FAR 48.201—Clauses for supply or service contracts.
Plain-English Summary
FAR 48.201 explains when and how contracting officers must use the Federal value engineering clause in supply and service contracts, and when they must not use it. It covers the basic rule for inserting the Value Engineering clause at 52.248-1, the exceptions for certain contract types such as research and development, nonprofit engineering services, personal services, product or component improvement, certain commercial products, and exempted contracts, and the circumstances in which the clause may be used in lower-dollar contracts. It also addresses when to use the clause’s alternates for a mandatory value engineering program requirement, for both an incentive and a program requirement together, and when collateral savings are not cost-effective to compute and track. In addition, it covers the special architect-engineer clause at 52.248-2, which must be used instead of 52.248-1 when the Government requires and pays for a specific VE effort in A-E contracts. Finally, it requires special clause modifications for engineering-development, low-rate-initial-production, early production, and extended-production contracts so that savings sharing is calculated against the correct production quantities. In practice, this section determines whether value engineering is optional, incentivized, mandatory, or excluded, and it affects pricing, line-item structure, savings sharing, and contract administration.
Key Rules
Insert VE clause above SAT
The contracting officer must include the value engineering clause in solicitations and contracts expected to exceed the simplified acquisition threshold, unless an exception applies. The clause may also be used below the threshold when significant savings are likely.
Do not use in excluded contracts
The clause generally may not be used for R&D other than full-scale development, nonprofit engineering services, personal services, product or component improvement contracts, certain commercial products without special packaging/specification needs, or contracts exempted by the agency head, unless the chief of the contracting office authorizes it.
Use standard VE incentive clause
When a value engineering incentive is appropriate, the contracting officer must insert 52.248-1. This is the default VE approach unless the contract falls within an exception or a different alternate is required.
Use Alternate I for mandatory VE
If the Government wants a required, sustained VE effort at a specified level because substantial savings may result, the contracting officer must use 52.248-1 with Alternate I. The program requirement may be set by the Government or proposed by the contractor and must be separately priced.
Use Alternate II for both
If both a VE incentive and a mandatory VE program requirement are appropriate, the contracting officer must use 52.248-1 with Alternate II. The mandatory program must be limited to clearly defined areas of performance identified by line item.
Use Alternate III when collateral savings tracking is not worth it
If the head of the contracting activity determines that computing and tracking collateral savings would cost more than the benefit, the contracting officer must use Alternate III, with additional alternates depending on whether the contract has an incentive, a program requirement, or both.
Use A-E specific clause
For architect-engineer contracts where the Government requires and pays for a specific VE effort, the contracting officer must use 52.248-2 instead of 52.248-1. The standard VE clause is not used for A-E services.
Modify clause for special production settings
For engineering-development, low-rate-initial-production, early production, and extended-production contracts, the contracting officer must modify 52.248-1 so savings sharing is based on the correct future production quantity or contracts awarded during the sharing period, as applicable.
Responsibilities
Contracting Officer
Determine whether a value engineering clause is required, permitted, or prohibited; select the correct clause and alternate; ensure any mandatory VE program is separately priced and limited to defined line items; and make the required clause modifications for engineering-development, low-rate-initial-production, early production, and extended-production contracts.
Chief of the Contracting Office
Authorize inclusion of a value engineering clause in contract types that are otherwise excluded when such inclusion is appropriate.
Head of the Agency
Exempt a contract or class of contracts from Part 48 requirements when warranted.
Head of the Contracting Activity
Determine whether collateral savings are not cost-effective to compute and track, which triggers use of Alternate III and related alternates.
Contractor
If proposing or performing a VE program requirement, identify the effort in the offer or contract performance, support pricing of the separately priced line item, and comply with the VE clause and any required program scope limitations.
Practical Implications
This section is a clause-selection rule set, so getting the wrong clause or alternate can create pricing, administration, and payment problems later.
Contracting officers must distinguish between a voluntary VE incentive and a mandatory VE program; they are not interchangeable and have different clause alternates and pricing treatment.
The exceptions matter: many contracts that look like good candidates for innovation still cannot use the standard VE clause without special authorization.
For certain production programs, the default sharing base must be adjusted to match the actual production horizon, or savings calculations will be wrong.
A-E contracts are treated separately, so using 52.248-1 in an architect-engineer procurement is a common compliance error.
When collateral savings are not cost-effective to track, the contract must be tailored accordingly; otherwise the Government may spend more administering the program than it saves.
Contract schedules should clearly identify any mandatory VE program requirement as a separate line item to avoid ambiguity in pricing and performance expectations.
Official Regulatory Text
(a) General. The contracting officer shall insert a value engineering clause in solicitations and contracts when the contract amount is expected to exceed the simplified acquisition threshold, except as specified in paragraphs (a)(1) through (5) and in paragraph (f) of this section. A value engineering clause may be included in contracts of lesser value if the contracting officer sees a potential for significant savings. Unless the chief of the contracting office authorizes its inclusion, the contracting officer shall not include a value engineering clause in solicitations and contracts- (1) For research and development other than full-scale development; (2) For engineering services from not-for-profit or nonprofit organizations; (3) For personal services (see subpart 37.1 ); (4) Providing for product or component improvement, unless the value engineering incentive application is restricted to areas not covered by provisions for product or component improvement; (5) For commercial products (see part 11 ) that do not involve packaging specifications or other special requirements or specifications; or (6) When the agency head has exempted the contract (or a class of contracts) from the requirements of this part 48 . (b) Value engineering incentive. To provide a value engineering incentive, the contracting officer shall insert the clause at 52.248-1 , Value Engineering, in solicitations and contracts except as provided in paragraph (a) of this section (but see paragraph (e)(1) of this section). (c) Value engineering program requirement. (1) If a mandatory value engineering effort is appropriate ( i.e., if the contracting officer considers that substantial savings to the Government may result from a sustained value engineering effort of a specified level), the contracting officer shall use the clause with its AlternateI (but see paragraph (e)(2) of this section). (2) The value engineering program requirement may be specified by the Government in the solicitation or, in the case of negotiated contracting, proposed by the contractor as part of its offer and included as a subject for negotiation. The program requirement shall be shown as a separately priced line item in the contract Schedule. (d) Value engineering incentive and program requirement. (1) If both a value engineering incentive and a mandatory program requirement are appropriate, the contracting officer shall use the clause with its AlternateII (but see paragraph (e)(3) of this section). (2) The contract shall restrict the value engineering program requirement to well-defined areas of performance designated by line item in the contract Schedule. AlternateII applies a value engineering program to the specified areas and a value engineering incentive to the remaining areas of the contract. (e) Collateral savings computation not cost-effective. If the head of the contracting activity determines for a contract or class of contracts that the cost of computing and tracking collateral savings will exceed the benefits to be derived, the contracting officer shall use the clause with its- (1) AlternateIII if a value engineering incentive is involved; (2) AlternateIII and AlternateI if a value engineering program requirement is involved; or (3) AlternateIII and AlternateII if both an incentive and a program requirement are involved. (f) Architect-engineer contracts. The contracting officer shall insert the clause at 52.248-2 , Value Engineering Architect-Engineer, in solicitations and contracts whenever the Government requires and pays for a specific value engineering effort in architect-engineer contracts. The clause at 52.248-1 , Value Engineering, shall not be used in solicitations and contracts for architect-engineer services. (g) Engineering-development solicitations and contracts. For engineering-development solicitations and contracts, and solicitations and contracts containing low-rate-initial-production or early production units, the contracting officer must modify the clause at 52.248-1 , Value Engineering, by- (1) Revising paragraph (i)(3)(i) of the clause by substituting "a number equal to the quantity required 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;" for "the number of future contract units scheduled for delivery during the sharing period;" and (2) Revising the first sentence under paragraph (3) of the definition of "acquisition savings" by substituting "a number equal to the quantity 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." for "the number of future contract units in the sharing base." (h) Extended production period solicitations and contracts . In solicitations and contracts for items requiring an extended period for production ( e.g., ship construction, major system acquisition), if agency procedures prescribe sharing of future contract savings on all units to be delivered under contracts awarded during the sharing period (see 48.104-1 (c)), the contracting officer must modify the clause at 52.248-1 , Value Engineering, by revising paragraph (i)(3)(i) of the clause and the first sentence under paragraph (3) of the definition of "acquisition savings" by substituting "under contracts awarded during the sharing period" for "during the sharing period."