Overview
FAR Subpart 48.2 prescribes the policies and procedures for inserting Value Engineering (VE) clauses into government solicitations and contracts. It establishes the criteria for when VE incentives or mandatory programs must be included, specifically differentiating between supply, service, architect-engineer, and construction contracts.
Key Rules
- Threshold Requirements: The Contracting Officer (CO) must include a VE clause in solicitations and contracts exceeding the Simplified Acquisition Threshold (SAT), unless specific exceptions apply.
- Mandatory Exclusions: VE clauses are generally prohibited (unless authorized by the Chief of the Contracting Office) for:
- Research and development (other than full-scale development).
- Engineering services from non-profits.
- Personal services.
- Commercial products without special packaging or specifications.
- Clause Selection:
- 52.248-1 (Supply/Service): The standard clause for VE incentives.
- 52.248-2 (Architect-Engineer): Used when the government specifically pays for a VE effort; 52.248-1 is never used for A&E.
- 52.248-3 (Construction): Mandatory for construction > SAT, but strictly prohibited for incentive-type construction contracts.
- Alternates and Modifications:
- Alternate I: Used for mandatory VE program requirements (sustained effort).
- Alternate II: Used when combining a voluntary incentive with a mandatory program.
- Alternate III: Used when the Head of the Contracting Activity (HCA) determines tracking "collateral savings" is not cost-effective.
- Development/Production Mods: For major systems or extended production, the CO must modify the sharing period calculations (typically 36 to 60 months).
Responsibilities
- Contracting Officer (CO):
- Determines if VE is appropriate for contracts below the SAT.
- Selects the correct clause and applicable Alternates based on the contract type.
- Modifies clauses for engineering-development or extended production periods.
- Specifies mandatory VE program requirements as separately priced line items in the contract Schedule.
- Head of the Contracting Activity (HCA):
- Responsible for determining if the cost of computing and tracking collateral savings exceeds the potential benefits, triggering the use of Alternate III.
- Chief of the Contracting Office:
- Must provide authorization to include VE clauses in R&D or non-profit engineering service contracts.
- Contractor:
- In negotiated contracting, the contractor may propose a VE program requirement as part of their offer.
Practical Implications
- Incentivizing Innovation: For supply and service contracts, these clauses allow contractors to share in the savings generated by Value Engineering Change Proposals (VECPs), encouraging them to suggest cost-reduction methods that do not impair essential functions.
- Accounting Complexity: Using Alternate III is a common practical step for agencies to reduce administrative burdens. Tracking "collateral savings" (savings in operations, maintenance, or logistics) is often more expensive than the savings themselves.
- Major Systems Acquisition: In large-scale programs like ship construction or aircraft development, the CO has significant discretion (36–60 month windows) to set the "sharing period." This requires careful planning to ensure the government and contractor both benefit fairly from long-term production efficiencies.
- Commercial Off-the-Shelf (COTS) Shielding: Standard commercial items are generally exempt from VE requirements to prevent complicating simple acquisitions with engineering change overhead, unless the government introduces custom requirements.