OFFICE OF THE UNDER SECRETARY OF DEFENSE

3000 DEFENSE PENTAGON

WASHINGTON DC 20301-3000

June 27, 1997

DP (DAR)

In reply refer to DAR Tracking Number: 97-00005

MEMORANDUM FORDIRECTORS OF DEFENSE AGENCIES DEPUTY FOR ACQUISITION AND BUSINESS MANAGEMENT,

ASN(RD&A) /ABM

DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE (CONTRACTING), SAF/AQC

ASSISTANT DEPUTY ASSISTANT SECRETARY OF THE ARMY (PROCUREMENT) IDIRECTOR OF CONTRACTING

DEPUTY DIRECTOR (ACQUISITION)1 DEFENSE LOGISTICS AGENCY

SUBJECT: Class Deviation--Value Engineering Change Proposals

This supersedes the class deviation issued under DAR Tracking Number 97-00001 on April 10, 1997.

I authorize all military departments and defense agencies to deviate from the requirements of Federal Acquisition Regulation (FAR) 48.001, 48.102, 48.104, 48.201, and the clause at 52.248-1, Value Engineering, when providing value engineering incentives to contractors.

This class deviation authorizes contracting officers to use the attached revised FAR language when administering value engineering techniques. The revised FAR language changes the sharing period from the current 3 years to a range of 3 to 5 years; the incentAve sharing arrangement from the current fixed rate for the contractor of 50 percent to a range of 50 to 75 percent for fixed-price or incentive contracts and from 25 percent to a range of 25 to 50 percent for cost-reimbursement contracts; and the current fixed contractor shared collateral savings rate of 20 percent to a range of 20 to 100 percent. Further, the class deviation allows contracting officers to use the attached revised 52.248-1 clause.

This class deviation is approved for a 2-year period ending June 30, 1999, or until the FAR is revised, whichever occurs first.

Eleanor R. Spector Director, Defense Procurement

Attachment

The following changes are made to the Federal Acquisition

Regulation:

PART 48- -VALUE ENGINEERING

* * * * *

48.001 Definitions

* * * * *

"Sharing period," as used in this part, means the period beginning with acceptance of the first unit incorporating the VECP and ending at the later of (a)[the end of a sharing period of 3-5 years set at the discretion of the contracting officer for each VECP,] after the first unit affected by the VECP is accepted * * *

SUBPART 48.1--POLICIES AND PROCEDURES

* * * * *

48.102 Polices.

* * * * *

(g) * * * For engineering-development and low-rate-initial production contracts, the future sharing shall be on scheduled deliveries equal in number to the quantity required over the highest [designated number of] consecutive months of planned production, based on planning or production documentation at the time the VECP is accepted. [The number of months shall be established at the discretion of the contracting officer for each VECP. The range that shall be used is 36-60 months. In determining whether to extend the period beyond 36 months, the contracting officer shall consider the following and insert supporting rationale in the contract file:

(1) Extent of the change;

(2) Complexity of the change;

(3) Development risk (e.g., contractor's financial

risk);

(4) Developmental cost;

(5) Performance and/or reliability impact;

(6) Production period remaining at time of VECP

acceptance; and

(7) Number of units affected.]

* * * * *

48.104 Sharing Arrangements

48.104-1 Sharing Acquisition Savings.

(a) Supply or service contracts. * * *

GOVERNMENT/CONTRACTOR SHARES OF NET ACQUISITION SAVINGS

Sharing Arrangement

Contract Type

Incentive (Voluntary)

Program Requirement (Mandatory)



Concurrent and future rate

Instant contract rate

Concurrent and future rate

Fixed-price (other than incentive)

+++

+++

75/25

75/25

Incentive (fixed-price or cost)

+Instant contract rate

+++

+

75/25

Cost-reimbursement (other than incentive)++

++++

++++

85/18

85/18

+ Same sharing arrangement As the contractor's protit or fee adjustment formula.

++ Includes cost-plus-award-fee contracts.

[+++ A rate between 50 and 75 percent set by the contracting officer for each VECP. See 48.102(g)(1)-(5).

++++ A rate between 25 and 50 percent set by the contracting officer for each VECP. See 48.102(g)(1)-(5).]

* * * * *

48.104-2 Sharing collateral savings.

* * * * *

(b) The contractor's share of collateral savings [may range from 20 to 100 percent] of the estimated savings to be realized for each VECP during an average year of use but shall not exceed (1) the contract's firm-fixed-price, target price, target cost, or estimated cost, at the time the VECP is accepted, or (2) $100,000, whichever is greater. [The contractor's share percentage is determined by the contracting officer for each VECP.] * * *

* * * * *

PART 52 SOLICITATION PROVISIONS A-ND CONTRACT CLAUSES

* * * * *

52.248-1 Value Engineering.

* * * For engineering-development and low-rate-initial-production solicitations and contracts, the contracting officer shall modify subdivision (i) (3) (i) and the first sentence under subparagraph (3) of the definition of acquisition savings by substituting for "the number of future contract units scheduled for delivery during the sharing period," "a number equal to the quantity required over the highest[designated number of] consecutive months of planned production, based on planning or production documentation at the time the VECP is

accepted. [The number of months shall be established at the discretion of the contracting officer for each VECP. A range of 36-60 months shall be used.]

* * * * *

* * * * *

(b) Definitions.

VALUE ENGINEERING (MAR 1989) [(DEVIATION)]

* * * * *

"Sharing period," as used in this clause, means the period beginning with the acceptance of the first unit incorporating the VECP and ending at the later of (1) [the end of a sharing period of 3-5 years, set at the discretion of the Contracting Officer,] after the first unit affected by the VECP is accepted or (2) the last scheduled delivery date of an item affected by the VECP under this contract's delivery schedule in effect at the time the VECP is accepted. [The contracting officer's determination of the sharing period is final and shall not be subject to the Disputes clause or otherwise subject to litigation under 41 U.S.C. 601-613.]

* * * * *

(f) Sharing rates. * * *

CONTRACTOR'S SHARE OF NET ACQUISITION SAVINGS

(figures in percent)

Contract Type

Incentive (Voluntary)

Program Requirement (Mandatory)



Concurrent and future rate

Instant contract rate

Concurrent and future rate

Fixed-price (other than incentive)

+++

+++

25

25

Incentive (fixed-price or cost)

+

+++

+

25

Cost-reimbursement (other than incentive)++

++++

++++

15

15

+ Same sharing arrangement As the contractor's protit or fee adjustment formula.

++ Includes cost-plus-award-fee contracts.

[+++ A rate between 50 and 75 percent set by the Contracting Officer for each VECP. This decision is final and shall not be subject to the Disputes clause or otherwise subject to litigation under41 U.S.C. 601-613.

++++ A rate between 25 and 50 percent set by the Contracting Officer for each VECP. This decision is final and shall not be subject to the Disputes clause or otherwise subject to litigation under 41 U.S.C. 601-613.]

* * * * *

(j) Collateral savings. If a VECP is accepted, the instant contract amount shall be increased, as specified in subparagraph (h) (5) above, by [between 20 and 100 percent, as determined by the Contracting Officer,] of any collateral savings determined to be realized in an typical year of use * * *

* * * * *