Overview
This section prescribes how the Government and contractors share financial savings resulting from accepted Value Engineering Change Proposals (VECPs), defining the duration of sharing periods and the specific percentage splits for acquisition and collateral savings. It establishes the framework for rewarding contractors who identify ways to reduce costs without compromising performance or quality.
Key Rules
- Sharing Period: Typically lasts 36 to 60 months (at the Contracting Officer's discretion) after the first unit is accepted, or until the last scheduled delivery of the instant contract, whichever is later.
- Acquisition Savings Splits:
- Fixed-Price Contracts (Voluntary): Standard sharing is 50/50, though the contractor's share can be increased up to 75%.
- Cost-Reimbursement (Voluntary): Standard sharing is 75% Government / 25% Contractor, though the contractor's share can be increased up to 50%.
- Mandatory Requirements: Contractor shares are reduced (e.g., 25% for fixed-price and 15% for cost-reimbursement).
- Unit-Based Sharing: For engineering-development or low-rate production (LRIP) contracts, the sharing period is defined by a specific quantity of units rather than a calendar date.
- Collateral Savings: Contractors can receive 20% to 100% of savings realized in areas like operations, maintenance, or logistics during a typical year of use, capped at the contract's total value or $100,000, whichever is greater.
- Payment Mechanisms: Contractor shares are paid through the "instant" contract (the contract under which the VECP was accepted) and may be paid as future contracts are awarded or via an optional lump-sum payment.
- No-Cost Settlement: Allows a simplified agreement where the contractor keeps all savings on the instant and concurrent contracts, while the Government keeps all future and collateral savings.
Practical Implications
- Revenue Generation: Contractors can leverage VECPs as a profit-center strategy, gaining significant revenue from savings realized not just on their current contract, but on concurrent and future Government buys.
- Administrative Trade-offs: While VECPs offer high rewards, the "No-Cost Settlement" provides a vital administrative shortcut for situations where the cost of complex savings-tracking outweighs the potential benefit to the Government.
- Documentation Requirements: Contractors must maintain detailed delivery records for three years after final payment to identify the first unit incorporating the VECP, ensuring they receive their full share of the savings during the designated period.