FAR Part 48 Flashcards
Value Engineering
FAR Part 48
Value Engineering
Part 48 - Value Engineering
Value Engineering in Federal Acquisitions (FAR Subpart 48.1)
General Overview (FAR 48.101)
Purpose: Value engineering aims to improve efficiency and reduce costs without impairing essential functions or characteristics.
Approaches:
o Incentive Approach: Voluntary participation by contractors to suggest cost-saving methods, sharing in the savings.
o Mandatory Program: Required value engineering effort by contractors, included as a separate item in contracts.
Part 48 - Value Engineering
Value Engineering in Federal Acquisitions (FAR Subpart 48.1)
Requirements:
Establish cost-effective value engineering procedures.
Include value engineering clauses in appropriate contracts.
Provide substantial financial incentives to contractors for VECPs.
Part 48 - Value Engineering
Value Engineering in Federal Acquisitions (FAR Subpart 48.1)
Agency Responsibilities:
Process VECPs objectively and quickly.
Provide fair share of savings on accepted VECPs.
Consider value engineering clauses in subcontracts
Part 48 - Value Engineering
VECP Processing and Sharing Arrangements
Processing VECPs (FAR 48.103)
Instructions: Contractors must follow specific guidelines to submit VECPs.
Evaluation: Contracting officers must process and evaluate VECPs promptly.
Decision Making: Acceptance or rejection of VECPs and determination of collateral savings are at the Government’s discretion.
Part 48 - Value Engineering
VECP Processing and Sharing Arrangements
Sharing Arrangements (FAR 48.104)
Determining Sharing Period (FAR 48.104-1):
o Sharing period starts with the first unit incorporating the VECP and lasts 36-60 months or until the last scheduled delivery date.
Sharing Acquisition Savings (FAR 48.104-2):
o Different sharing rates based on contract type and VE clause used.
o Contractor entitled to a percentage of net acquisition savings.
Sharing Collateral Savings (FAR 48.104-3):
o Government shares collateral savings with contractors.
o Contractor’s share ranges from 20-100% of estimated annual savings, not exceeding the contract’s firm-fixed-price or $100,000
VE Approaches
Incentive
Mandatory Program
Agencies shall
Establish guidelines for processing VECP’s,
Process VECP’s objectively and expeditiously
Provide contractors a fair share of the savings on acceptedVECP’s
45 days to process, evaluate, and accept or reject the VECP
FAR PART 48. VALUE
ENGINEERING
Value Engineering is a formal technique of continuous improvement whereby by
contractors may voluntarily suggest methods for performing more economically and share in any resulting savings or be required to establish a formal program to identify and submit to the government methods for performing more economically.
The scope of this part focuses on the policies and procedures for using administering value engineering techniques in
*“Acquisition savings”
means savings resulting from the application of a value engineering change proposal (VECP) to contracts awarded by the same contracting office or its successor for essentially the same unit.
"”Future unit cost reduction” means
the instant unit cost reduction adjusted as the contracting officer considers necessary project learning or changes in quantity during the sharing.
*“Instant contract” means
the contract under which the VECP is submitted.
*“Sharing base” means
the number of affected end items on contracts of the contracting office accepting the VECP.
"”Sharing period” means
the period with acceptance of the first unit incorporating the
VECP and ending at the calendar date or event determined by the contracting office or each
VECP.
"”Unit” means
the item or task to which the contracting officer and contractor agree to the
VECP applies.
*“Value engineering proposal” means,
in connection with an A-E contract, a change proposal developed by employees of the federal government or contractor value engineering personnel under contract to an agency to provide value engineering services for the contract or program.
There are two Value Engineering approaches (FAR
48.101(b)):
- Incentive approach, which is the contractor participation is voluntary and the contractor uses its own resources to develop and submit any Value Engineering Change Proposals.
- Mandatory program, which the government requires and pays for specific value engineering program effort. Note that no value engineering sharing is permitted in architect engineering contracts.
As a matter of policy, agency shall establish and maintain cost-effective value engineering procedures and process (FAR 48.102(a) and (b)). An execution of the policy agency shall
- establish guidelines for processing VECPs;
- process VECP’s objectively and expeditiously;
and - provide contractors a fair share of the savings on accepted VECP’s savings.
Sharing periods and sharing rates are on a case-by-case basis. In establishing a sharing period and sharing rate, the contracting officer must consider the following, as appropriate, and must insert the supporting rationale in the contract
- extent of the change.
- complexity of the change.
- development risk (contractor’s financial risk).
- development cost.
- performance and/or reliability impact.
- production period remaining at the time of VECP acceptance.
- number of units affected.
Value engineering incentive payments do not constitute profit or fee within the limitations imposed by law. (FAR
48.102 (e)).
Processing Value Engineering Change Proposals (VECP) are to be done promptly upon receipt by the contracting officer or other designated official.
The contracting officer has 45 days from its receipt to accept or reject the VECP.
Should the government need more time to evaluate the VECP, the contracting officer shall notify the contractor promptly in writing giving the reasons and the anticipated decision date. (FAR 48.103
(a) and (b)).
Acceptance or rejection of the VECP is a unilateral decision made solely at the discretion of the government, as are the determination of collateral costs or collateral savings, the decision as to which of the sharing rates supplies, the contracting officer’s determination of the duration of the sharing, and the contractor’s sharing rate. (FAR 48.103 (c))
The remaining sections of this subpart and subsection are devoted to sharing arrangements between the contractor and the U.S. government. Sharing period starts
starts with the acceptance of the first unit incorporating the VECP and may last 36-60 months at the discretion of the contracting officer. (FAR 48.104-1 (a) and (b))
For other contracts the sharing period may extend to items requiring a prolonged construction schedule.
FAR 48.104-3 discusses sharing collateral savings where the head of the contracting activity
is determined that the cost of calculating and tracking collateral savings with exceed the benefits to be derived, with some
FAR 48.104-4 offers the sharing alternative no cost settlement method which is a bilateral agreement between contract or in the government,
where in the contracting officer’s judgment reliance on other VECP approaches likely would not be more cost-effective, and the no cost settlement would provide adequate consideration to theFAR 48.104-5 addresses the relationship of value engineering and other incentives that may be in the contract and that care must be taken not to commingle the two.
It is to be noted that a contract may have two or more
VECPs occurring simultaneously.
