[Federal Register Volume 64, Number 185 (Friday, September 24, 1999)]
[Rules and Regulations]
[Pages 51846-51849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24423]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 48 and 52

[FAC 97-14; FAR Case 97-031; Item XIV]
RIN 9000-AH84


Federal Acquisition Regulation; Value Engineering Change 
Proposals/PAT

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) to change the sharing 
periods and rates that contracting officers may establish for 
individual value engineering change proposals.

EFFECTIVE DATE: November 23, 1999.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC, 20405, (202) 501-4755, for information 
pertaining to status or publication schedules. For clarification of 
content, contact Ms. Linda Klein, Procurement Analyst, at (202) 501-
3775. Please cite FAC 97-14, FAR case 97-031.

SUPPLEMENTARY INFORMATION:

[[Page 51847]]

A. Background

    This final rule amends the value engineering change proposal (VECP) 
guidance in FAR Parts 48 and 52 to allow the contracting officer to 
increase the sharing period from 36 to a range of 36 to 60 months; 
increase the contractor's share of instant, concurrent and future 
savings under the incentive/voluntary sharing arrangement from 50 to a 
range of 50 to 75 percent; and increase the contractor's share of 
collateral savings from 20 to a range of 20 to 100 percent on a case-
by-case basis for each VECP. The contracting officer's unilateral 
decision on each of these aspects is final. This revision is intended 
to incentivize contractors to submit more value engineering change 
proposals, by allowing contracting officers to unilaterally increase 
both the share percentage and the sharing period, so that contractors 
with meritorious proposals may be adequately compensated for the effort 
required to prepare and negotiate individual change proposals.
    The Councils published a proposed rule in the Federal Register at 
63 FR 43236, August 12, 1998. Nine respondents submitted comments on 
the proposed rule. The Councils considered all comments in the 
development of the final rule.
    The Councils are addressing the changes concerning the Contract 
Disputes Act under FAR Case 98-017, Review of Award Fee Determinations 
(Burnside-Ott). The Councils published this case in the Federal 
Register at 64 FR 24472, May 6, 1999 as a proposed rule with a request 
for comments.
    This rule was not subject to Office of Management and Budget review 
under Section 6(b) of Executive Order 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. applies to 
this final rule. Interested parties may obtain a copy of the FRFA from 
the FAR Secretariat.
    The Councils prepared a Final Regulatory Flexibility Analysis 
(FRFA) and it is summarized as follows:

    The objective of the rule is to change the sharing periods and 
rates that contracting officers may establish for individual VECPs. 
By allowing longer sharing periods and allowing increased contractor 
sharing rates for collateral and concurrent savings, more 
contractors may find it feasible to submit VECPs. The rule may 
increase the number of VECP settlements negotiated between the 
Government and private entities, as the additional flexibility in 
sharing periods and contractor sharing rates it provides should 
incentivize contractors to submit more VECPs. The rule will apply to 
all entities, large and small, that propose VECPs under Government 
contracts.

    The FAR Secretariat has submitted a copy of the FRFA to the Chief 
Counsel for Advocacy of the Small Business Administration.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose information collection requirements that require 
the approval of the Office of Management and Budget under 44 U.S.C. 
3501, et seq.

List of Subjects in 48 CFR Parts 48 and 52

    Government procurement.

    Dated: September 14, 1999.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA amend 48 CFR Parts 48 and 52 as set 
forth below:
    1. The authority citation for 48 CFR Parts 48 and 52 continues to 
read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 48--VALUE ENGINEERING

    2. In section 48.001, revise paragraph (c) of the definition 
``Acquisition savings'' and revise the definition ``Sharing period'' to 
read as follows:


48.001  Definitions.

    Acquisition savings, * * *
    (c) Future contract savings, which are the product of the future 
unit cost reduction multiplied by the number of future contract units 
in the sharing base. On an instant contract, future contract savings 
include savings on increases in quantities after VECP acceptance that 
are due to contract modifications, exercise of options, additional 
orders, and funding of subsequent year requirements on a multiyear 
contract.
* * * * *
    Sharing period, as used in this part, means the period beginning 
with acceptance of the first unit incorporating the VECP and ending at 
a calendar date or event determined by the contracting officer for each 
VECP.
* * * * *
    3. In section 48.102, revise paragraphs (g) and (h) to read as 
follows:


48.102  Policies.

* * * * *
    (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.
* * * * *


48.104-1 through 104-3  [Redesignated as 48.104-2 through 48.104-4]

    4. Redesignate sections 48.104-1 through 48.104-3 as 48.104-2 
through 48.104-4, respectively;
    5. Add new section 48.104-1 to read as follows:


48.104-1  Determining sharing period.

    (a) Contracting officers must determine discrete sharing periods 
for each VECP. If more than one VECP is incorporated into a contract, 
the sharing period for each VECP need not be identical.
    (b) The sharing period begins with acceptance of the first unit 
incorporating the VECP. Except as provided in paragraph (c) of this 
section, the end of the sharing period is a specific calendar date that 
is the later of--
    (1) 36 to 60 consecutive months (set at the discretion of the 
contracting officer for each VECP) after the first unit affected by the 
VECP is accepted; or
    (2) The last scheduled delivery date of an item affected by the 
VECP under the instant contract delivery schedule in effect at the time 
the VECP is accepted.
    (c) For engineering-development contracts and contracts containing 
low-rate-initial-production or early production units, the end of the 
sharing period is based not on a calendar date, but on acceptance of a 
specified quantity of future contract units. This quantity is the 
number of units affected by the VECP that are scheduled to be delivered 
over a period of between 36 and 60 consecutive months (set at the 
discretion of the contracting officer for each VECP) that spans the 
highest

[[Page 51848]]

planned production, based on planning and programming or production 
documentation at the time the VECP is accepted. The specified quantity 
begins with the first future contract unit affected by the VECP and 
continues over consecutive deliveries until the sharing period ends at 
acceptance of the last of the specified quantity of units.
    (d) For contracts (other than those in paragraph (c) of this 
subsection) for items requiring a prolonged production schedule (e.g., 
ship construction, major system acquisition), the end of the sharing 
period is determined according to paragraph (b) of this subsection. 
Agencies may prescribe sharing of future contract savings on all future 
contract units to be delivered under contracts awarded within the 
sharing period for essentially the same item, even if the scheduled 
delivery date is outside the sharing period.
    6. In the newly designated section 48.104-2--
    a. Remove from the first sentence of paragraph (a)(1) ``normally'';
    b. Revise the table in paragraph (a)(1);
    c. Remove from the second sentence in paragraph (a)(2) 
``subparagraph (1) above'' and insert ``paragraph (a)(1) of this 
section'', in its place;
    d. Remove from the first sentence of paragraph (a)(3) ``(but see 
48.102(g))''; and
    e. Remove paragraph (c).
    The revised text reads as follows:


48.104-2  Sharing acquisition savings.

    (a) * * *
    (1) * * *

                             Government/Contractor Shares of Net Acquisition Savings
                                              [Figures in percent]
----------------------------------------------------------------------------------------------------------------
                                                                      Sharing arrangement
                                             -------------------------------------------------------------------
                                                    Incentive (voluntary)        Program requirement (mandatory)
                Contract type                -------------------------------------------------------------------
                                                                Concurrent and                    Concurrent and
                                                  Instant      future contract      Instant      future contract
                                               contract rate         rate        contract rate         rate
----------------------------------------------------------------------------------------------------------------
Fixed-price (includes fixed-price-award-fee;       \1\ 50/50        \1\ 50/50            75/25            75/25
 excludes other fixed-price incentive
 contracts).................................
Incentive (fixed-price or cost) (other than            (\2\)        \1\ 50/50            (\2\)            75/25
 award fee).................................
Cost-reimbursement (includes cost-plus-award-      \3\ 75/25        \3\ 75/25            85/15           85/15
 fee; excludes other cost-type incentive
 contracts).................................
----------------------------------------------------------------------------------------------------------------
\1\ 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).)
\2\ Same sharing arrangement as the contract's profit or fee adjustment formula.
\3\ 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).)

* * * * *
    7. Revise designated section 48.104-3 to read as follows:


Sec. 48.104-3   Sharing collateral savings.

    (a) The Government shares collateral savings with the contractor, 
unless the head of the contracting activity has determined that the 
cost of calculating and tracking collateral savings will exceed the 
benefits to be derived (see 48.201(e)).
    (b) The contractor's share of collateral savings may range from 20 
to 100 percent of the estimated savings to be realized during a typical 
year of use but must not exceed the greater of--
    (1) The contract's firm-fixed-price, target price, target cost, or 
estimated cost, at the time the VECP is accepted; or
    (2) $100,000.
    (c) The contracting officer must determine the sharing rate for 
each VECP.
    (d) In determining collateral savings, the contracting officer must 
consider any degradation of performance, service life, or capability.
    8. In section 48.201, add paragraphs (g) and (h) to read as 
follows:


Sec. 48.201   Clauses for supply or service contracts.

* * * * *
    (g) Engineering-development solicitations and contracts. For 
engineering-development solicitations and contracts, and solicitations 
and contracts containing low-rate-initial-production or early 
production units, the contracting officer must modify the clause at 
52.248-1, Value Engineering, by--
    (1) Revising paragraph (i)(3)(i) of the clause by substituting ``a 
number equal to the quantity required to be delivered over a period of 
between 36 and 60 consecutive months (set at the discretion of the 
Contracting Officer for each VECP) that spans the highest planned 
production, based on planning and programming or production 
documentation at the time the VECP is accepted;'' for ``the number of 
future contract units scheduled for delivery during the sharing 
period;'' and
    (2) Revising the first sentence under paragraph (3) of the 
definition of ``acquisition savings'' by substituting ``a number equal 
to the quantity to be delivered over a period of between 36 and 60 
consecutive months (set at the discretion of the Contracting Officer 
for each VECP) that spans the highest planned production, based on 
planning and programming or production documentation at the time the 
VECP is accepted.'' for ``the number of future contract units in the 
sharing base.''
    (h) Extended production period solicitations and contracts. In 
solicitations and contracts for items requiring an extended period for 
production (e.g., ship construction, major system acquisition), if 
agency procedures prescribe sharing of future contract savings on all 
units to be delivered under contracts awarded during the sharing period 
(see 48.104-1(c)), the contracting officer must modify the clause at 
52.248-1, Value Engineering, by revising paragraph (i)(3)(i) of the 
clause and the first sentence under paragraph (3) of the definition of 
``acquisition savings'' by substituting ``under contracts awarded 
during the sharing period'' for ``during the sharing period.''

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    9. In section 52.248-1, revise the introductory text, the date of 
the clause, in paragraph (b) paragraph (3) of the definition 
``Acquisition savings'', and the definition ``Sharing period'', revise 
the table in (f); amend paragraph (i)(5) introductory text by removing 
``48.104-3'' and adding ``48.104-4'', and revise

[[Page 51849]]

the first sentence in paragraph (j). The revised text reads as follows:


52.248-1   Value Engineering.

    As prescribed in 48.201, insert the following clause:

Value Engineering (Nov 1999)

* * * * *
    (b) Definitions. 
    Acquisition savings, * * *

    (3) Future contract savings, which are the product of the future 
unit cost reduction multiplied by the number of future contract 
units in the sharing base. On an instant contract, future contract 
savings include savings on increases in quantities after VECP 
acceptance that are due to contract modifications, exercise of 
options, additional orders, and funding of subsequent year 
requirements on a multiyear contract.
* * * * *
    Sharing period, as used in this clause, means the period 
beginning with acceptance of the first unit incorporating the VECP 
and ending at a calendar date or event determined by the contracting 
officer for each VECP.
* * * * *
    (f) * * *

                                  Contractor's Share of Net Acquisition Savings
                                              [Figures in Percent]
----------------------------------------------------------------------------------------------------------------
                                                                      Sharing arrangement
                                             -------------------------------------------------------------------
                                                    Incentive (voluntary)        Program requirement (mandatory)
                Contract type                -------------------------------------------------------------------
                                                               Con-current and                   Con-current and
                                                  Instant      future contract      Instant      future contract
                                               contract rate         rate        contract rate         rate
----------------------------------------------------------------------------------------------------------------
Fixed-price (includes fixed-price-award-fee;          \1\ 50           \1\ 50               25               25
 excludes other fixed-price incentive
 contracts).................................
Incentive (fixed-price or cost) (other than            (\2\)           \1\ 50            (\2\)               25
 award fee).................................
Cost-reimbursement (includes cost-plus-award-         \3\ 25           \3\ 25               15              15
 fee; excludes other cost-type incentive
 contracts).................................
----------------------------------------------------------------------------------------------------------------
\1\ The Contracting Officer may increase the Contractor's sharing rate to as high as 75 percent for each VECP.
\2\ Same sharing arrangement as the contract's profit or fee adjustment formula.
\3\ The Contracting Officer may increase the Contractor's sharing rate to as high as 50 percent for each VECP.

* * * * *
    (j) Collateral savings. If a VECP is accepted, the instant 
contract amount must be increased, as specified in paragraph (h)(5) 
of this clause, by a rate from 20 to 100 percent, as determined by 
the Contracting Officer, of any projected collateral savings 
determined to be realized in a typical year of use after subtracting 
any Government costs not previously offset. * * *
* * * * *
[FR Doc. 99-24423 Filed 9-23-99; 8:45 am]
BILLING CODE 6820-EP-P