48.104-3
Sharing collateral savings
Contractors can share in collateral savings from VECPs, but their share is capped and must be carefully calculated by the contracting officer, considering any negative impacts.
Overview
FAR 48.104-3 outlines how the Government and contractors share collateral savings resulting from Value Engineering Change Proposals (VECPs). Collateral savings are secondary benefits, such as reduced maintenance or support costs, that arise from implementing a VECP. The regulation ensures contractors are incentivized to propose cost-saving changes while protecting the Government’s interests.
Key Rules
- Government-Contractor Sharing
- The Government shares collateral savings with the contractor unless tracking costs outweigh the benefits, as determined by the head of the contracting activity.
- Contractor’s Share Limits
- The contractor’s share can range from 20% to 100% of estimated annual collateral savings, but cannot exceed the greater of the contract’s price/cost at VECP acceptance or $100,000.
- Determination of Sharing Rate
- The contracting officer decides the sharing rate for each VECP.
- Consideration of Degradation
- When calculating savings, the contracting officer must account for any loss in performance, service life, or capability.
Responsibilities
- Contracting Officers: Determine sharing rates, assess collateral savings, and consider performance impacts.
- Contractors: Propose VECPs and understand the limits and calculation of their share in collateral savings.
- Agencies: May opt out of sharing if tracking costs exceed benefits, with proper determination.
Practical Implications
- This section incentivizes contractors to submit VECPs by allowing them to share in the resulting savings, but sets clear limits to prevent excessive payouts.
- Accurate calculation and documentation are critical, and both parties must consider potential negative impacts on performance or capability.
- Contractors should be aware of the maximum allowable share and the possibility that sharing may not occur if tracking costs are prohibitive.