[Federal Register Volume 61, Number 237 (Monday, December 9, 1996)]
[Rules and Regulations]
[Pages 64823-64825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31134]
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NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 1843 and 1852
Addition of Coverage to NASA FAR Supplement (NFS) on NASA Shared
Savings Clause
AGENCY: Office of Procurement, National Aeronautics and Space
Administration (NASA).
ACTION: Final rule.
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SUMMARY: Parts 1843 and 1852 are amended to establish the conditions
for use and the administrative procedures for a ``Shared Savings
Clause'' to be used in solicitations and contracts.
EFFECTIVE DATE: December 9, 1996.
ADDRESSES: Mr. James A. Balinskas, Code HC, NASA Headquarters, 300 E
Street SW, Washington, DC 20546-0001.
FOR FURTHER INFORMATION CONTACT:
Mr. James A. Balinskas, NASA Headquarters, Code HC, telephone: (202)
358-0445.
SUPPLEMENTARY INFORMATION:
Background
On October 20, 1995, a proposed rule to amend the NFS to add a
``Shared Savings Clause'' was published in the Federal Register (60 FR
54208). The intent of the clause was to provide an incentive for
contractors to identify and implement significant cost reduction
programs. In return, they would be eligible for a share of realized
savings which resulted from those cost-cutting projects once they were
approved by the contracting officer. Comments were received both from
within NASA and from industry. All comments were reviewed and the rule
was revised to reflect the comments where it was considered warranted.
Many of the revisions were made to clarify definitions, improve
consistency of terms used throughout the contract clause, limit
applicability of the clause to the appropriate classes of contracts,
and better communicate how the provisions of the clause were intended
to operate. In addition, the location of the proposed rule within the
NFS was also changed.
Impact
NASA certifies that this regulation will not have a significant
economic impact on a substantial number of small entities under the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). This rule does not
impose any recordkeeping requirements subject to the Paperwork
Reduction Act.
List of Subjects in 48 CFR Parts 1843 and 1852
Government procurement.
Tom Luedtke,
Deputy Associate Administrator for Procurement.
Accordingly, 48 CFR 1843 and 1852 are amended as follows:
1. The authority citation for 48 CFR 1843 and 1852 continues to
read as follows:
Authority: U.S.C. 2473(c)(1).
PART 1843--CONTRACT MODIFICATIONS
Subpart 1843.71--[Added]
2. Subpart 1843.71 is added to read as follows:
Subpart 1843.71--Shared Savings
1843.7101 Shared Savings Program.
This subpart establishes and describes the methods for implementing
and administering a Shared Savings Program. This program provides an
incentive for contractors to propose and implement, with NASA approval,
significant cost reduction initiatives. NASA will benefit as the more
efficient business practices that are implemented lead to reduced costs
on current and follow-on contracts. In return, contractors are entitled
to share in cost savings subject to limits established in the contract.
The contracting officer may require the contractor to provide periodic
reporting, or other justification, or to require other steps (e.g.,
cost segregation) to ensure projected cost savings and being realized.
1843.7102 Solicitation provision and contract clause.
The contracting officer shall insert the clause at 1852.243-71,
Shared Savings, in all solicitations and contracts expected to exceed
$1,000,000, except those awarded under FAR part 12, NRA,
[[Page 64824]]
or AO procedures, or those awarded under the SBIR or STTR programs.
PART 1852--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
1852.243-71 [Added]
3. Section 1852.243-71 is added to read as follows:
1852.243-71 Shared Savings.
As prescribed in 1843.7102, insert the following clause:
SHARED SAVINGS
December 1996
(a) The Contractor is entitled, under the provisions of this
clause, to share in cost savings resulting from the implementation
of cost reduction projects which are presented to the Government in
the form of Cost Reduction Proposals (CRP) and approved by the
Contracting Officer. These cost reduction projects may require
changes to the terms, conditions or statement of work of this
contract. Any cost reduction projects must not change the essential
function of any products to be delivered or the essential purpose of
services to be provided under the contract.
(b) Definitions: (1) Cost savings, as contemplated by this
clause, means savings that result from instituting changes to the
covered contract, as identified in an approved Cost Reduction
Proposal.
(2) Cost Reduction Proposal (CRP)--For the purposes of this
clause, a Cost Reduction Proposal means a proposal that recommends
alternatives to the established procedures and/or organizational
support of a contract or group of contracts. These alternatives must
result in a net reduction of contract cost and price to NASA. The
proposal will include technical and cost information sufficient to
enable the Contracting Officer to evaluate the CRP and approve or
disapprove it.
(3) Covered contract--As used in this clause, covered contract
means the contract, including unexercised options but excluding
future contracts, whether contemplated or not, against which the CRP
is submitted.
(4) Contractor implementation costs--As used in this clause,
contractor implementation costs, or ``implementation costs'', shall
mean those costs which the Contractor incurs on covered contracts
specifically in developing, preparing, submitting, and negotiating a
CRP, as well as those costs the Contractor will incur on covered
contracts to make any structural or organizational changes in order
to implement an approved CRP.
(5) Government costs--As used in this clause, the term
government costs means internal costs of NASA, or any other
government agency, which result directly from development and
implementation of the CRP. These may include, but are not limited
to, costs associated with the administration of the contract or with
such contractually related functions such as testing, operations,
maintenance and logistics support. These costs also include costs
associated with other Agency contracts (including changes in
contract price or cost and fee) that may be affected as a result of
the implementation of a CRP. They do not include the normal
administrative costs of reviewing and processing the CRP.
(c) General. The Contractor will develop, prepare and submit
CRPs with supporting information, as detailed in paragraph (e) of
this clause, to the Contracting Officer. The CRP will describe the
proposed cost reduction activity in sufficient detail to enable the
Contracting Officer to evaluate it and to approve or disapprove it.
The Contractor shall share in any net cost savings realized from
approved and implemented CRPs in accordance with the terms of this
clause. The Contractor's actual percentage share of the cost savings
shall be a matter for negotiation with the Contracting Officer, but
shall not, in any event, exceed 50 percent of the total cost savings
recognized by the Contracting Officer. The Contractor may propose
changes in other activities that impact performance on its contract,
including government and other contractor operations, if such
changes will optimize cost savings. A Contractor shall not be
entitled to share, however, in any cost savings that are internal to
the Government, or which result from changes made to any contracts
to which it is not a party even if those changes were proposed as a
part of its CRP. Early communication between the Contractor and the
Government is encouraged. The communication may be in the form of a
concept paper or preliminary proposal. The Government is not
committed to accepting any proposal as a result of these early
discussions.
(d) Computation of cost savings. The cost savings to be shared
between the Government and the Contractor will be computed by the
Contracting Officer by comparing a current estimate to complete
(ETC) for the covered contract, as structured before implementation
of the proposed CRP, to a revised ETC which takes into account the
implementation of that CRP. The cost savings to be shared shall be
reduced by any cost overrun, whether experienced or projected, that
is identified on the covered contract before implementation of the
CRP. Although a CRP may result in cost savings that extend far into
the future, the period in which the Contractor may share in those
savings will be limited to no more than five years. Implementation
costs of the Contractor must be considered and specifically
identified in the revised ETC. The Contracting Officer shall offset
Contractor cost savings by any increased costs (whether implementing
or recurring) to the Government when computing the total cost
savings to be shared. The Contractor shall not be entitled, under
the provisions of this clause, to share in any cost reductions to
the contract that are the result of changes stemming from any action
other than an approved CRP. However, this clause does not limit
recovery of any such reimbursements that are allowed as a result of
other contract provisions.
(e) Supporting Information. As a minimum, the Contractor shall
provide the following supporting information with each CRP:
(1) Identification of the current contract requirements or
established procedures and/or organizational support which are
proposed to be changed.
(2) A description of the difference between the current process
or procedure and the proposed change. This description shall address
how proposed changes will meet NASA requirements and discuss the
advantages and disadvantages of the existing practice and the
proposed changes.
(3) A list of contract requirements which must be revised, if
any, if the CRP is approved, along with proposed revisions. Any
changes to NASA or delegated contract management processes should
also be addressed.
(4) Detailed cost estimates which reflect the implementation
costs of the CRP.
(5) An updated ETC for the covered contract, unchanged, and a
revised ETC for the covered contract which reflects changes
resulting from implementing the CRP. If the CRP proposes changes to
only a limited number of elements of the contract, the ETCs need
only address those portions of the contract that have been impacted.
Each ETC shall depict the level of costs incurred or to be incurred
by year, or to the level of detail required by the Contracting
Officer. If other CRPs have been proposed or approved on a contract
the impact of these CRPs must be addressed in the computation of the
cost savings to ensure that the cost savings identified are
attributable only to the CRP under consideration in the instant
case.
(6) Identification of any other previous submissions of the CRP,
including the dates submitted, the agencies and contracts involved,
and the disposition of those submittals.
(f) Administration.
(1) The Contractor shall submit proposed CRPs to the Contracting
Officer who shall be responsible for the review, evaluation and
approval. Normally, CRPs should not be entertained for the first
year of performance to allow the Contracting Officer to assess
performance against the basic requirements. If a cost reduction
project impacts more than a single contract, the contractor may,
upon concurrence of the Contracting Officer's responsible for the
affected contracts, submit a single CRP which addresses fully the
cost savings projected on all affected contracts that contain this
Shared Savings Clause. In the case of multiple contracts affected,
responsibility for the review and approval of the CRP will be a
matter to be decided by the affected Contracting Officers.
(2) Within 60 days of receipt, the Contracting Officer shall
complete an initial evaluation of any proposed cost reduction plan
to determine its feasibility. Failure of the Contracting Officer to
provide a response within 60 days shall not be construed as approval
of the CRP. The Government shall promptly notify the Contractor of
the results of its initial evaluation and indicate what, if any,
further action will be taken. If the Government determines that the
proposed CRP has merit, it will open discussions with the Contractor
to establish the cost savings to be recognized, the Contractor's
share of the cost savings, and a payment schedule. The Contractor
shall continue to perform in accordance with the terms and
conditions of the existing contract until a contract
[[Page 64825]]
modification is executed by the Contracting Officer. The
modification shall constitute approval of the CRP and shall
incorporate the changes identified by the CRP, adjust the contract
cost and/or price, establish the Contractor's share of cost savings,
and incorporate the agreed to payment schedule.
(3) The Contractor will receive payment by submitting invoices
to the Contracting Officer for approval. The amount and timing of
individual payments will be made in accordance with the schedule to
be established with the Contracting Officer. Notwithstanding the
overall savings recognized by the Contracting Officer as a result of
an approved CRP, payment of any portion of the Contractor's share of
savings shall not be made until NASA begins to realize a net cost
savings on the contract (i.e., implementation, startup and other
increased costs resulting from the change have been offset by
cumulative cost savings). Savings associated with unexercised
options will not be paid unless and until the contract options are
exercised. It shall be the responsibility of the Contractor to
provide such justification as the Contracting Officer deems
necessary to substantiate that cost savings are being achieved.
(4) Any future activity, including a merger or acquisition
undertaken by the Contractor (or to which the Contractor becomes an
involved party), which has the effect of reducing or reversing the
cost savings realized from an approved CRP for which the Contractor
has received payment may be cause for recomputing the net cost
savings associated with any approved CRP. The Government reserves
the right to make an adjustment to the Contractor's share of cost
savings and to receive a refund of moneys paid if necessary. Such
adjustment shall not be made without notifying the Contractor in
advance of the intended action and affording the Contractor an
opportunity for discussion.
(g) Limitations. Contract requirements that are imposed by
statute shall not be targeted for cost reduction exercises. The
Contractor is precluded from receiving reimbursements under both
this clause and other incentive provisions of the contract, if any,
for the same cost reductions.
(h) Disapproval of, or failure to approve, any proposed cost
reduction proposal shall not be considered a dispute subject to
remedies under the Disputes clause.
(i) Cost savings paid to the Contractor in accordance with the
provisions of this clause do not constitute profit or fee within the
limitations imposed by 10 U.S.C. 2306(d) and 41 U.S.C. 254(b).
(End of clause)
[FR Doc. 96-31134 Filed 12-6-96; 8:45 am]
BILLING CODE 7510-01-M
