Read FAR clause 52.248-3 Value Engineering - Construction. I think it answers most of your questions. The clause provides for two types of savings for which the contractor can be compensated. The first, and most important, is “instant savings,” which represents the contract cost reduction realized by adopting the contractor’s proposal, less the cost of development and implementation of the new method. This clause gives the Government 45% of the instant savings on fixed price contracts and 75% on cost reimbursement contracts (i.e. 55% and 25% to the contractor, respectively). The second type of savings allowed by this clause is “collateral savings,” which represents the Government’s reduced cost of future operations as a result of adopting the proposed change. The contractor’s share of collateral savings is 20% of the estimated annual savings, not to exceed the contract price or $100,000 (whichever is greater).
First thing you want to do is make sure the clause is in your contract. Paragraph (c) specifies what information the contractor needs to include in their Value Engineering Change Proposal (VECP), (e) covers the government actions upon receipt of the VECP, (f) covers the sharing rates and payment of the cost savings and (g) covers collateral savings. Cite FAR clause 52.248-3 as the authority for the value engineering change modification, and follow the instructions in paragraph (f)(2) for payment of the contractor's share of the cost savings in the modification (i.e. reduce the contract price by the instant cost savings and then increase the contract price by the contractor's share of the cost savings). Given the estimated cost savings of $13K, I'm assuming this amount is well under the contract price, so it should be a net reduction to the contract price in which case a new Form 9 for additional funds should not be required. Also, read FAR 48.104-1 - 48.104-4 for additional information about value engineering.
One last thing, this clause applies to suggested changes to the specifications that the contractor makes to save the government money, and does not apply to proposals not directly tied to changes in the specifications, or to work not originally specified as part of the contract. Finally, the amount of collateral savings generated by a VECP is determined by the Contracting Officer, and cannot be appealed under the Contract Disputes Act.
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