FAR 52.248-3—Value Engineering-Construction.
Plain-English Summary
FAR 52.248-3, Value Engineering-Construction, establishes the rules for contractor-submitted value engineering change proposals (VECPs) on construction contracts. It explains what a VECP is, what kinds of changes qualify, and what information the contractor must include when proposing a change that reduces contract price or estimated cost without impairing essential functions or characteristics. The clause also defines key cost concepts such as collateral costs, collateral savings, contractor development and implementation costs, government costs, and instant contract savings, because those definitions drive how savings are measured and shared. It sets out where VECPs must be submitted, how the Government must respond, the contractor’s right to withdraw a proposal before acceptance, and the contracting officer’s discretion to accept or reject all or part of a proposal. Finally, it explains the sharing formula and payment mechanism for contractor savings, including different share rates for fixed-price and cost-reimbursement contracts. In practice, this clause is intended to encourage contractors to identify cost-saving improvements during construction while protecting the Government’s interests, ensuring changes are evaluated for performance impact, and establishing a clear method for dividing the resulting savings.
Key Rules
VECPs are voluntary
The contractor is encouraged, but not required, to develop and submit value engineering change proposals. If the Government accepts a VECP, the contractor shares in the resulting instant contract savings under the clause’s sharing rules.
Only qualifying changes count
A VECP must require a change to the instant contract and must reduce the contract price or estimated cost without impairing essential functions or characteristics. It cannot be limited to changing deliverable quantities only or changing the contract type only.
Detailed proposal content required
Each VECP must include a description of the current requirement and the proposed change, comparative pros and cons, justification for any functional change, affected contract requirements and specification revisions, separate cost estimates, Government implementation costs, collateral cost effects, timing needed for maximum savings, and any prior submissions of the same VECP.
Submission goes through the resident engineer
The contractor must submit VECPs to the Resident Engineer at the worksite, with a copy to the Contracting Officer. If configuration management or similar procedures apply, those procedures control the format, identification, and priority of the VECP.
Government must respond promptly
The Contracting Officer must notify the contractor of the VECP’s status within 45 calendar days after receipt, or provide notice of delay, reasons, and an expected decision date. The Government must process VECPs expeditiously, but it is not liable for delay in acting on them.
Acceptance is unilateral and may be partial
The Contracting Officer may accept all or part of a VECP by contract modification, or may issue a notice to proceed even if price reduction terms are not yet agreed. Until acceptance or a notice to proceed is issued, the contractor must continue performing under the existing contract.
Savings are shared by formula
The Government’s share is calculated by subtracting Government costs from instant contract savings and applying the applicable percentage: 45 percent for fixed-price contracts and 75 percent for cost-reimbursement contracts.
Payment follows contract modification
Any contractor share due for an accepted VECP is authorized by a contract modification that accepts the VECP and adjusts the contract accordingly. The clause contemplates payment only after the VECP is formally accepted and applied to the contract.
Responsibilities
Contractor
Identify and develop potential VECPs, prepare the required supporting analysis and cost data, submit the proposal to the Resident Engineer with a copy to the Contracting Officer, and continue performing the contract as written until the Government accepts the VECP or issues a notice to proceed. The contractor may withdraw a VECP before acceptance and may need to give written notice before incurring significant VECP-related expenditures if the Contracting Officer requires it.
Contracting Officer
Review VECPs, notify the contractor of status within 45 calendar days or provide a timely extension notice, explain any rejection in writing, decide whether to accept all or part of a VECP at sole discretion, issue the contract modification or notice to proceed if accepting the proposal, and authorize payment of the contractor’s share through contract modification.
Resident Engineer
Receive VECP submissions at the worksite and serve as the initial submission point for the contractor, with a copy going to the Contracting Officer.
Government/Agency
Evaluate VECPs expeditiously, determine whether proposed changes affect performance, testing, operations, maintenance, logistics, or collateral costs, and calculate the Government’s share of savings after subtracting Government costs from instant contract savings.
Practical Implications
Contractors should build a strong cost and technical record before submitting a VECP, because the clause requires detailed comparisons, implementation costs, and collateral cost impacts. Weak documentation is a common reason proposals are delayed or rejected.
The 45-day response period is important, but it is not a guarantee of approval or immediate action. Contractors should not assume silence means acceptance, and they must keep performing under the existing contract until a modification or notice to proceed is issued.
The savings calculation can be more complex than simply comparing bid prices. Contractors and contracting officers must account for development and implementation costs, Government implementation costs, and collateral savings or costs, which can materially change the final share.
Because acceptance is discretionary and may be partial, contractors should expect the Government to accept only the portions that are technically and administratively supportable. A proposal that changes essential functions or lacks clear performance justification is at higher risk of rejection.
For construction contracts with configuration management or similar controls, the VECP must follow those procedures as well as the FAR clause. Missing required format, identification, or priority steps can slow review or make the proposal noncompliant.
Official Regulatory Text
As prescribed in 48.202 , insert the following clause: Value Engineering-Construction (Oct 2025) (a) General . The Contractor is encouraged to develop, prepare, and submit value engineering change proposals (VECP’s) voluntarily. The Contractor shall share in any instant contract savings realized from accepted VECP’s, in accordance with paragraph (f) of this clause. (b) Definitions . "Collateral costs," as used in this clause, means agency costs of operation, maintenance, logistic support, or Government-furnished property. Collateral savings , as used in this clause, means those measurable net reductions resulting from a VECP in the agency’s overall projected collateral costs, exclusive of acquisition savings, whether or not the acquisition cost changes. Contractor’s development and implementation costs , as used in this clause, means those costs the Contractor incurs on a VECP specifically in developing, testing, preparing, and submitting the VECP, as well as those costs the Contractor incurs to make the contractual changes required by Government acceptance of a VECP. Government costs , as used in this clause, means those agency costs that result directly from developing and implementing the VECP, such as any net increases in the cost of testing, operations, maintenance, and logistic support. The term does not include the normal administrative costs of processing the VECP. Instant contract savings , as used in this clause, means the estimated reduction in Contractor cost of performance resulting from acceptance of the VECP, minus allowable Contractor’s development and implementation costs, including subcontractors’ development and implementation costs (see paragraph (h) of this clause). Value engineering change proposal (VECP) means a proposal that- (1) Requires a change to this, the instant contract, to implement; and (2) Results in reducing the contract price or estimated cost without impairing essential functions or characteristics; provided , that it does not involve a change- (i) In deliverable end item quantities only; or (ii) To the contract type only. (c) VECP preparation . As a minimum, the Contractor shall include in each VECP the information described in paragraphs (c)(1) through (7) of this clause. If the proposed change is affected by contractually required configuration management or similar procedures, the instructions in those procedures relating to format, identification, and priority assignment shall govern VECP preparation. The VECP shall include the following: (1) A description of the difference between the existing contract requirement and that proposed, the comparative advantages and disadvantages of each, a justification when an item’s function or characteristics are being altered, and the effect of the change on the end item’s performance. (2) A list and analysis of the contract requirements that must be changed if the VECP is accepted, including any suggested specification revisions. (3) A separate, detailed cost estimate for (i) the affected portions of the existing contract requirement and (ii) the VECP. The cost reduction associated with the VECP shall take into account the Contractor’s allowable development and implementation costs, including any amount attributable to subcontracts under paragraph (h) of this clause. (4) A description and estimate of costs the Government may incur in implementing the VECP, such as test and evaluation and operating and support costs. (5) A prediction of any effects the proposed change would have on collateral costs to the agency. (6) A statement of the time by which a contract modification accepting the VECP must be issued in order to achieve the maximum cost reduction, noting any effect on the contract completion time or delivery schedule. (7) Identification of any previous submissions of the VECP, including the dates submitted, the agencies and contract numbers involved, and previous Government actions, if known. (d) Submission . The Contractor shall submit VECP’s to the Resident Engineer at the worksite, with a copy to the Contracting Officer. (e) Government action. (1) The Contracting Officer will notify the Contractor of the status of the VECP within 45 calendar days after the contracting office receives it. If additional time is required, the Contracting Officer will notify the Contractor within the 45-day period and provide the reason for the delay and the expected date of the decision. The Government will process VECP’s expeditiously; however, it will not be liable for any delay in acting upon a VECP. (2) If the VECP is not accepted, the Contracting Officer will notify the Contractor in writing, explaining the reasons for rejection. The Contractor may withdraw any VECP, in whole or in part, at any time before it is accepted by the Government. The Contracting Officer may require that the Contractor provide written notification before undertaking significant expenditures for VECP effort. (3) Any VECP may be accepted, in whole or in part, by the Contracting Officer’s award of a modification to this contract citing this clause. The Contracting Officer may accept the VECP, even though an agreement on price reduction has not been reached, by issuing the Contractor a notice to proceed with the change. Until a notice to proceed is issued or a contract modification applies a VECP to this contract, the Contractor shall perform in accordance with the existing contract. The decision to accept or reject all or part of any VECP is a unilateral decision made solely at the discretion of the Contracting Officer. (f) Sharing- (1) Rates . The Government’s share of savings is determined by subtracting Government costs from instant contract savings and multiplying the result by- (i) 45 percent for fixed-price contracts; or (ii) 75 percent for cost-reimbursement contracts. (2) Payment . Payment of any share due the Contractor for use of a VECP on this contract shall be authorized by a modification to this contract to- (i) Accept the VECP; (ii) Reduce the contract price or estimated cost by the amount of instant contract savings; and (iii) Provide the Contractor’s share of savings by adding the amount calculated to the contract price or fee. (g) Collateral savings . If a VECP is accepted, the Contracting Officer will increase the instant contract amount by 20 percent of any projected collateral savings determined to be realized in a typical year of use after subtracting any Government costs not previously offset. However, the Contractor’s share of collateral savings will not exceed the contract’s firm-fixed-price or estimated cost, at the time the VECP is accepted, or $100,000, whichever is greater. The Contracting Officer is the sole determiner of the amount of collateral savings. (h) Subcontracts . The Contractor shall include an appropriate value engineering clause in any subcontract of $90,000 or more and may include one in subcontracts of lesser value. In computing any adjustment in this contract’s price under paragraph (f) of this clause, the Contractor’s allowable development and implementation costs shall include any subcontractor’s allowable development and implementation costs clearly resulting from a VECP accepted by the Government under this contract, but shall exclude any value engineering incentive payments to a subcontractor. The Contractor may choose any arrangement for subcontractor value engineering incentive payments; provided , that these payments shall not reduce the Government’s share of the savings resulting from the VECP. (i) Data . The Contractor may restrict the Government’s right to use any part of a VECP or the supporting data by marking the following legend on the affected parts: These data, furnished under the Value Engineering-Construction clause of contract _____ , shall not be disclosed outside the Government or duplicated, used, or disclosed, in whole or in part, for any purpose other than to evaluate a value engineering change proposal submitted under the clause. This restriction does not limit the Government’s right to use information contained in these data if it has been obtained or is otherwise available from the Contractor or from another source without limitations. If a VECP is accepted, the Contractor hereby grants the Government unlimited rights in the VECP and supporting data, except that, with respect to data qualifying and submitted as limited rights technical data, the Government shall have the rights specified in the contract modification implementing the VECP and shall appropriately mark the data. (The terms "unlimited rights" and "limited rights" are defined in part 27 of the Federal Acquisition Regulation.) (End of clause) Alternate I (Apr 1984) . When the head of the contracting activity determines that the cost of calculating and tracking collateral savings will exceed the benefits to be derived in a construction contract, delete paragraph (g) from the basic clause and redesignate the remaining paragraphs accordingly.