[Federal Register Volume 61, Number 237 (Monday, December 9, 1996)]
[Rules and Regulations]
[Pages 64823-64825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31134]



48 CFR Parts 1843 and 1852

Addition of Coverage to NASA FAR Supplement (NFS) on NASA Shared 
Savings Clause

AGENCY: Office of Procurement, National Aeronautics and Space 
Administration (NASA).

ACTION: Final rule.


SUMMARY: Parts 1843 and 1852 are amended to establish the conditions 
for use and the administrative procedures for a ``Shared Savings 
Clause'' to be used in solicitations and contracts.

EFFECTIVE DATE: December 9, 1996.

ADDRESSES: Mr. James A. Balinskas, Code HC, NASA Headquarters, 300 E 
Street SW, Washington, DC 20546-0001.

Mr. James A. Balinskas, NASA Headquarters, Code HC, telephone: (202) 



    On October 20, 1995, a proposed rule to amend the NFS to add a 
``Shared Savings Clause'' was published in the Federal Register (60 FR 
54208). The intent of the clause was to provide an incentive for 
contractors to identify and implement significant cost reduction 
programs. In return, they would be eligible for a share of realized 
savings which resulted from those cost-cutting projects once they were 
approved by the contracting officer. Comments were received both from 
within NASA and from industry. All comments were reviewed and the rule 
was revised to reflect the comments where it was considered warranted. 
Many of the revisions were made to clarify definitions, improve 
consistency of terms used throughout the contract clause, limit 
applicability of the clause to the appropriate classes of contracts, 
and better communicate how the provisions of the clause were intended 
to operate. In addition, the location of the proposed rule within the 
NFS was also changed.


    NASA certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities under the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). This rule does not 
impose any recordkeeping requirements subject to the Paperwork 
Reduction Act.

List of Subjects in 48 CFR Parts 1843 and 1852

    Government procurement.
Tom Luedtke,
Deputy Associate Administrator for Procurement.
    Accordingly, 48 CFR 1843 and 1852 are amended as follows:
    1. The authority citation for 48 CFR 1843 and 1852 continues to 
read as follows:

    Authority: U.S.C. 2473(c)(1).


Subpart 1843.71--[Added]

    2. Subpart 1843.71 is added to read as follows:

Subpart 1843.71--Shared Savings

1843.7101  Shared Savings Program.

    This subpart establishes and describes the methods for implementing 
and administering a Shared Savings Program. This program provides an 
incentive for contractors to propose and implement, with NASA approval, 
significant cost reduction initiatives. NASA will benefit as the more 
efficient business practices that are implemented lead to reduced costs 
on current and follow-on contracts. In return, contractors are entitled 
to share in cost savings subject to limits established in the contract. 
The contracting officer may require the contractor to provide periodic 
reporting, or other justification, or to require other steps (e.g., 
cost segregation) to ensure projected cost savings and being realized.

1843.7102  Solicitation provision and contract clause.

    The contracting officer shall insert the clause at 1852.243-71, 
Shared Savings, in all solicitations and contracts expected to exceed 
$1,000,000, except those awarded under FAR part 12, NRA,

[[Page 64824]]

or AO procedures, or those awarded under the SBIR or STTR programs.


1852.243-71  [Added]

    3. Section 1852.243-71 is added to read as follows:

1852.243-71  Shared Savings.

    As prescribed in 1843.7102, insert the following clause:


December 1996

    (a) The Contractor is entitled, under the provisions of this 
clause, to share in cost savings resulting from the implementation 
of cost reduction projects which are presented to the Government in 
the form of Cost Reduction Proposals (CRP) and approved by the 
Contracting Officer. These cost reduction projects may require 
changes to the terms, conditions or statement of work of this 
contract. Any cost reduction projects must not change the essential 
function of any products to be delivered or the essential purpose of 
services to be provided under the contract.
    (b) Definitions: (1) Cost savings, as contemplated by this 
clause, means savings that result from instituting changes to the 
covered contract, as identified in an approved Cost Reduction 
    (2) Cost Reduction Proposal (CRP)--For the purposes of this 
clause, a Cost Reduction Proposal means a proposal that recommends 
alternatives to the established procedures and/or organizational 
support of a contract or group of contracts. These alternatives must 
result in a net reduction of contract cost and price to NASA. The 
proposal will include technical and cost information sufficient to 
enable the Contracting Officer to evaluate the CRP and approve or 
disapprove it.
    (3) Covered contract--As used in this clause, covered contract 
means the contract, including unexercised options but excluding 
future contracts, whether contemplated or not, against which the CRP 
is submitted.
    (4) Contractor implementation costs--As used in this clause, 
contractor implementation costs, or ``implementation costs'', shall 
mean those costs which the Contractor incurs on covered contracts 
specifically in developing, preparing, submitting, and negotiating a 
CRP, as well as those costs the Contractor will incur on covered 
contracts to make any structural or organizational changes in order 
to implement an approved CRP.
    (5) Government costs--As used in this clause, the term 
government costs means internal costs of NASA, or any other 
government agency, which result directly from development and 
implementation of the CRP. These may include, but are not limited 
to, costs associated with the administration of the contract or with 
such contractually related functions such as testing, operations, 
maintenance and logistics support. These costs also include costs 
associated with other Agency contracts (including changes in 
contract price or cost and fee) that may be affected as a result of 
the implementation of a CRP. They do not include the normal 
administrative costs of reviewing and processing the CRP.
    (c) General. The Contractor will develop, prepare and submit 
CRPs with supporting information, as detailed in paragraph (e) of 
this clause, to the Contracting Officer. The CRP will describe the 
proposed cost reduction activity in sufficient detail to enable the 
Contracting Officer to evaluate it and to approve or disapprove it. 
The Contractor shall share in any net cost savings realized from 
approved and implemented CRPs in accordance with the terms of this 
clause. The Contractor's actual percentage share of the cost savings 
shall be a matter for negotiation with the Contracting Officer, but 
shall not, in any event, exceed 50 percent of the total cost savings 
recognized by the Contracting Officer. The Contractor may propose 
changes in other activities that impact performance on its contract, 
including government and other contractor operations, if such 
changes will optimize cost savings. A Contractor shall not be 
entitled to share, however, in any cost savings that are internal to 
the Government, or which result from changes made to any contracts 
to which it is not a party even if those changes were proposed as a 
part of its CRP. Early communication between the Contractor and the 
Government is encouraged. The communication may be in the form of a 
concept paper or preliminary proposal. The Government is not 
committed to accepting any proposal as a result of these early 
    (d) Computation of cost savings. The cost savings to be shared 
between the Government and the Contractor will be computed by the 
Contracting Officer by comparing a current estimate to complete 
(ETC) for the covered contract, as structured before implementation 
of the proposed CRP, to a revised ETC which takes into account the 
implementation of that CRP. The cost savings to be shared shall be 
reduced by any cost overrun, whether experienced or projected, that 
is identified on the covered contract before implementation of the 
CRP. Although a CRP may result in cost savings that extend far into 
the future, the period in which the Contractor may share in those 
savings will be limited to no more than five years. Implementation 
costs of the Contractor must be considered and specifically 
identified in the revised ETC. The Contracting Officer shall offset 
Contractor cost savings by any increased costs (whether implementing 
or recurring) to the Government when computing the total cost 
savings to be shared. The Contractor shall not be entitled, under 
the provisions of this clause, to share in any cost reductions to 
the contract that are the result of changes stemming from any action 
other than an approved CRP. However, this clause does not limit 
recovery of any such reimbursements that are allowed as a result of 
other contract provisions.
    (e) Supporting Information. As a minimum, the Contractor shall 
provide the following supporting information with each CRP:
    (1) Identification of the current contract requirements or 
established procedures and/or organizational support which are 
proposed to be changed.
    (2) A description of the difference between the current process 
or procedure and the proposed change. This description shall address 
how proposed changes will meet NASA requirements and discuss the 
advantages and disadvantages of the existing practice and the 
proposed changes.
    (3) A list of contract requirements which must be revised, if 
any, if the CRP is approved, along with proposed revisions. Any 
changes to NASA or delegated contract management processes should 
also be addressed.
    (4) Detailed cost estimates which reflect the implementation 
costs of the CRP.
    (5) An updated ETC for the covered contract, unchanged, and a 
revised ETC for the covered contract which reflects changes 
resulting from implementing the CRP. If the CRP proposes changes to 
only a limited number of elements of the contract, the ETCs need 
only address those portions of the contract that have been impacted. 
Each ETC shall depict the level of costs incurred or to be incurred 
by year, or to the level of detail required by the Contracting 
Officer. If other CRPs have been proposed or approved on a contract 
the impact of these CRPs must be addressed in the computation of the 
cost savings to ensure that the cost savings identified are 
attributable only to the CRP under consideration in the instant 
    (6) Identification of any other previous submissions of the CRP, 
including the dates submitted, the agencies and contracts involved, 
and the disposition of those submittals.
    (f) Administration.
    (1) The Contractor shall submit proposed CRPs to the Contracting 
Officer who shall be responsible for the review, evaluation and 
approval. Normally, CRPs should not be entertained for the first 
year of performance to allow the Contracting Officer to assess 
performance against the basic requirements. If a cost reduction 
project impacts more than a single contract, the contractor may, 
upon concurrence of the Contracting Officer's responsible for the 
affected contracts, submit a single CRP which addresses fully the 
cost savings projected on all affected contracts that contain this 
Shared Savings Clause. In the case of multiple contracts affected, 
responsibility for the review and approval of the CRP will be a 
matter to be decided by the affected Contracting Officers.
    (2) Within 60 days of receipt, the Contracting Officer shall 
complete an initial evaluation of any proposed cost reduction plan 
to determine its feasibility. Failure of the Contracting Officer to 
provide a response within 60 days shall not be construed as approval 
of the CRP. The Government shall promptly notify the Contractor of 
the results of its initial evaluation and indicate what, if any, 
further action will be taken. If the Government determines that the 
proposed CRP has merit, it will open discussions with the Contractor 
to establish the cost savings to be recognized, the Contractor's 
share of the cost savings, and a payment schedule. The Contractor 
shall continue to perform in accordance with the terms and 
conditions of the existing contract until a contract

[[Page 64825]]

modification is executed by the Contracting Officer. The 
modification shall constitute approval of the CRP and shall 
incorporate the changes identified by the CRP, adjust the contract 
cost and/or price, establish the Contractor's share of cost savings, 
and incorporate the agreed to payment schedule.
    (3) The Contractor will receive payment by submitting invoices 
to the Contracting Officer for approval. The amount and timing of 
individual payments will be made in accordance with the schedule to 
be established with the Contracting Officer. Notwithstanding the 
overall savings recognized by the Contracting Officer as a result of 
an approved CRP, payment of any portion of the Contractor's share of 
savings shall not be made until NASA begins to realize a net cost 
savings on the contract (i.e., implementation, startup and other 
increased costs resulting from the change have been offset by 
cumulative cost savings). Savings associated with unexercised 
options will not be paid unless and until the contract options are 
exercised. It shall be the responsibility of the Contractor to 
provide such justification as the Contracting Officer deems 
necessary to substantiate that cost savings are being achieved.
    (4) Any future activity, including a merger or acquisition 
undertaken by the Contractor (or to which the Contractor becomes an 
involved party), which has the effect of reducing or reversing the 
cost savings realized from an approved CRP for which the Contractor 
has received payment may be cause for recomputing the net cost 
savings associated with any approved CRP. The Government reserves 
the right to make an adjustment to the Contractor's share of cost 
savings and to receive a refund of moneys paid if necessary. Such 
adjustment shall not be made without notifying the Contractor in 
advance of the intended action and affording the Contractor an 
opportunity for discussion.
    (g) Limitations. Contract requirements that are imposed by 
statute shall not be targeted for cost reduction exercises. The 
Contractor is precluded from receiving reimbursements under both 
this clause and other incentive provisions of the contract, if any, 
for the same cost reductions.
    (h) Disapproval of, or failure to approve, any proposed cost 
reduction proposal shall not be considered a dispute subject to 
remedies under the Disputes clause.
    (i) Cost savings paid to the Contractor in accordance with the 
provisions of this clause do not constitute profit or fee within the 
limitations imposed by 10 U.S.C. 2306(d) and 41 U.S.C. 254(b).
      (End of clause)

[FR Doc. 96-31134 Filed 12-6-96; 8:45 am]