48.104-4
Sharing alternative-no-cost settlement method
The no-cost settlement method for VECPs allows contractors to retain all immediate savings only if both parties agree and it is determined to be the most cost-effective approach for the Government.
Overview
FAR 48.104-4 addresses the use of the alternative no-cost settlement method for Value Engineering Change Proposals (VECPs). This method allows the contractor to retain all savings from the current contract and any concurrent contracts they hold, while the Government retains savings from concurrent contracts with other sources, future contracts, and collateral savings. The contracting officer must evaluate whether this approach is in the Government’s best interest by considering administrative costs versus anticipated savings. The no-cost settlement can only be used if both parties mutually agree, and only when it is determined that other VECP sharing methods would not be more cost-effective or provide better value to the Government.
Key Rules
- Selection of Settlement Method
- Contracting officers must analyze available VECP incorporation mechanisms and select the one that best serves the Government’s interests.
- Administrative Cost Consideration
- Officers should weigh the administrative costs of negotiating settlements against the expected savings.
- No-Cost Settlement Criteria
- The no-cost settlement is appropriate only if it is not likely that other VECP approaches would be more cost-effective and if it provides adequate consideration to the Government.
- Distribution of Savings
- Contractors keep all savings on the instant and their concurrent contracts; the Government keeps all other and future savings.
- Mutual Agreement Requirement
- Both parties must agree to use the no-cost settlement method for each individual VECP.
Responsibilities
- Contracting Officers: Analyze settlement options, justify the use of no-cost settlement, and ensure mutual agreement is documented.
- Contractors: Negotiate and agree to the settlement method, and comply with the terms regarding savings distribution.
- Agencies: Oversee that settlements are in the Government’s best interest and that proper procedures are followed.
Practical Implications
- This section exists to ensure that the Government receives fair value when accepting VECPs and that administrative costs do not outweigh savings. It impacts daily contracting by requiring careful analysis and documentation before using the no-cost settlement method. Common pitfalls include failing to document mutual agreement or not adequately justifying the use of this method.