OFFICE OF THE UNDER SECRETARY OF DEFENSE

3000 DEFENSE PENTAGON

WASHINGTON, DC 20301-3000

June 10, 1999

DP (DAR)

In reply refer to

DAR Tracking Number: 99-O0006

MEMORANDUM FOR DIRECTORS OF DEFENSR AGENCIES

SUBJECT: Extension to Class Deviation--Value Engineering Change Proposals( was 97-O0005)

I extend the authority for 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 52.218-1, Value Engineering, when providing value engineering incentives to contractors.

The class deviation authorizes contracting officers to use the attached revised FAR guidance on value engineering. The revised FAR guidance changes the sharing period from the current 3 years to a range of 3 to 5 years; the incentive sharing arrangement from a current fixed rate for the contractor of 50 percent to a range of 50 to 70 percent; and the current fixed contractor shared collateral savings rats of 20 percent to a range of 20 to 100 percent. Further, contracting officers may use the attached revised 52.248-1 clause under the class deviation.

I am extending the class deviation until the FAR is revised.

cc: DSMC, Ft. Belvoir

Attachment:

VALUE ENGINEERING CHANGE PROPOSAL, CLASS DEVIATION

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:

* * * * *

48.104-1 Sharing Acquisition Savings.

(a) Supply or service contracts. * * *

(figures in percent)

 

Sharing Arrangement

Contract Type

Incentive (Voluntary)

Program Requirement (Mandatory)

 

Instant contract rate

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 profit or fee adjustment formula.

[+++ 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.

* * * * *

* * * * *

PART 52 SOLICITATION PROVISIONS A-ND CONTRACT CLAUSES

* * * * *

52.248-1 Value Engineering.

As prescribed in 48.201, insert the following clause in supply or service contracts to provide a value engineering incentive under the conditions specified in 48.201. In solicitations and contracts for items requiring an extended period for production (e.g., ship construction, major system acquisition), if agency procedures prescribe sharing of future contract savings on all units to be delivered under contracts awarded during the sharing period, the contracting officer shall modify the clause at subdivision (i)(3)(i) and the first sentence under subparagraph (3) of the definition of "acquisition savings" by substituting "under contracts awarded during the sharing period" for "during the sharing period." 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.]

VALUE ENGINEERING (MAR 1989) [(DEVIATION)]

(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) below.

(b) Definitions.

(c) VECP preparation. As a minimum, the Contractor shall include in each VECP the information described in subparagraphs (c)(1) through (8) below. 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:

(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.

(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

Contract Type

Incentive (Voluntary)

Program Requirement (Mandatory)

 

Instant contract rate

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.]

(g) Calculating net acquisition savings.

(h) Contract adjustment. The modification accepting the VECP (or a subsequent modification issued as soon as possible after any negotiations are completed) shall --

(i) Concurrent and future contract savings.

(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 after subtracting any Government costs not previously offset. However, the Contractor's share of collateral savings shall not exceed

(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 of $100,000 or more 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:

(End of Clause)