FAR 48.105—Relationship to other incentives.
Plain-English Summary
FAR 48.105 explains how value engineering change proposals (VECPs) interact with other contract incentive structures, such as performance incentives, design-to-cost incentives, and similar award or target mechanisms. Its purpose is to prevent double counting: a contractor should be encouraged to propose cost-saving or performance-improving changes, but the same benefit should not be paid twice through both value engineering shares and another incentive already tied to the affected target. In practice, this means the government must preserve the original incentive targets when a VECP is accepted, rather than revising them upward or downward to reflect the VECP’s effect. The section also makes clear that only the portion of VECP benefit not already rewardable under another incentive may be paid under the value engineering clause. For contracting officers and contractors, this rule is important because it affects how savings are measured, how incentive formulas are applied, and whether a VECP produces additional compensation beyond the contract’s existing incentive structure.
Key Rules
No double reward
An accepted VECP may not be rewarded both as a value engineering share and again through performance, design-to-cost, or similar contract incentives. The same benefit cannot be counted twice.
Do not reset targets
If a VECP affects a performance, design-to-cost, or similar incentive target, the target is not adjusted because the VECP was accepted. The original incentive baseline remains in place.
Reward only unrewarded benefits
The value engineering clause pays only for the portion of the VECP benefit that is not already compensable under another incentive. Any benefit already captured by another incentive is excluded from VECP sharing.
Applies to similar incentives
The rule is not limited to named incentive types. It also covers other comparable contract incentives that would otherwise reward the same improvement or savings produced by the VECP.
Responsibilities
Contracting Officer
Ensure VECPs are evaluated without duplicating benefits already covered by other contract incentives. Keep incentive targets unchanged when a VECP affects them, and calculate any VECP share only for benefits not otherwise rewardable.
Contractor
Submit VECPs with an understanding that the same savings or performance gain will not be paid twice. Distinguish the portion of the proposal that creates separate VECP value from any portion already covered by another incentive.
Agency
Structure and administer incentive arrangements so they do not overlap improperly with value engineering payments. Maintain consistent application of the no-double-reward rule across contract administration and settlement of VECPs.
Practical Implications
Contractors should expect that a VECP may still be valuable even when the contract has other incentives, but the payment will be limited to the net benefit not already captured elsewhere.
Contracting officers must be careful when a VECP improves cost, performance, or technical targets that are already incentivized; the incentive formula should be applied using the original target, not a revised one.
A common pitfall is inadvertently increasing a contractor’s award by both accepting the VECP and relaxing the related performance or cost target. FAR 48.105 prohibits that approach.
When evaluating a VECP, the parties should separate the proposal’s effects into rewarded and unrewarded portions to avoid disputes over entitlement and to support a defensible payment calculation.
This section matters most in contracts with multiple incentive mechanisms, where overlap can easily occur unless the contracting officer documents how the VECP interacts with each incentive.
Official Regulatory Text
Contractors should be offered the fullest possible range of motivation, yet the benefits of an accepted VECP should not be rewarded both as value engineering shares and under performance, design-to-cost, or similar incentives of the contract. To that end, when performance, design-to-cost, or similar targets are set and incentivized, the targets of such incentives affected by the VECP are not to be adjusted because of the acceptance of the VECP. Only those benefits of an accepted VECP not rewardable under other incentives are rewarded under a value engineering clause.