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Value Engineering Program

VE Incentive Clause and VECPs

Contractors!

When a contractor submits a proposal under the VE Incentive Clause that reduces the cost and "gets the job done" as well or better than the original contract does, and the Government agrees, the contractor gets to keep a portion of the savings. The proposal is sent to the Contracting Officer (CO) overseeing the contract as a Value Engineering Change Proposal (VECP).

The following information must be present in the VECP submitted to the Contracting Officer:

• Description of the proposed change and contract requirement,
• Comparative listing of the benefits and disadvantages of the contract requirement and the proposed change to the contract.
• Itemization of the contract requirements that must be changed to allow the proposal to be enacted.
• Estimate of the performance costs that will be reduced if the VECP is adopted.
• Prediction of the estimated savings the proposal would have on Government operations, maintenance, or equipment costs.
• Itemized accounting of the costs the contractor incurred to develop the proposal. (Contractors are paid for the negotiated cost to develop adopted proposals.)
• Statement of the date that the VECP must be approved by the Government.

Submit the VECP under a cover letter to the CO through the person who is responsible for overseeing the activities done during the contract. To assist you, a VECP Submittal Form with the appropriate contractor VECP issues, to be sent to the CO, is available from the CO, a local Value Program Coordinator, or this web site. Also available here is an informative fact sheet about this process.

Notes for Contracting Officers and Their Representatives

The intent of the VE incentive clause is to use contractor specific knowledge and unique equipment or staff capabilities to reduce contract costs and/or actual Government expenditures over the life of the project, program or activity. To minimize risk and potential costs to the Government, the risk of developing an idea that is not accepted by the Government is placed completely on the contractor. However, to give the contractor an incentive to make the effort, the contractor shares in the savings of an adopted VECP and can recover the reasonable development costs to create the VECP.

VECP Validity Requirements

To be considered as a valid VECP, several requirements must be met by the contractor's proposal. The proposal must:

• Originate Voluntarily From the Instant Contract. The subject proposal must originate voluntarily from an active contact by the person or company (contractor) having the primary contract with the Government. Proposals originating from a subcontractor must be submitted by the primary contractor to be considered as a VECP, as the subcontractor is not the party with the contractual responsibility to the Government. (Their contract is with the prime or a secondary contractor.)
• Require a Contract Change. Subject to stipulations in the contract to the contrary, if the proposal does not necessitate a change to the contract, the contractor does not need to submit a proposal and can proceed without consulting the Government. If savings are involved, those savings are, pursuant to the contract in effect, solely the contractor's.
• Reduce Actual Costs. The proposal must result in an actual overall reduction in the contract price and/or estimated cost to the agency. If the proposal would save funds but has implementation costs (including life-cycle costs) which negate the initial savings, no actual reduction in estimated cost to the agency exists.
• Involve Valid Proposal Changes. Changes in: deliverable end item quantities only (e. g., five mid-sized cars instead of six mid-sized cars), research and development (R&D) end items or R&D test quantities that is due solely to the result of previous testing of the involved contract (e. g., R&D efforts to determine number of generators needed has found one rather than the expected two will work), or to the contract type only (e. g., change contract from fixed-fee to performance), are specified to be proposals that do not meet acceptance requirements in the VE incentive clause.
• Maintain Essential Functions or Characteristics. The essential functions or characteristics of the contract may not be impaired if the proposal was to be accepted. Thus, to be considered acceptable, the submitted VECP must perform the basic functions and meet the purpose of the original contract. For example, a proposal on a contract to install heating and cooling units in a building involving different types of units would need to meet or exceed the thermal, noise, exhaust, and other requirements and limits that the original contracted units were designed and specified to provide.
• Include Evaluation Information. The proposal must include enough information that the Government can evaluate it. The minimum requirements are listed in FAR 52.248-1(c), "VECP Preparation." Demonstration of the use of the Value Method in the proposal is advised, and assists in the evaluation process. However, it is not required for acceptance.
• Include Time Requirements. If  schedule issues are critical, the proposal must include the time requirements that must be adhered to, in order to allow the VECP activity to take place.

VECP Processing

Pursuant to FAR 48.103(b), a 45 day limitation for processing completion is applied. If additional time is required, the CO or their authorized representative must notify the contractor promptly, in writing, giving the reasons for the delay and the anticipated decision date.

General

Waiting for decisions may slow contract work. Delays for VECP review are not compensable to the contractor. VECP processing should always receive priority treatment, including hand-carrying between same site offices and overnight mail or FAX between remote offices.