.

(l) Subcontracts. The Contractor shall include an appropriate value engineering clause in any

subcontract-valued at or above the simplified acquisition threshold, as defined in FAR 2.101 on the

date of subcontract award, and may include one in subcontracts of lesser value. In calculating any

adjustment in this contract’s price for instant contract savings (or negative instant contract savings),
the Contractor’s allowable development and implementation costs shall include any subcontractor’s

allowable development and implementation costs, and any value engineering incentive payments to

a subcontractor, clearly resulting from a VECP accepted by the Government under this contract. The

Contractor may choose any arrangement for subcontractor value engineering incentive payments,

provided, that the payments shall not reduce the Government’s share of concurrent or future

contract savings or collateral savings.

(m) Data. The Contractor may restrict the Government’s right to use any part of a VECP or the

supporting data by marking the following legend on the affected parts:

These data, furnished under the Value Engineering clause of contract _____, shall not be disclosed

outside the Government or duplicated, used, or disclosed, in whole or in part, for any purpose other

than to evaluate a value engineering change proposal submitted under the clause. This restriction

does not limit the Government’s right to use information contained in these data if it has been

obtained or is otherwise available from the Contractor or from another source without limitations.

If a VECP is accepted, the Contractor hereby grants the Government unlimited rights in the VECP

and supporting data, except that, with respect to data qualifying and submitted as limited rights

technical data, the Government shall have the rights specified in the contract modification

implementing the VECP and shall appropriately mark the data. (The terms "unlimited rights" and

"limited rights" are defined in part 27 of the Federal Acquisition Regulation.)

(End of clause)

Alternate I (Apr 1984). If the contracting officer selects a mandatory value engineering program

requirement, substitute the following paragraph (a) for paragraph (a) of the basic clause:

(a) General. The Contractor shall (1) engage in a value engineering program, and submit value

engineering progress reports, as specified in the Schedule and (2) submit to the Contracting Officer

any resulting value engineering change proposals (VECP’s). In addition to being paid as the

Schedule specifies for this mandatory program, the Contractor shall share in any net acquisition

savings realized from accepted VECP’s, in accordance with the program requirement sharing rates

in paragraph (f) of this clause.

Alternate II (Jan 2015). If the contracting officer selects both a value engineering incentive and

mandatory value engineering program requirement, substitute the following paragraph (a) for

paragraph (a) of the basic clause:

(a) General. For those line items designated in the Schedule as subject to the value engineering

program requirement, the Contractor shall (1) engage in a value engineering program, and submit

value engineering progress reports, as specified in the Schedule and (2) submit to the Contracting

Officer any resulting VECP’s. In addition to being paid as the Schedule specifies for this mandatory

program, the Contractor shall share in any net acquisition savings realized from VECP’s accepted

under the program, in accordance with the program requirement sharing rates in paragraph (f) of

this clause. For remaining areas of the contract, the Contractor is encouraged to develop, prepare,

and submit VECP’s voluntarily; for VECP’s accepted under these remaining areas, the incentive

sharing rates apply. The decision on which rate applies is a unilateral decision made solely at the

discretion of the Government.

Alternate III (Apr 1984). When the head of the contracting activity determines that the cost of

calculating and tracking collateral savings will exceed the benefits to be derived in a contract calling

for a value engineering incentive, delete paragraph (j) from the basic clause and redesignate the
remaining paragraphs accordingly.

Parent topic: 52.248 [Reserved]