FAR 48.104-2—Sharing acquisition savings.
Plain-English Summary
FAR 48.104-2 explains how to divide acquisition savings created by an accepted value engineering change proposal (VECP). It covers the sharing base, the Government/contractor sharing rates for supply and service contracts, how savings are treated on the instant contract versus concurrent and future contracts, how net acquisition savings are calculated, how incentive contracts are handled, how affected units and recordkeeping are identified, how and when the contractor is paid, when the contracting officer must modify the instant contract, when a lump-sum payment for future savings may be used, and what factors the contracting officer must consider before using that method. It also separately addresses construction contracts, limiting sharing to instant-contract savings and collateral savings and setting different Government share percentages for fixed-price and cost-reimbursement construction contracts. In practice, this section tells contracting officers how to compute and pay the contractor’s share of savings and tells contractors what records and expectations apply after a VECP is accepted. The rule is important because it determines whether a VECP produces real financial benefit for both parties and how that benefit is allocated over time and across related contracts.
Key Rules
Sharing base is affected end items
For supply and service contracts, the sharing base is the number of affected end items on contracts of the contracting office that accepted the VECP. This means the savings calculation is tied to the quantity actually impacted, not just the original contract line item value.
Sharing rates depend on contract type
The Government/contractor split for net acquisition savings varies by contract type and whether the VECP is under a sharing agreement, incentive arrangement, or mandatory program requirement. Fixed-price contracts generally use 50/50 under sharing agreements and 75/25 under mandatory programs; incentive contracts follow the contract’s profit or fee adjustment formula for voluntary programs and 75/25 for mandatory programs; cost-reimbursement contracts generally use 75/25 under sharing agreements and 85/15 under mandatory programs, with limited authority for the contracting officer to increase the contractor’s share in some cases.
Savings may arise over time
Acquisition savings can be realized on the instant contract, on concurrent contracts, and on future contracts. The contractor is entitled only to its percentage share of net acquisition savings, which exist when total acquisition savings exceed Government costs and any negative instant-contract savings.
Instant contract treatment differs by contract type
If the instant contract is not an incentive contract, the contractor’s share is calculated and paid each time savings are realized. If the instant contract is an incentive contract, instant-contract savings are handled through the contract’s incentive structure, and any negative instant-contract savings are added to target cost or target price and ceiling price before offsetting against concurrent and future savings.
Affected units and recordkeeping matter
The contractor shares in savings on all affected units scheduled for delivery during the sharing period. The contractor must keep records for 3 years after final payment under the contract under which the VECP was accepted so the first delivered unit incorporating the VECP can be identified.
Payments flow through the accepting contract
The contractor’s share is paid through the contract under which the VECP was accepted. On incentive contracts, the contractor’s share of concurrent and future contract savings and collateral savings must be paid as a separate firm-fixed-price line item on the instant contract.
Concurrent and future savings must be timely adjusted
Within 3 months after concurrent contracts are modified to reflect VECP-related price reductions, the contracting officer must modify the instant contract to provide the contractor’s share. For future contracts, the contracting officer ordinarily calculates savings as each future contract is awarded and must modify the instant contract within 3 months after award.
Lump-sum future savings are limited
Future contract savings may be paid as a lump sum at VECP acceptance only if the contracting officer determines that method is best and the contractor agrees. In deciding whether to use lump sum, the contracting officer must consider the accuracy of quantity estimates, the likelihood of actual production, the availability of funds, and the administrative burden of repeated contract modifications.
Construction contracts have narrower sharing
For construction contracts, sharing applies only to instant-contract savings and collateral savings. The Government share is 45 percent of net savings for fixed-price construction contracts and 75 percent for cost-reimbursement construction contracts, and value engineering sharing does not apply to incentive construction contracts.
Responsibilities
Contracting Officer
Determine the applicable sharing rate based on contract type and VECP program type; calculate net acquisition savings; decide whether future savings should be paid by lump sum or as future contracts are awarded; modify the instant contract within the required timeframes; ensure incentive-contract savings are handled correctly; and consider the required factors before approving lump-sum payment.
Contractor
Track and document affected units and maintain records for 3 years after final payment; support savings calculations; accept the applicable sharing arrangement; and receive payment through the contract under which the VECP was accepted.
Agency/Contracting Office
Apply the correct sharing base for the accepting contracting office; coordinate modifications to concurrent contracts; and ensure savings are recognized and paid consistently across instant, concurrent, and future contracts.
Government
Recognize and credit acquisition savings, offset Government costs and negative instant-contract savings where required, and pay the contractor’s share according to the applicable contract mechanism and timing rules.
Practical Implications
This section is the roadmap for turning a VECP into actual dollars, so both sides need to understand when savings are counted and when they are not. A common mistake is assuming all savings are immediate; in reality, net acquisition savings may not exist until concurrent or future contract reductions are realized.
Contract type drives the economics. The same VECP can produce very different contractor shares depending on whether the instant contract is fixed-price, incentive, or cost-reimbursement, and whether the VECP is voluntary or mandatory.
Recordkeeping is critical. If the contractor cannot identify the first delivered unit incorporating the VECP, disputes can arise over which units are shareable and for how long the sharing period runs.
Timing of contract modifications matters. Contracting officers must act within the specified periods after concurrent or future contract savings are realized, and delays can create payment and audit issues.
For future savings, lump-sum payment is not automatic. It should be used only when estimates are reliable, funds are available, and repeated modifications would be inefficient; otherwise, the default is to calculate savings as future contracts are awarded.
Official Regulatory Text
(a) Supply or service contracts. (1) The sharing base for acquisition savings is the number of affected end items on contracts of the contracting office accepting the VECP. The sharing rates (Government/contractor) for net acquisition savings for supplies and services are based on the type of contract, the value engineering clause or alternate used, and the type of savings, as follows: Government/Contractor Shares of Net Acquisition Savings (Figures in Percent) Contract Type Sharing Agreement Incentive (Voluntary) Program Requirement (Mandatory) Instant contract rate Concurrent and future contract rate Instant contract rate Concurrent and future contract 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).) (2) Acquisition savings may be realized on the instant contract, concurrent contracts, and future contracts. The contractor is entitled to a percentage share (see paragraph (a)(1)) of any net acquisition savings. Net acquisition savings result when the total of acquisition savings becomes greater than the total of Government costs and any negative instant contract savings. This may occur on the instant contract or it may not occur until reductions have been negotiated on concurrent contracts or until future contract savings are calculated, either through lump-sum payment or as each future contract is awarded. (i) When the instant contract is not an incentive contract, the contractor’s share of net acquisition savings is calculated and paid each time such savings are realized. This may occur once, several times, or, in rare cases, not at all. (ii) When the instant contract is an incentive contract, the contractor shares in instant contract savings through the contract’s incentive structure. In calculating acquisition savings under incentive contracts, the contracting officer shall add any negative instant contract savings to the target cost or to the target price and ceiling price and then offset these negative instant contract savings and any Government costs against concurrent and future contract savings. (3) The contractor shares in the savings on all affected units scheduled for delivery during the sharing period. The contractor is responsible for maintaining, for 3 years after final payment on the contract under which the VECP was accepted, records adequate to identify the first delivered unit incorporating the applicable VECP. (4) Contractor shares of savings are paid through the contract under which the VECP was accepted. On incentive contracts, the contractor’s share of concurrent and future contract savings and of collateral savings shall be paid as a separate firm-fixed-price line item on the instant contract. (5) Within 3 months after concurrent contracts have been modified to reflect price reductions attributable to use of the VECP, the contracting officer shall modify the instant contract to provide the contractor’s share of savings. (6) The contractor’s share of future contract savings may be paid as subsequent contracts are awarded or in a lump-sum payment at the time the VECP is accepted. The lump-sum method may be used only if the contracting officer has established that this is the best way to proceed and the contractor agrees. The contracting officer ordinarily shall make calculations as future contracts are awarded and, within 3 months after award, modify the instant contract to provide the contractor’s share of the savings. For future contract savings calculated under the optional lump-sum method, the sharing base is an estimate of the number of items that the contracting officer will purchase for delivery during the sharing period. In deciding whether or not to use the more convenient lump-sum method for an individual VECP, the contracting officer shall consider- (i) The accuracy with which the number of items to be delivered during the sharing period can be estimated and the probability of actual production of the projected quantity; (ii) The availability of funds for a lump-sum payment; and (iii) The administrative expense of amending the instant contract as future contracts are awarded. (b) Construction contracts. Sharing on construction contracts applies only to savings on the instant contract and to collateral savings. The Government’s share of savings is determined by subtracting Government costs from instant contract savings and multiplying the result by (1)45 percent for fixed-price contracts or (2)75 percent for cost-reimbursement contracts. Value engineering sharing does not apply to incentive construction contracts.