48.104-2 Sharing acquisition savings
Source: FAR 48.104-2 on acquisition.gov
FAR 48.104-2 ensures contractors are rewarded for cost-saving proposals by specifying how acquisition savings are shared and paid based on contract type and VECP nature.
Overview
FAR 48.104-2 details how acquisition savings from Value Engineering Change Proposals (VECPs) are shared between the Government and contractors. It establishes the formulas and procedures for calculating and distributing savings on supply, service, and construction contracts, depending on contract type and whether the VECP is voluntary or mandatory.
Key Rules
- Sharing Rates and Bases
- Savings are shared based on contract type (fixed-price, incentive, cost-reimbursement) and the nature of the VECP (voluntary or mandatory). Specific percentage splits are provided, with some flexibility for the contracting officer to increase the contractor’s share.
- Calculation and Payment of Savings
- Contractors are entitled to a share of net acquisition savings, which are calculated after deducting Government costs and any negative savings. Payments can be made as savings are realized, either in lump sum or as future contracts are awarded.
- Recordkeeping and Documentation
- Contractors must maintain records for 3 years after final payment to identify the first unit delivered with the VECP.
- Modification and Payment Timing
- The contracting officer must modify contracts within 3 months after price reductions or future contract awards to provide the contractor’s share.
- Construction Contracts
- Sharing applies only to instant contract and collateral savings, with fixed percentage splits (45% for fixed-price, 75% for cost-reimbursement). No sharing for incentive construction contracts.
Responsibilities
- Contracting Officers: Calculate and approve sharing rates, modify contracts for payments, determine lump-sum eligibility, and ensure timely payment.
- Contractors: Submit VECPs, maintain required records, and ensure compliance with sharing and documentation requirements.
- Agencies: Oversee adherence to sharing arrangements and ensure proper contract modifications and payments.
Practical Implications
- This section incentivizes contractors to propose cost-saving changes by guaranteeing a share of the savings. It requires careful documentation, timely contract modifications, and clear understanding of applicable sharing rates. Common pitfalls include miscalculating savings, missing deadlines for contract modifications, or inadequate recordkeeping.
(a) Supply or service contracts.
(1) The sharing base for acquisition savings is the number of affected end items on contracts of the contracting office accepting the VECP. The sharing rates (Government/contractor) for net acquisition savings for supplies and services are based on the type of contract, the value engineering clause or alternate used, and the type of savings, as follows:
|
Government/Contractor Shares of Net Acquisition Savings (Figures in Percent) |
||||
|---|---|---|---|---|
| Contract Type | Sharing Agreement | |||
| Incentive (Voluntary) | Program Requirement (Mandatory) | |||
| Instant contract rate | Concurrent and future contract rate | Instant contract rate | Concurrent and future contract rate | |
| Fixed-price (includes fixed-price-award-fee; excludes other fixed-price incentive contracts) | *50/50 | *50/50 | 75/25 | 75/25 |
| Incentive (fixed-price or cost) (other than award fee) | (**) | *50/50 | (**) | 75/25 |
| Cost-reimbursement (includes cost-plus-award-fee; excludes other cost-type incentive contracts) | ***75/25 | ***75/25 | 85/15 | 85/15 |
| * The contracting officer may increase the contractor’s sharing rate to as high as 75 percent for each VECP. (See 48.102(g) (1) through (7).) | ||||
| ** Same sharing arrangement as the contract’s profit or fee adjustment formula. | ||||
| *** The contracting officer may increase the contractor’s sharing rate to as high as 50 percent for each VECP. (See 48.102(g) (1) through (7).) | ||||
(2) Acquisition savings may be realized on the instant contract, concurrent contracts, and future contracts. The contractor is entitled to a percentage share (see paragraph (a)(1)) of any net acquisition savings. Net acquisition savings result when the total of acquisition savings becomes greater than the total of Government costs and any negative instant contract savings. This may occur on the instant contract or it may not occur until reductions have been negotiated on concurrent contracts or until future contract savings are calculated, either through lump-sum payment or as each future contract is awarded.
(i) When the instant contract is not an incentive contract, the contractor’s share of net acquisition savings is calculated and paid each time such savings are realized. This may occur once, several times, or, in rare cases, not at all.
(ii) When the instant contract is an incentive contract, the contractor shares in instant contract savings through the contract’s incentive structure. In calculating acquisition savings under incentive contracts, the contracting officer shall add any negative instant contract savings to the target cost or to the target price and ceiling price and then offset these negative instant contract savings and any Government costs against concurrent and future contract savings.
(3) The contractor shares in the savings on all affected units scheduled for delivery during the sharing period. The contractor is responsible for maintaining, for 3 years after final payment on the contract under which the VECP was accepted, records adequate to identify the first delivered unit incorporating the applicable VECP.
(4) Contractor shares of savings are paid through the contract under which the VECP was accepted. On incentive contracts, the contractor’s share of concurrent and future contract savings and of collateral savings shall be paid as a separate firm-fixed-price line item on the instant contract.
(5) Within 3 months after concurrent contracts have been modified to reflect price reductions attributable to use of the VECP, the contracting officer shall modify the instant contract to provide the contractor’s share of savings.
(6) The contractor’s share of future contract savings may be paid as subsequent contracts are awarded or in a lump-sum payment at the time the VECP is accepted. The lump-sum method may be used only if the contracting officer has established that this is the best way to proceed and the contractor agrees. The contracting officer ordinarily shall make calculations as future contracts are awarded and, within 3 months after award, modify the instant contract to provide the contractor’s share of the savings. For future contract savings calculated under the optional lump-sum method, the sharing base is an estimate of the number of items that the contracting officer will purchase for delivery during the sharing period. In deciding whether or not to use the more convenient lump-sum method for an individual VECP, the contracting officer shall consider-
(i) The accuracy with which the number of items to be delivered during the sharing period can be estimated and the probability of actual production of the projected quantity;
(ii) The availability of funds for a lump-sum payment; and
(iii) The administrative expense of amending the instant contract as future contracts are awarded.
(b) Construction contracts. Sharing on construction contracts applies only to savings on the instant contract and to collateral savings. The Government’s share of savings is determined by subtracting Government costs from instant contract savings and multiplying the result by (1)45 percent for fixed-price contracts or (2)75 percent for cost-reimbursement contracts. Value engineering sharing does not apply to incentive construction contracts.