Federal Acquisition Regulation; Value Engineering Change Proposals

SUMMARY: The Civilian Agency Acquisition Council and the Defense

Acquisition Regulations Council are proposing to amend the Federal

Acquisition Regulation (FAR) to change the sharing periods and rates

that contracting officers may establish for individual value

engineering change proposals. This regulatory action was not subject to

Office of Management and Budget review under Executive Order 12866,

dated September 30, 1993. This is not a major rule under 5 U.S.C. 804.

DATES: Comments should be submitted on or before October 13, 1998 to be

considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to:

General Services Administration, FAR Secretariat (MVRS), Attn: Laurie

Duarte, 1800 F Street, NW, Room 4035, Washington, DC 20405.

E-mail comments submitted over Internet should be addressed to:

[email protected].

Please cite FAR case 97-031 in all correspondence related to this

case.

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 FAR case 97-031.

SUPPLEMENTARY INFORMATION:

A. Background

This proposed 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 60 months; increase the

contractors share of incentive and concurrent savings to 75 percent;

and increase the contractors share of collateral savings to 100 percent

on a case-by-case basis for each VECP. The contracting officers

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 given adequate

compensation for the effort required to prepare and negotiate

individual change proposals.

B. Regulatory Flexibility Act

The proposed changes may have a significant economic impact on a

substantial number of small entities within the meaning of the

Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule

could increase the number of VECP settlements negotiated between the

Government and private entities. An Initial Regulatory Flexibility

Analysis (IRFA) has been prepared and 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 could

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. Therefore, the rule

may apply to all entities, large and small, that propose VECPs under

Government contracts.

A copy of the IRFA has been submitted to the Chief Counsel for

Advocacy of the Small Business Administration and may be obtained from

the FAR Secretariat. Comments are invited. Comments from small entities

concerning the affected FAR subparts will be considered in accordance

with 5 U.S.C. 610. Such comments must be submitted separately and

should cite 5 U.S.C. 601, et seq. (FAR Case 97-031), in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the proposed

changes to the FAR do not impose recordkeeping or information

collection requirements, or collections of information from offerors,

contractors, or members of the public which 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: August 5, 1998.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Therefore, it is proposed that 48 CFR Parts 48 and 52 be amended 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. Section 48.001 is amended by revising the definition ``Sharing

period'' to read as follows:

48.001 Definitions.

* * * * *

Sharing period, as used in this part, means--

(1) The period beginning with acceptance of the first unit

incorporating the VECP and ending at the later of--

(i) 36 to 60 months (set at the discretion of the contracting

officer for each VECP) after the first unit affected by the VECP is

accepted; or

(ii) 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 (but see 48.102(g)); or

(2) For engineering-development and low-rate-initial-production

contracts, a period of between 36 and 60 consecutive months (set at the

discretion of the contracting officer for each VECP) that spans the

period of highest planned production, based on planning or production

documentation at the time the VECP is accepted.

* * * * *

3. Section 48.102 is amended by redesignating paragraphs (g), (h),

and (i) as (h), (i), and (j), respectively, adding a new paragraph (g);

and further amending newly designated paragraph (h) by removing the

last sentence. The added text reads as follows:

48.102 Policies.

* * * * *

(g) Sharing periods and sharing rates are determined on a case-by-

case basis by the contracting officer, using the guidelines in the

definition of ``sharing period'' at 48.001 and in 48.104-1. In

determining whether to establish a sharing period greater than 36

months or to increase the sharing rate beyond the minimum levels in

48.104-1(a), the contracting officer shall consider the

[[Page 43237]]

following, as appropriate, and shall 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.

* * * * *

4. Section 48.103 is amended by adding paragraph (c)(4) to read as

follows:

48.103 Processing value engineering change proposals.

* * * * *

(c) * * *

(4) The contracting officer's determination of the duration of the

sharing period and the contractor's sharing rate.

5. Section 48.104-1 is amended by revising the table in paragraph

(a)(1) to read as follows:

48.104-1 Sharing acquisition savings.

(a) Supply or service contracts. (1) * * *

Government/Contractor Shares of Net Acquisition Savings

[Figures in percent]

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

Sharing arrangement

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

Incentive (Voluntary) Program requirement

-------------------------- (Mandatory)

Contract type -------------------------

Instant Concurrent Concurrent

contract and future Instant and future

rate contract contract contract

rate rate rate

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

Fixed-price (includes fixed-price-award-fee; excludes other

fixed-price incentive contracts)........................... *50/50 *50/50 75/25 75/25

Incentive (fixed-price or cost) (other than award fee)...... (**) *50/50 (**) 75/25

Cost-reimbursement (includes cost-plus-award-fee; excludes

other cost-type incentive contracts)....................... ***75/25 ***75/25 85/15 85/15

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

* 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).

** Same sharing arrangement as the contract's profit or fee adjustment formula.

*** 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).

* * * * *

6. Section 48.104-2 is amended by revising paragraph (b) to read as

follows:

48.104-2 Sharing collateral savings.

* * * * *

(b) The contractor's share of collateral savings may range from 20

to 100 percent of the estimated savings to be realized during an

average year of use but shall not exceed the contract's firm-fixed-

price, target price, target cost, or estimated cost, at the time the

VECP is accepted, or $100,000, whichever is greater. The contractor's

sharing rate is determined by the contracting officer for each VECP. In

determining collateral savings, the contracting officer shall consider

any degradation of performance, service life, or capability. (See

48.104-1(a)(4) for payment of collateral savings through the instant

contract.)

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

7. Section 52.248-1 is amended in the introductory paragraph by

revising the first sentence and removing the last sentence; by revising

the date of the clause; and in the clause, in paragraph (b) by revising

the definition ``Sharing period''; in paragraph (e)(3) by revising the

last sentence; in paragraph (f)(3) by revising the table; and in

paragraph (j) by revising the first sentence. The revised text reads as

follows:

52.248-1 Value Engineering.

As prescribed in 48.201, insert the following clause. * * *

Value Engineering (XXX)

* * * * *

(b) Definitions.

* * * * *

Sharing period, as used in this clause, means--

(1) The period beginning with acceptance of the first unit

incorporating the VECP and ending at the later of--

(i) 36 to 60 months (set at the discretion of the Contracting

Officer for each VECP) after the first unit affected by the VECP is

accepted; or

(ii) The last scheduled delivery date of an item affected by the

VECP under this contract's delivery schedule in effect at the time

the VECP is accepted; or

(2) For engineering-development and low-rate-initial-production

contracts, a period of between 36 and 60 consecutive months (set at

the discretion of the Contracting Officer for each VECP) that spans

the period of highest planned production, based on planning or

production documentation at the time the VECP is accepted.

* * * * *

(e) * * *

(3) * * * The Contracting Officer's unilateral decisions whether

to accept or reject all or part of any VECP, as to which of the

sharing rates applies, and as to the duration of the sharing period

shall be final and not subject to the Disputes clause or otherwise

subject to litigation under the Contract Disputes Act of 1978 (41

U.S.C. 601-613).

(f) * * *

(3) * * *

[[Page 43238]]

Contractor's Share of Net Acquisition Savings

[Figures in percent]

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

Sharing Arrangement

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

Incentive (Voluntary) Program requirement

-------------------------- (Mandatory)

Contract type -------------------------

Instant Concurrent Concurrent

contract and future instant and future

rate contract contract contract

rate rate rate

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

Fixed-price (includes fixed-price-award-fee; excludes other

fixed-price incentive contracts)........................... * 50 *50 25 25

Incentive (fixed-price or cost) (other than award fee)...... (**) *50 (**) 25

Cost-reimbursement (includes cost-plus-award-fee; excludes

other cost-type incentive contracts)....................... *** 25 *** 25 15 15

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

* The Contracting Officer may increase the Contractor's sharing rate to as high as 75 percent for each VECP.

** Same sharing arrangement as the contract's profit or fee adjustment formula.

*** The Contracting Officer may increase 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 shall be increased, as specified in subparagraph (h)(5) of this

subsection, 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. 98-21441 Filed 8-11-98; 8:45 am]

BILLING CODE 6820-EP-P