Overview
This section contains the contract clauses (52.248-1 through 52.248-3) that implement Value Engineering (VE) programs, which provide mechanisms for contractors to share in cost savings resulting from accepted proposals that reduce life cycle or acquisition costs. These clauses incentivize contractors to innovate and improve efficiency without compromising the essential performance, reliability, or quality of the goods and services provided.
Key Rules
- Value Engineering Change Proposal (VECP) Criteria: A VECP must require a change to the instant contract and result in an overall cost reduction to the agency without impairing essential functions or characteristics.
- Sharing Mechanisms: Savings are shared differently based on the contract type and the source of savings:
- Incentive (Voluntary): Contractors are encouraged to submit VECPs and typically receive a higher share (often 50% for fixed-price contracts) of the net acquisition savings.
- Program Requirement (Mandatory): Contractors are required to engage in VE as a funded line item and typically receive a lower share (often 25%) of the savings.
- Calculations of Savings: Savings include "Instant" (current contract), "Concurrent" (other ongoing contracts), "Future" (projected future units), and "Collateral" (measurable reductions in agency operating or maintenance costs).
- Unilateral Authority: The Contracting Officer (CO) retains sole and unilateral discretion to accept or reject any VECP; the decision is not subject to the Disputes clause.
- Architect-Engineer (A-E) Exception: Under clause 52.248-2, A-E contractors are paid a fee to perform VE services but do not share in the resulting savings.
- Data Rights: Contractors can protect proprietary information in a VECP using a restrictive legend until the proposal is accepted, at which point the Government generally acquires unlimited rights to the data.
Practical Implications
- Financial Incentive: Contractors can significantly increase their profit margins by identifying technical efficiencies and cost-saving measures that the Government had not previously considered.
- Administrative Burden: Submitting a VECP requires rigorous documentation, including detailed cost estimates and impact analyses on performance and schedules, which the contractor must fund upfront unless the VE program is mandatory.