FAR Part 48: Value Engineering

In plain English

FAR Part 48 prescribes policies and procedures for using value engineering (VE) in contracts. It allows contractors to voluntarily propose changes that reduce costs and share in the savings, or requires a mandatory VE program. It matters because it can lead to financial incentives for contractors and cost savings for the Government.

Key rules

• Contractors may voluntarily submit value engineering change proposals (VECPs) and share in resulting savings, or be required to establish a VE program. (48.101)
• Agencies must provide contractors a substantial financial incentive to develop and submit VECPs and process them objectively and expeditiously. (48.102)
• The contracting officer must accept or reject a VECP within 45 days of receipt, or notify the contractor of the anticipated decision date. (48.103)
• The sharing period for a VECP begins with acceptance of the first unit incorporating the VECP and ends 36 to 60 months later or at the last scheduled delivery, as determined by the contracting officer. (48.104-1)
• The contractor's share of net acquisition savings is based on the contract type, VE clause, and savings type, with possible increases up to 75% for each VECP. (48.104-2)
• The contractor's share of collateral savings may range from 20 to 100 percent of estimated savings, but must not exceed the greater of the contract's firm-fixed-price, target price, target cost, or estimated cost at VECP acceptance, or $100,000. (48.104-3)
• A no-cost settlement may be used by mutual agreement, where the contractor keeps all instant and concurrent contract savings, and the Government keeps all other savings. (48.104-4)
• A value engineering clause must be inserted in supply or service contracts expected to exceed the simplified acquisition threshold, with certain exceptions. (48.201)

Who does what

In practice

• If you have a value engineering clause in your contract, you can propose changes that reduce costs and share in the savings, but you must follow the submission requirements in the clause.
• The Government must evaluate your VECP within 45 days; if not, you may withdraw it. Until a modification is effective, you must continue performing under the existing contract.
• Savings are shared based on a sharing period that can last 36 to 60 months, so you may receive payments over time as future contracts are awarded.
• For collateral savings, your share is negotiated and capped, so consider whether the effort to track such savings is worthwhile.

Common pitfalls

• Assuming that all savings are shared equally: the sharing rate depends on the contract type, VE clause, and type of savings, and may be increased up to certain limits.
• Failing to submit a VECP in the format required by the clause, which could lead to rejection.
• Not accounting for the fact that if the Government accepts the VECP but later properly rejects units or does not receive units, you must reimburse the proportionate share of payments.
• Overlooking that benefits of an accepted VECP should not be rewarded both as value engineering shares and under other incentives like performance or design-to-cost.

Written by AI from this part's codified text (2026-10-04); cited sections are checked against the part. A guide, not legal advice: the regulation text, the solicitation and your contract rule.