ASBCA Allows Contractor To Recover for "Constructive" VECP

On May 9, 2024, the Armed Services Board of Contract Appeals ("ASBCA" or "Board") allowed a contractor to recover for a "constructive" value engineering change proposal ("VECP"). In Appeal of Herman JCG Co. JV, ASBCA No. 63235, the contractor had submitted a VECP pursuant to FAR 52.248-3, which allows contractors to share with the government savings occasioned by an accepted change to the project documents. In this case, the contractor proposed eliminating trailers required to relocate government personnel during a renovation project by phasing the project. The government acknowledged the benefit of the proposal but rejected the VECP. The very next day, the government issued a unilateral modification which adopted the proposed phasing plan and sought a credit in the full amount of the contract savings from the contractor. The contractor disagreed, asserting that it was entitled to 55% of the credit obtained through use of the contractor-proposed phasing plan.

In the appeal, the contractor argued the government constructively accepted its VECP through issuance of the modification. The government argued that the ASBCA was "not empowered to substitute its judgment" for that of the contracting officer and the Board's review is limited to whether the rejection of the VECP was arbitrary, capricious, or an abuse of discretion.

The Board reframed the issue as whether a VECP was submitted by the contractor and whether it was in fact accepted, i.e., was the contractor's VECP rejected in form but accepted in fact. The Board noted that it would not require strict compliance with the VECP clause but would instead give the clause liberal construction since that is "the cornerstone of the application of an 'enlightened' approach to value engineering proposals." The Board found the contractor's phasing plan, on its face, met the definition of a VECP and that the government was aware that it was evaluating a VECP notwithstanding the piecemeal submission of the various requirements of a VECP.

With respect to the government's conduct, the Board found that the government's rejection of the VECP on September 8, 2020, was, in effect, superseded by the government's execution of Modification P00002 the next day. The Board, quoting from a Federal Circuit Court of Appeals decision, stated that "when the government, after rejecting a VECP, later implements substantially identical changes in the same contract," then the Board will recognize a constructive acceptance of a VECP. The Board further held that if the government accepts and incorporates a contractor's proposal into the contract, the contractor becomes entitled to its share of the savings, and the government "cannot deprive the contract of that benefit by issuance of a change order to any other effect."

The teaching point is that a federal contractor should be alert to innovative ways to perform its contract. When a federal contractor believes it can save the government money through a change to the contract, the contractor should timely propose the change to the government as a VECP, making sure to reference the applicable FAR clause and satisfying the elements contained therein. For the contractor to receive the benefits of the cost savings, the contractor must document that the government is aware that it is evaluating the change proposal as a VECP.