FAR 48.104-1—Determining sharing period.
Plain-English Summary
FAR 48.104-1 explains how a contracting officer determines the "sharing period" for a value engineering change proposal (VECP), which is the time window during which the contractor can share in savings generated by the accepted proposal. The section covers four main topics: the requirement to set a discrete sharing period for each VECP; how the sharing period starts; how the end date is determined for ordinary contracts; and special rules for engineering-development contracts, low-rate-initial-production or early production units, and prolonged production schedules such as ship construction or major system acquisitions. It also addresses how the end of the sharing period may be tied to a specific quantity of future units rather than a calendar date in certain cases, and it allows agencies to extend sharing of future savings to later contracts for essentially the same item. In practice, this section matters because the sharing period controls the contractor’s incentive payment window and the government’s obligation to share savings, so getting the start point, end point, and affected units right is essential to avoid disputes and miscalculated VECP payments.
Key Rules
Set a discrete period
The contracting officer must establish a separate sharing period for each VECP. If multiple VECPs are incorporated into the same contract, each proposal may have a different sharing period depending on its facts and timing.
Start at first acceptance
The sharing period begins when the first unit incorporating the VECP is accepted. Acceptance of that first affected unit is the trigger for measuring the sharing period, not proposal approval or contract modification alone.
Use a calendar end date
For most contracts, the end of the sharing period is a specific calendar date. The contracting officer selects a period of 36 to 60 consecutive months after acceptance of the first affected unit, and the end date must also be no earlier than the last scheduled delivery date of an affected item under the contract schedule in effect when the VECP is accepted.
Special rule for development and early production
For engineering-development contracts and contracts with low-rate-initial-production or early production units, the end of the sharing period is based on a specified quantity of future units rather than a calendar date. That quantity must cover the number of affected units scheduled over a 36- to 60-month period that spans the highest planned production level.
Count consecutive future units
When the quantity-based rule applies, the sharing period starts with the first future contract unit affected by the VECP and ends when the last unit in the specified quantity is accepted. The units must be consecutive deliveries, so the end point is tied to acceptance of a defined production run.
Apply special treatment for prolonged production
For prolonged production schedules such as ship construction or major system acquisition, the end of the sharing period is determined under the ordinary calendar-date rule in paragraph (b). Agencies may also prescribe sharing of future savings on later contracts for essentially the same item, even if those later deliveries occur outside the original sharing period.
Responsibilities
Contracting Officer
Determine a discrete sharing period for each VECP, choose the 36- to 60-month period within the regulatory range, identify the correct end date or quantity-based endpoint, and ensure the sharing period aligns with the contract’s delivery schedule and the type of contract involved.
Contractor
Track when the first affected unit is accepted, understand the applicable sharing period for each VECP, and present savings claims only for units and time periods that fall within the established sharing period.
Agency
If authorized by policy, prescribe rules for sharing future contract savings on later contracts for essentially the same item, including contracts awarded within the sharing period even when delivery occurs later.
Practical Implications
The acceptance date of the first affected unit is critical because it starts the clock; if that date is wrong, the entire savings-sharing calculation can be wrong.
The contracting officer has discretion to choose a sharing period between 36 and 60 months, so the selected length can materially affect both contractor incentive and government savings retention.
For development and early production contracts, the endpoint may depend on production quantities rather than dates, which requires careful coordination with production planning documents and delivery schedules.
Prolonged production programs can create confusion because the sharing period still uses the calendar-date rule, but agencies may extend sharing to later contracts for the same item, so contractors should check agency-specific policy.
A common pitfall is assuming all VECPs in a contract share the same period; each VECP must be analyzed separately, especially when proposals are accepted at different times or affect different units.
Official Regulatory Text
(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 subsection, 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 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.