48.102 Policies
Source: FAR 48.102 on acquisition.gov
FAR 48.102 requires agencies to incentivize and fairly process contractor value engineering proposals, ensuring cost savings are shared and proper procedures are followed in applicable contracts.
Overview
FAR 48.102 establishes the policies for implementing value engineering (VE) in federal contracts. Agencies are required to maintain cost-effective VE procedures, incentivize contractors to submit Value Engineering Change Proposals (VECPs), and include VE provisions in appropriate contracts. The regulation outlines agency responsibilities for processing VECPs, sharing savings with contractors, and incorporating VE clauses in both prime and subcontractor agreements. Special rules apply to major system acquisitions and architect-engineer contracts, including when VE clauses must be used and how savings are shared. The section also clarifies that VE incentive payments are not considered profit or fee, and provides guidance on determining sharing periods and rates for savings resulting from VECPs.
Key Rules
- Agency VE Procedures
- Agencies must establish and maintain cost-effective VE procedures and provide financial incentives for contractor-submitted VECPs.
- Inclusion of VE Clauses
- VE provisions must be included in appropriate contracts unless exempted, with specific requirements for major system programs and architect-engineer services.
- Processing and Sharing Savings
- Agencies must process VECPs objectively, provide a fair share of savings to contractors, and establish guidelines for sharing periods and rates.
- Profit and Fee Treatment
- VE incentive payments are not considered profit or fee, and profit/fee should not be reduced due to VECP acceptance.
- Subcontractor Consideration
- Agencies should consider requiring VE clauses in subcontracts.
- Architect-Engineer Contracts
- Mandatory VE programs are required, but no sharing of savings is allowed for architect-engineer contracts.
Responsibilities
- Contracting Officers: Ensure VE clauses are included as required, determine sharing periods/rates, document rationale, and process VECPs fairly and promptly.
- Contractors: Submit VECPs, participate in VE programs, and comply with contract VE provisions.
- Agencies: Maintain VE procedures, incentivize VECPs, process proposals, and establish payment procedures for savings.
Practical Implications
- This section ensures agencies and contractors collaborate to reduce costs and improve value through VE. It impacts contract drafting, proposal processing, and financial arrangements. Common pitfalls include failing to include required VE clauses, improper calculation of savings, or not documenting sharing rationale.
(a) As required by http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section1711&num=0&edition=prelim" target="_blank">41 U.S.C. 1711, agencies shall establish and maintain cost-effective value engineering procedures and processes. Agencies shall provide contractors a substantial financial incentive to develop and submit VECP’s. Contracting activities will include value engineering provisions in appropriate supply, service, architect-engineer and construction contracts as prescribed by 48.201 and 48.202 except where exemptions are granted on a case-by-case basis, or for specific classes of contracts, by the agency head.
(b) Agencies shall-
(1) Establish guidelines for processing VECP’s,
(2) Process VECP’s objectively and expeditiously, and
(3) Provide contractors a fair share of the savings on accepted VECP’s.
(c) Agencies shall consider requiring incorporation of value engineering clauses in appropriate subcontracts.
(d)
(1) Agencies other than the Department of Defense shall use the value engineering program requirement clause (52.248-1, Alternates I or II) in initial production contracts for major system programs (see definition of major system in 34.001) and for contracts for major systems research and development except where the contracting officer determines and documents the file to reflect that such use is not appropriate.
(2) In Department of Defense contracts, the VE program requirement clause (52.248-1, Alternates I or II), shall be placed in initial production solicitations and contracts (first and second production buys) for major system acquisition programs as defined in DoD Directive 5000.1, except as specified in subdivisions (d)(2)(i) and (ii) of this section. A program requirement clause may be included in initial production contracts for less than major systems acquisition programs if there is a potential for savings. The contracting officer is not required to include a program requirement clause in initial production contracts-
(i) Where, in the judgment of the contracting officer, the prime contractor has demonstrated an effective VE program during either earlier program phases, or during other recent comparable production contracts.
(ii) Which are awarded on the basis of competition.
(e) Value engineering incentive payments do not constitute profit or fee within the limitations imposed by https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-section3322&num=0&edition=prelim" target="_blank">10 U.S.C. 3322(b) and http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section3905&num=0&edition=prelim" target="_blank">41 U.S.C.3905 (see 15.404-4(c)(4)(i)).
(f) Generally, profit or fee on the instant contract should not be adjusted downward as a result of acceptance of a VECP. Profit or fee shall be excluded when calculating instant or future contract savings.
(g) The contracting officer determines the sharing periods and sharing rates on a case-by-case basis using the guidelines in 48.104-1 and 48.104-2, respectively. In establishing a sharing period and sharing rate, the contracting officer must consider the following, as appropriate, and must 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) Development cost.
(5) Performance and/or reliability impact.
(6) Production period remaining at the time of VECP acceptance.
(7) Number of units affected.
(h) Contracts for architect-engineer services must require a mandatory value engineering program to reduce total ownership cost in accordance with 48.101(b)(2). However, there must be no sharing of value engineering savings in contracts for architect-engineer services.
(i) Agencies shall establish procedures for funding and payment of the contractor’s share of collateral savings and future contract savings.