Addition of Coverage to NASA FAR Supplement on NASA Shared Savings Clause

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1816 and 1852

Addition of Coverage to NASA FAR Supplement on NASA Shared

Savings Clause

AGENCY: Office of Procurement, National Aeronautics and Space

Administration (NASA).

ACTION: Notice of proposed rulemaking.

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

SUMMARY: This rule proposes to amend the NASA Federal Acquisition

Regulation Supplement in order to establish the procedures for a

``Shared Savings Clause'' to be used in solicitations and contracts.

The intent of the clause is 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 result

from those cost-cutting projects once the projects are approved by the

contracting officer.

DATES: Comments must be received on or before December 19, 1995.

ADDRESSES: Submit comments to Mr. James A. Balinskas, Analysis Division

(Code HC), Office of Procurement, NASA Headquarters, Washington, DC

20546. Comments on the paperwork burden should also be addressed to the

Office of Information and Regulatory Affairs of OMB, Attention: Desk

Officer for NASA, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Mr. James A. Balinskas, (202) 385-

0445.

SUPPLEMENTARY INFORMATION:

Background

This action revises the NASA FAR Supplement to add a ``Share

Savings Clause'' which was developed as an element of the Agency's Cost

Control Initiative. We expect this process will help identify and

eliminate counterproductive, outdated or redundant activities whether

they are mandated by the contract or created as a result of the manner

in which the government is managing the contract.

Regulatory Flexibility Act

NASA certifies that this regulation will not have a significant

economic impact on a substantial number of small entities under

Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

Paperwork Reduction Act

A copy of the proposed rule has been submitted to OMB for review

under section 3507(d) of the Paperwork Reduction Act.

Title: Cost Reduction Proposal (CRP).

Summary: The CRP is used by the contractor to propose cost

reduction projects to NASA.

Description of the need for the information and proposed use of the

information: The Shared Savings Clause was developed as an element of

the Agency's Cost Control Initiative. The CRP is a means by which a

contractor may suggest savings to NASA. The contracting officer

evaluates the CRP in order to determine whether or not to accept the

contractor's suggestions. If the CRP is accepted, the contractor

becomes eligible for a share of the savings.

Description of the likely respondents, including the estimated

number of likely respondents, and proposed frequency of response to the

collection of information: NASA contractors whose contracts contain the

clause entitled ``Shared Savings'' may submit a CRP on their own

initiative. The number of respondents is estimated to be 10.

Estimate of the total annual reporting and recordkeeping burden

that will result from the collection of information: The annual

recordkeeping and reporting burden related to preparation and

submission of CRP's is estimated to be 600 hours.

Notice: Comments may be submitted to the OMB address shown under

ADDRESSES.

Time period within which the agency is requesting OMB to approve or

disapprove the collection of information: NASA is requesting that OMB

approve the proposed revisions to the collection of information within

the next 60 days.

In addition, comments may be submitted to NASA and OMB in order to

help NASA--

(a) evaluate whether the proposed collection of information is

necessary for the proper performance of the functions of the agency,

including whether the information will have practical utility;

(ii) evaluate the accuracy of the agency's estimate of the burden

of the proposed collection of information including the validity of the

methodology and assumptions used;

(iii) enhance the quality, utility, and clarity of the information

to be collected; and

(iv) minimize the burden of the collection of information on those

who are to respond, including through the use of appropriate automated,

electronic, mechanical, or other technological collection techniques or

other forms of information technology, e.g., permitting electronic

submission of responses.

List of Subjects in 48 CFR Parts 1816 and 1852

Government procurement.

Tom Luedtke,

Deputy Associate Administrator for Procurement.

Accordingly, 48 CFR Parts 1816 and 1852 are proposed to be amended

as follows:

PART 1816--TYPES OF CONTRACTS

1. The authority citation for 48 CFR Parts 1816 and 1852 continue

to read as follows:

Authority: 42 U.S.C. 2473(c)(1).

2. Paragraph 1816.7001 is added to read as follows:

1816.7001 Shared Savings Clause.

The contracting officer shall insert the clause at 1852.216-90,

Shared Savings Clause, in all solicitations and contracts above the

simplified acquisition threshold.

[[Page 54209]]

PART 1852--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

3. Section 1852.216-90 is added to read as follows:

1852.216-90 Shared Savings.

As prescribed in 1816.7001, insert the following clause:

Shared Savings

(XXX 19XX)

(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, however, revise the

essential function or service to be provided by the basic contract.

(b) Definitions:

(1) Cost savings means savings that result from instituting non-

recurring changes to the management or structure of the covered

contract, as identified in an approved Cost Reduction Proposal.

(2) Cost Reduction Proposal means a proposal that recommends

alternatives to the established procedures 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 review the CRP and approve or disapprove it.

The contractor may propose changes in other activities that impact

performance on their contract, to include Government and other

contractor operations, if such changes will optimize cost savings on

their contract. A contractor shall not be entitled to share,

however, in any cost shavings that are internal to the Government,

or which result from changes made to any contracts to which they are

not a party even if those changes were proposed as a part of their

CRP.

(3) Covered contract means the contract, excluding unexercised

options or future contracts, whether contemplated or not, against

which the CRP is submitted.

(4) Contractor implementation costs or ``implementation costs''

means those costs the Contractor incurs, or will incur, on the

covered contract specifically in the development, preparing,

submitting, and supporting a CRP, as well as those costs the

contractor will incur on the covered contract to make any structural

or organizational changes in order to implement an approved CRP.

(5) Government costs means internal costs of NASA or any other

Government agency that result directly from developing and

implementing 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 do not include the

normal administrative costs of reviewing and processing the Cost

Reduction Proposal.

(c) General. The contractor shall develop, prepare and submit

CRP's with supporting information, as detailed in paragraph (d) 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 render an approval or

disapproval. The Contractor shall share in any net cost savings

realized from accepted and implemented CRP's 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% of the

total recognized cost savings.

(d) Computation of cost savings. The contractor is eligible to

share in savings realized on the covered contract as a result of

implementing approved CRP's. The cost savings to be shared between

the Government and the Contractor will be derived by comparing a

current estimate to complete (ETC) for the covered contract, as

structured before implementation of the proposed CRP, to an ETC

which takes into account the impact of that CRP. Although a CRP may

result in cost savings that extend far into the future, the period

over which the contractor may share in those savings will be limited

to five years. In extenuating circumstances, this five year period

may be extended if the contracting officer agrees with the

contractors proposal, and written concurrence is obtained from the

Director, Analysis Division, Office of Procurement, NASA

Headquarters. Implementation costs of the contractor must be

considered and specifically identified in the revised ETC. Any

change in Government costs associated with the covered contract

shall also be specifically identified and addressed in the CRP. 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. This clause does not limit, however, 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 requirement or

practice which is targeted for restructuring.

(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 an

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 ETC's need only address

those portions of the contract that have been impacted. Each ETC

shall depict the level of costs incurred on a period basis. If other

CRP's have been proposed or approved on a contract, the impact of

these CRP's 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 case.

(6) A depiction of each estimate to complete shall also provide

a comparison of costs to be incurred, by period, through the end of

the covered contract.

(7) 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 CRP's to the

Contracting Officer who shall be responsible for the review.

evaluation and approval. Normally, CRP's 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 Officers

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) The Contracting Officer shall approve or disapprove any

proposed cost reduction plan within 60 days after receipt. In the

event additional time is required, the Contracting Officer shall

notify the Contractor within the 60-day period, provide the reason

for delay and the expected date of the decision. Failure of the

Contracting Officer to provide a response shall not be construed as

approval of the CRP. The contractor shall continue to perform in

accordance with the terms and conditions of the existing contract

until the Contracting Officer executes a contract modification

incorporating the changes identified by the CRP. The modification

shall also adjust the contract cost and price, establish the

contractors share of cost savings, and establish a payment schedule.

(3) Notwithstanding the overall level of savings computed for

any CRP, the contractor shall not be paid any portion of its share

of cost savings until NASA realizes a positive cost savings on the

covered contract. (i.e., if implementation costs result in a period

of increased cost as a result of implementation of the CRP).

(4) The contractor shall be paid in accordance with a schedule

to be established with the contracting officer. Normally a payment

of 50% of the contractors share of the cost savings will be made in

the first month after NASA realizes a positive cost savings on the

covered contract.

(5) Any future restructuring or reorganizing activity (such as a

merger or acquisition)

[[Page 54210]]

undertaken by the Contractor, or to which the contractor becomes an

involved party, which serves to reduce, or reverse 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 may

only be made after--

(i) the contractor is afforded the opportunity to provide, and

discuss with the contracting officer, full justification and support

for their actions, and

(ii) advance notification is provided to the Director, Analysis

Division, Office of Procurement, NASA Headquarters.

(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 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 will 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. 95-26057 Filed 10-19-95; 8:45 am]

BILLING CODE 7510-01-M