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APPENDIX A
Relevant Federal Value Engineering Requirements
This appendix includes the following items:
1. Circular A-131: Value Engineering, Office of Management and Budget, Washington, D.C., May 21, 1993.
2. "23 CFR Parts 627, Value Engineering; Final Rule," Federal Register, Vol. 62, No. 31, Feb. 14, 1997, pp. 68666869.
3. "23 CFR Parts 627 et al., DesignBuild Contracting; Final Rule," Federal Register, Vol. 67, No. 237, Dec. 10, 2002,
pp. 7590575906.
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Circular No. A-131
May 21, 1993
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND
ESTABLISHMENTS
SUBJECT: Value Engineering
1. Purpose
2. Supersession Information
3. Authority
4. Background
5. Relationship to other management improvement processes
6. Definitions
7. Policy
8. Agency responsibilities
9. Reports to OMB
10. Inspectors General audits
11. Related Guidance
12. Effective date and Implementation
13. Sunset review
14. Inquiries
1. Purpose. This Circular requires Federal Departments and Agencies to use
value engineering (VE) as a management tool, where appropriate, to reduce
program and acquisition costs.
2. Supersession Information. This Circular supersedes and cancels OMB
Circular No. A-131, Value Engineering, dated January 26, 1988.
3. Authority. This Circular is issued pursuant to 31 U.S.C. [[section]]1111.
4. Background. For the purposes of this Circular, value analysis, value
management, and value control are considered synonymous with VE. VE is an
effective technique for reducing costs, increasing productivity, and improving
quality. It can be applied to hardware and software; development, production, and
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manufacturing; specifications, standards, contract requirements, and other
acquisition program documentation; facilities design and construction. It may be
successfully introduced at any point in the life-cycle of products, systems, or
procedures. VE is a technique directed toward analyzing the functions of an item
or process to determine "best value," or the best relationship between worth and
cost. In other words, "best value" is represented by an item or process that
consistently performs the required basic function and has the lowest total cost. In
this context, the application of VE in facilities construction can yield a better
value when construction is approached in a manner that incorporates
environmentally-sound and energy-efficient practices and materials.
VE originated in the industrial community, and it has spread to the Federal
Government due to its potential for yielding a large return on investment. VE has
long been recognized as an effective technique to lower the Government's cost
while maintaining necessary quality levels. Its most extensive use has been in
Federal acquisition programs.
An August 1991 recent audit of VE in the Federal Government by the President's
Council on Integrity and Efficiency concluded that more can and should be done
by Federal agencies to realize the benefits of VE. Reports issued by the General
Accounting Office and agency Inspectors General have also consistently
concluded that greater use of this technique would result in additional savings to
the Government.
5. Relationship to other management improvement processes. VE is a
management tool that can be used alone or with other management techniques
and methodologies to improve operations and reduce costs. For example, the total
quality management process can include VE and other cost cutting-techniques,
such as life-cycle costing, concurrent engineering, and design-to-cost,
approaches, by using these techniques as analytical tools in process and product
improvement.
VE contributes to the overall management objectives of streamlining operations,
improving quality, reducing costs, and can result in the increased use of
environmentally-sound and energy-efficient practices and materials. The
complementary relationship between VE and other management techniques
increases the likelihood that overall management objectives are achieved.
6. Definitions.
a. Agency. As used in this Circular, the term "agency" means an Executive
department or an independent establishment within the meaning of sections 101
and 104(1), respectively, of Title 5, United States Code.
b. Life-cycle cost. The total cost of a system, building, or other product,
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computed over its useful life. It includes all relevant costs involved in acquiring,
owning, operating, maintaining, and disposing of the system or product over a
specified period of time, including environmental and energy costs.
c. Cost savings. A reduction in actual expenditures below the projected level of
costs to achieve a specific objective.
d. Cost avoidance. An action taken in the immediate time frame that will
decrease costs in the future. For example, an engineering improvement that
increases the mean time between failures and thereby decreases operation and
maintenance costs is a cost avoidance action.
e. In-house savings. Net life-cycle cost savings achieved by in-house agency
staff using VE techniques.
f. Contracted savings. Net life-cycle cost savings realized by contracting for the
performance of a VE study or by a Value Engineering Change Proposal
submitted by a contractor.
g. Total Quality Management (TQM). A customer-based management
philosophy for improving the quality of products and increasing customer
satisfaction by restructuring traditional management practices. An integral part of
TQM is continuous process improvement, which is achieved by using analytical
techniques to determine the causes of problems. The goal is not just to fix
problems but to improve processes so that the problems do not recur. Value
engineering can be used as an analytical technique in the TQM process.
h. Value Engineering. An organized effort directed at analyzing the functions of
systems, equipment, facilities, services, and supplies for the purpose of achieving
the essential functions at the lowest life-cycle cost consistent with required
performance, reliability, quality, and safety. These organized efforts can be
performed by both in-house agency personnel and by contractor personnel.
i. Value Engineering Change Proposal (VECP). A proposal submitted by a
contractor under the VE provisions of the Federal Acquisition Regulations (FAR)
that, through a change in a project's plans, designs, or specifications as defined in
the contract, would lower the project's life-cycle cost to the Government.
j. Value Engineering Proposal (VEP). An in-house agency-developed proposal,
or a proposal developed by a contractor under contract to provide VE services, to
provide VE studies for a Government project/program.
7. Policy. Federal agencies shall use VE as a management tool, where
appropriate, to ensure realistic budgets, identify and remove nonessential capital
and operating costs, and improve and maintain optimum quality of program and
acquisition functions. Senior management will establish and maintain VE
programs, procedures and processes to provide for the aggressive, systematic
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development and maintenance of the most effective, efficient, and economical
and environmentally-sound arrangements for conducting the work of agencies,
and to provide a sound basis for identifying and reporting accomplishments.
8. Agency responsibilities. To ensure that systemic VE improvements are
achieved, agencies shall, at a minimum:
a. Designate a senior management official to monitor and coordinate agency VE
efforts.
b. Develop criteria and guidelines for both in-house personnel and contractors to
identify programs/projects with the most potential to yield savings from the
application of VE techniques. The criteria and guidelines should recognize that
the potential savings are greatest during the planning, design, and other early
phases of project/program/system/product development. Agency guidelines will
include:
1. Measuring the net life-cycle cost savings from value engineering. The net
life-cycle cost savings from value engineering is determined by subtracting
the Government's cost of performing the value engineering function over
the life of the program from the value of the total saving generated by the
value engineering function.
2. Dollar amount thresholds for projects/programs requiring the application of
VE. The minimum threshold for agency projects and programs which
require the application of VE is $1 million. Lower thresholds may be
established at agency discretion for projects having a major impact on
agency operations.
3. Criteria for granting waivers to the requirement to conduct VE studies, in
accordance with the FAR 48.201(a).
4. Guidance to ensure that the application of VE to construction
projects/programs and other projects/programs, will include consideration
of environmentally-sound and energy efficient considerations to arrive at
environmentally-sound and energy efficient results.
c. Assign responsibility to the senior management official designated pursuant to
[[section]]8a above, to grant waivers of the requirement to conduct VE studies on
certain programs and projects. This responsibility may be delegated to other
appropriate officials.
d. Provide training in VE techniques to agency staff responsible for coordinating
and monitoring VE efforts and for staff responsible for developing, reviewing,
analyzing, and carrying out VE proposals, change proposals, and evaluations.
e. Ensure that funds necessary for conducting agency VE efforts are included in
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annual budget requests to OMB.
f. Maintain files on projects/programs/systems/products that meet agency criteria
for requiring the use of VE techniques. Documentation should include reasons for
granting waivers of VE studies on projects/programs which met agency criteria.
Reasons for not implementing recommendations made in VE proposals should
also be documented.
g. Adhere to the acquisition requirements of the FAR, including the use of VE
clauses set forth in Parts 48 and 52.
h. Develop annual plans for using VE in the agency. At a minimum, the plans
should identify both the in-house and contractor projects, programs, systems,
products, etc., to which VE techniques will be applied in the next fiscal year, and
the estimated costs of these projects. These projects should be listed by category,
as required in the agency's annual report to OMB. VEP's and VECP's should be
included under the appropriate category. Annual plans will be made available for
OMB review upon request.
i. Report annually to OMB on VE activities, as outlined below.
9. Reports to OMB. Each agency shall report the Fiscal Year results of using VE
annually to OMB, except those agencies whose total budget is under $10 million
or whose total procurement obligations do not exceed $10 million in a given
fiscal year. The reports are due to OMB by December 31st of the calendar year,
and should include the current name, address, and telephone number of the
agency's VE manager.
The report format is provided in the Attachment.
Part I of the report asks for net life-cycle cost savings achieved through VE. In
addition, it requires agencies to show the project/program dollar amount
thresholds the agency has established for requiring the use of VE if greater than
$1 million. If thresholds vary by category, show the thresholds for all categories.
Savings resulting from VE proposals and VE change proposals should be
included under the appropriate categories.
Part II asks for a description of the top 20 fiscal year VE projects (or all projects
if there are fewer than 20). List the projects by title and show the net life-cycle
cost savings and quality improvements achieved through application of VE.
Part III requires agencies to submit a detailed schedule of year-by-year cost
savings, cost avoidances and cost sharing with contractors for each
program/project for which the agency is reporting cost savings or cost
avoidances. The aggregate total of all schedules shall equal the totals reported in
Part I.A. of the annual report.
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10. Inspectors General audits. Two years after the issuance of this revised
Circular, Agency Heads shall ask the Inspectors General (IGs) to audit agency
value engineering programs to (1) validate the accuracy of agency reported value
engineering savings and (2) assess the adequacy of agency value engineering
policies, procedures and implementation of this revised Circular. Periodically
thereafter, agency IGs shall audit agency reported VE savings as the need arises.
11. Related Guidance. In general, value engineering investments should have
positive net present value when discounted with the appropriate interest rate, as
described in OMB Circular No. A-94, section 8.c. For detailed guidance on value
engineering, refer to the appropriate sections of the Federal Acquisition
Regulations.
12. Effective date and Implementation. This Circular takes effect within 30
days of its publication in the Federal Register. Heads of departments and
agencies are responsible for taking all necessary actions to assure effective
implementation of these policies, such as disseminating this Circular to
appropriate program and other staff, developing implementation strategies and
initiating staff training. Since these policies must be implemented in the Federal
Acquisition Regulation (FAR), agencies should not duplicate the development of
implementing procurement regulations being undertaken by the Federal
Acquisition Regulatory Councils. However, implementation of these policies in
the FAR must be accomplished within the time period specified below, with
inclusion in agency solicitations and resulting contracts, as appropriate, to occur
immediately thereafter.
Pursuant to subsections 6(a) of the Office of Federal Procurement Policy Act, as
amended, (41 U.S.C. 401 et seq.), the Federal Acquisition Regulatory Councils
shall ensure that the policies established herein are incorporated in the FAR
within 180 days from the date this Circular is published in final form in the
Federal Register. Promulgation of final FAR regulations within that 180 day
period shall be considered issuance in a "timely manner" as prescribed in 41 USC
405(b)."
13. Sunset review. The policies contained in this Circular will be reviewed by
OMB five years from the date of issuance.
14. Inquiries. Further information about this Circular may be obtained from the
Office of Management and Budget (OMB), 725 17th Street, NW, Washington,
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DC 20503, Telephone (202) 395-6803.
Leon Panetta
Director
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6866 Federal Register / Vol. 62, No. 31 / Friday, February 14, 1997 / Rules and Regulations
Issued in Jamaica, New York on February 400 Seventh Street, SW., Washington, receive a VE analysis. Six States
6, 1997. DC 20590. Office hours are from 7:45 suggested that additional staff might be
James K. Buckles, a.m. to 4:15 p.m., e.t., Monday through required to conduct all of the studies
ActingManager, AirTrafficDivision,Eastern Friday, except Federal holidays. necessary to represent 50 percent of
Region. SUPPLEMENTARY INFORMATION: The their Federal-aid program. Six States
[FR Doc. 973753 Filed 21397; 8:45 am ] FHWA recognizes that VE, when requested that VE change proposals and
BILLING CODE 491013M applied in the development of highway VE studies of standards be used to help
projects, is an effective and proven meet the 50 percent dollar value, and
technique for improving quality, five States requested that they be
DEPARTMENT OF HEALTH AND fostering innovation, reducing project allowed to deduct the dollar value of
HUMAN SERVICES costs, and eliminating unnecessary and exempted programs from the 50 percent
costly design elements. An FHWA study requirement. Each of these comments
Food and Drug Administration has confirmed the effectiveness of VE in concerns the threshold for application
States with active VE programs and of Federal VE requirements. Because the
21 CFR Part 341 concluded that a significant National Highway System (NHS)
improvement in program effectiveness Designation Act mandates a threshold of
Cold, Cough, Allergy, Bronchodilator, would result if all States had active $25 million for projects on the NHS, the
and Antiasthmatic Drug Products for programs. As a result of this study, the agency has virtually no discretion in the
OvertheCounter Human Use FHWA published a notice of proposed area.
Eight comments suggested various
CFR Correction rulemaking (NPRM) on November 16,
changes to the training guidelines to
1994, seeking comments on a proposal
In title 21 of the Code of Federal require specific VE certification of team
to require all States to apply VE to
Regulations, parts 300 to 499, revised as leaders and training workshops. All
selected Federal-aid highway projects.
of April 1, 1996, on page 247, in training requirements have been
In the NPRM, the FHWA proposed to
§ 341.12, paragraph (h) should read: eliminated from the rule text.
require States to establish, administer, One firm suggested that a VE team
§ 341.12 Antihistamine active ingredients. and monitor VE programs; develop leader be a Certified Value Specialist
written procedures for implementing VE (CVS), as approved by the Society of
* * * * *
programs; and provide a trained staff or American Value Engineers and a
(h) Doxylamine succinate.
hire a qualified consultant to conduct Professional Engineer (PE) while
* * * * * studies on projects representing 50 another firm suggested that a team
[FR Doc. 9755501 Filed 2-13-97; 8:45 am] percent of the dollar value of their leader be a CVS when leading studies of
BILLING CODE 1505-01-D Federal-aid highway program. In projects larger than a specific dollar
addition, the FHWA proposed to allow threshold. The FHWA did not include
States to exempt certain categories of these suggested requirements into the
projects from reviews and be required to final rule because the States have the
DEPARTMENT OF TRANSPORTATION
report the yearly results achieved responsibility for establishing any
Federal Highway Administration through the application of VE to projects certification and training requirements
financed with Federal-aid highway (e.g., CVS, PE) for their VE personnel.
23 CFR Part 627 funds. While the FHWA was in the process
Comments were received from 39 of analyzing these comments, the
[FHWA Docket No. 9412] SHAs, 22 consultant/contractor firms, 8 National Highway System Designation
RIN 2125AD33 associations/agencies, 14 individuals, Act of 1995 (NHS Act) (Pub. L. 10459,
and the American Association of State 109 Stat. 568) was enacted on November
Value Engineering Highway and Transportation Officials'' 28, 1995. Section 303(b) of the NHS Act
VE task force. The following discussion directs the Secretary of Transportation
AGENCY: Federal Highway summarizes the major comments. to establish a program to require States
Administration (FHWA), DOT. Eighteen States and thirty-eight to carry out a VE analysis for all projects
ACTION: Final rule. organizations, firms, and/or individuals on the NHS with an estimated total cost
provided comments supporting VE. of $25 million or more. The Conference
SUMMARY: The FHWA is establishing a Sixteen States and two organizations Report accompanying the NHS Act
program requiring the application of a provided comments opposing a Federal explains that this provision prohibits
value engineering (VE) analysis for all VE mandate. Three firms/individuals the Secretary from requiring VE on other
Federal-aid highway projects on the suggested that FHWA's projected projects, though ``[a] State remains free
National Highway System (NHS) with additional VE savings under the to choose to undertake such analyses on
an estimated cost of $25 million or proposed rule of $100 million could additional projects at a State's
more. The regulation also provides State approach $500 million. Twenty-one discretion.'' The report also prohibits
highway agencies (SHA) with States requested clarification of the type DOT from being prescriptive as to the
information and guidance on and amounts of Federal-aid highway form of VE analysis a State must
performing VE reviews. This final rule funds involved in determining the 50 undertake to satisfy the requirement.
also implements the VE provisions of percent dollar value while fourteen H.R. Conf. Rep. No. 345, 104th Cong.,
section 303(b) of the National Highway States, five organizations and four 1st Sess. 80 (1995).
System Designation Act of 1995. individuals suggested replacing this Based on this mandate, as well as the
EFFECTIVE DATE: March 17, 1997. requirement with a dollar threshold or public comments made as part of the
FOR FURTHER INFORMATION CONTACT: lower percentage. Two firms thought the rulemaking process, the final rule has
Keith Borkenhagen, Office of 50 percent value was excellent because been revised substantially from the
Engineering, 2023664630, or David it gave States great flexibility in NPRM. The threshold for application of
Sett, Office of Chief Counsel, 202366 selecting projects while four individuals the VE requirement has been modified
0780, Federal Highway Administration, suggested that all projects should to be consistent with the statute. The
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Federal Register / Vol. 62, No. 31 / Friday, February 14, 1997 / Rules and Regulations 6867
rule has also been significantly performed prior to awarding the design/ adequate staff assigned to carry out the
shortened, focusing on minimum build contract. The FHWA's division VE functions of this rule. In either case,
programmatic needs to ensure proper offices will have program oversight the study costs are eligible for
VE studies are conducted and utilized responsibility. reimbursement with Federal-aid
by the States on qualifying projects. highway funds at the appropriate pro-
Rulemaking Analyses and Notices
Beyond these minimum needs, the goal rata share for the type of project studied.
is to provide maximum flexibility to the Executive Order 12866 (Regulatory Historically, any additional costs due
States to conduct VE programs Planning and Review) and DOT to the need to hire or reassign staff to
consistent with the rest of their Regulatory Policies and Procedures manage the VE program have been more
transportation programs. The FHWA has determined that this than offset by the overall monetary
Specific provisions that were
action is not a significant regulatory savings resulting from the application of
included in the NPRM, but have been
action within the meaning of Executive VE studies to highway projects. States
eliminated from the final rule due to the
Order 12866 or significant within the with active VE programs report a return
NHS Act requirement and in response to
meaning of Department of on investments of between 30 to 1 and
the comments received on the NPRM,
Transportation regulatory policies and 50 to 1. The opportunity for substantial
include: The State reporting
procedures. This regulation requires overall savings exists. In 1994,
requirement; specific language
describing the VE process; written States to carry out a VE analysis for all California, Florida, and Massachusetts
procedural requirements; suggested projects on the NHS with an estimated reported savings in excess of $100
project selection criteria; VE change total cost of $25 million or more. million as a result of VE study
The threshold triggering the recommendations.
proposal requirements; and VE training
requirement to conduct a VE analysis Since this regulation only requires a
requirements. All of these changes give
under this regulation--projects on the VE analysis of large ($25 million or
States greater authority to determine
their own program requirements. NHS with an estimated total cost of $25 greater) NHS projects, most local
Consistent with the Conference million or more--will greatly limit the agencies' projects will not fall into the
Report language, the rule text no longer economic impact of this final rule category of projects requiring a VE
contains any prescription regarding the because the total number of federally- analysis. Some local agencies, however,
form of VE a State must undertake on funded projects requiring VE analysis that receive large amounts of Federal-
a specific qualifying project. The final each year under this standard will be aid highway funds may find that they
rule does not provide for FHWA small. It is estimated that States use a occasionally have a large NHS project
oversight of each VE study, instead substantial portion of their Federal-aid that requires a VE analysis. When this
focusing FHWA's efforts on State highway funds, approximately 59 occurs, the local agency, in the same
implementation of VE programs. percent, on non-NHS routes. In manner as an SHA, may choose to
Because the method of conducting a VE addition, the FHWA has found that conduct the study itself or hire a VE
study has become standardized and States with VE programs, usually States consultant to perform the study. As
widely recognized in the field, study-by- with medium and large Federal-aid stated above, the cost of performing VE
study review is unnecessary. Instead, programs, already include these high studies is project-related and is,
the final rule makes reference to the cost NHS projects in their selection therefore, eligible for reimbursement
widely recognized process of VE process and should not have to adjust with Federal-aid highway funds.
studies. their programs to comply with this
The statutory definition of VE is regulation. The FHWA contends that Regulatory Flexibility Act
clarified. The end product of the study States with small Federal-aid highway
programs will not encounter NHS In compliance with the Regulatory
is described in greater detail in the
rule's definition of value engineering projects large enough to meet the dollar Flexibility Act (5 U.S.C. 601612), the
and, in § 627.5(a)(2), examples of the threshold requiring a VE analysis on a FHWA has evaluated the effects of this
components of a multi-disciplined team yearly basis and the regulation's impact rule on small entities. Based on the
are provided. Both of these additions are on these States will be limited. evaluation, the FHWA hereby certifies
based on the widely-recognized VE Therefore, the FHWA anticipates that that this action will not have a
study process. the economic impacts of this significant economic impact on a
In order to provide States time to rulemaking will be minimal, and has substantial number of small entities.
establish VE programs, States need not determined that a full regulatory The FHWA has determined that most
delay project approvals and letting evaluation is not required. small entities (which generally receive
schedules when establishing or The regulation may affect staffing small amounts of Federal-aid highway
changing VE programs to comply with levels in States that do not currently funds) will not have to perform VE
these requirements. Many States already utilize VE. Establishing programs to studies because their projects are small
employ techniques that will meet these assure that VE studies are performed on and are not expected to fit the project
VE requirements, however, States all applicable NHS projects will require selection criteria set forth in this
should review all projects being each SHA to assign staff to carry out regulation for performing VE studies.
designed, without delaying projects specific VE functions. The FHWA Executive Order 12372
expected to be available for letting contends that the staff assignments (Intergovernmental Review)
during the current fiscal year, to identify needed to perform the functions
those needing a VE analysis. required by this regulation will be Catalog of Federal Domestic
Any State choosing to use an minimal due to the limited number of Assistance Program Number 20.205,
innovative design/build concept to projects that require an analysis and the Highway Planning and Construction.
expedite the completion of an fact that States may choose to hire The regulations implementing Executive
applicable NHS project must still consultants to perform the studies, Order 12372 regarding
comply with the requirement to perform thereby reducing the regulation's impact intergovernmental consultation on
a VE analysis on the project. In most on SHA staff. In addition, States with Federal programs and activities apply to
cases the VE analysis should be existing programs probably already have this program.
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6868 Federal Register / Vol. 62, No. 31 / Friday, February 14, 1997 / Rules and Regulations
Executive Order 12612 (Federalism PART 627--VALUE ENGINEERING (2) Studies. Value engineering studies
Assessment) shall follow the widely recognized
Sec. systematic problem-solving analysis
This action has been analyzed in 627.1 Purpose and applicability. process that is used throughout private
accordance with the principles and 627.3 Definitions.
627.5 General principles and procedures.
industry and governmental agencies.
criteria contained in Executive Order Studies must be performed using multi-
12612. Under the Federal-aid highway Authority: 23 U.S.C. 106(d), 106(f), 302, disciplined teams of individuals not
program, the FHWA reimburses States 307, and 315; 49 CFR 18. personally involved in the design of the
for costs incurred in highway project. Study teams should consist of a
§ 627.1 Purpose and applicability.
construction projects. This regulation team leader and individuals from
would simply provide that, as a (a) This regulation will establish a different speciality areas, such as
condition of receiving such grants, program to improve project quality, design, construction, environment,
States must carry out a value reduce project costs, foster innovation, planning, maintenance, right-of-way,
engineering (VE) analysis for all projects eliminate unnecessary and costly design and other areas depending upon the
on the National Highway System (NHS) elements, and ensure efficient type of project being reviewed.
with an estimated cost of $25 million or investments by requiring the application Individuals from the public and other
more. This regulation recognizes the of value engineering (VE) to all Federal- agencies may also be included on the
role of the States in employing VE and aid highway projects on the National team when their inclusion is found to be
gives States wide latitude in Highway System (NHS) with an in the public interest.
establishing, administering, and estimated cost of $25 million or more. (i) Each team leader should be trained
monitoring their VE programs. (b) In accordance with the Federal- and knowledgeable in VE techniques
Therefore, the FHWA has determined State relationship established under the and be able to serve as the coordinator
that this action does not have sufficient Federal-aid highway program, State and facilitator of the team.
federalism implications to warrant the highway agencies (SHA) shall assure (ii) Studies should be employed as
preparation of a separate federalism that a VE analysis has been performed early as possible in the project
assessment. on all applicable projects and that all development or design process so that
resulting, approved recommendations accepted VE recommendations can be
Paperwork Reduction Act are incorporated into the plans, implemented without delaying the
specifications and estimate. progress of the project.
This action does not require the
collection of information for the (iii) Studies should conclude with a
§ 627.3 Definitions.
purpose of the Paperwork Reduction formal report outlining the study team's
Project. A portion of a highway that recommendations for improving the
Act of 1995, 44 U.S.C. 35013520. a State proposes to construct, project and reducing its overall cost.
National Environmental Policy Act reconstruct, or improve as described in (3) Recommendations. The program
the preliminary design report or should include procedures to approve
The agency has analyzed this action applicable environmental document. A or reject recommendations and ensure
for the purpose of the National project may consist of several contracts the prompt review of VE
Environmental Policy Act of 1969 (42 or phases over several years. recommendations by staff offices whose
U.S.C. 4321 et seq.) and has determined Value engineering. The systematic speciality areas are implicated in
that this action would not have any application of recognized techniques by proposed changes and by offices
effect on the quality of the environment. a multi-disciplined team to identify the responsible for implementing accepted
Regulation Identification Number function of a product or service, recommendations. Reviews by these
establish a worth for that function, offices should be performed promptly to
A regulation identification number generate alternatives through the use of minimize delays to the project.
(RIN) is assigned to each regulatory creative thinking, and provide the (4) Incentives. The program may
action listed in the Unified Agenda of needed functions to accomplish the include a VE or cost reduction incentive
Federal Regulations. The Regulatory original purpose of the project, reliably, clause in an SHA's standard
Information Service Center publishes and at the lowest life-cycle cost without specifications or project special
the Unified Agenda in April and sacrificing safety, necessary quality, and provisions that allows construction
October of each year. The RIN contained environmental attributes of the project. contractors to submit change proposals
in the heading of this document can be and share the resulting cost savings with
§ 627.5 General principles and
used to cross reference this action with the SHA.
procedures.
the Unified Agenda. (5) Monitoring. The program should
(a) State VE programs. State highway include procedures for monitoring the
List of Subjects in 23 CFR Part 627 agencies must establish programs to implementation of VE study team
assure that VE studies are performed on recommendations and VE change
Government procurement, Grant
all Federal-aid highway projects on the proposal recommendations submitted
programs--transportation, Highways
NHS with an estimated cost of $25 by construction contractors.
and roads.
million or more. Program procedures (b) State VE coordinators. Individuals
In consideration of the foregoing, the should provide for the identification of knowledgeable in VE shall be assigned
FHWA hereby adds part 627 to Chapter candidate projects for VE studies early responsibilities to coordinate and
I of title 23, Code of Federal in the development of the State's multi- monitor the SHA's program and be
Regulations, as set forth below. year Statewide Transportation actively involved in all phases of the
Issued on: February 4, 1997. Improvement Program. program.
Rodney E. Slater, (1) Project selection. The program (c) Use of consultants. Consultants or
Federal Highway Administrator. may, at the State's discretion, establish firms with experience in VE may be
specific criteria and guidelines for retained by SHAs to conduct the studies
The FHWA amends 23 CFR to add selecting other highway projects for VE of Federal-aid highway projects or
Part 627 to read as follows: studies. elements of Federal-aid highway
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Federal Register / Vol. 62, No. 31 / Friday, February 14, 1997 / Rules and Regulations 6869
projects required under § 627.1(a) of this general provision is broad in scope and
the ``project agreement,'' is in essence a
part. Consultants or firms should not be written contract between the State and there is little need for other provisions
retained to conduct studies of their own the Federal government defining the which cover only a limited feature of
designs unless they maintain separate extent of the work to be undertaken and title 23, U.S.C.
and distinct organizational separation of commitments made concerning the Section 630.307(b) represents an
their VE and design sections. project. acknowledgment by the State that it has
(d) Funding eligibility. The cost of Requirements covering project a financial obligation for the non-
performing VE studies is project related agreements are contained in this final Federal share of the cost of the project.
and is, therefore, eligible for rule. This final rule updates and Sections 630.307(c)(1) and (c)(2)
reimbursement with Federal-aid modifies the existing Federal-aid projectcontain provisions that implement
highway funds at the appropriate pro- agreement regulation to incorporate statutory requirements concerning a
rata share for the project studied. changes mandated by the ISTEA, Pub. L. State's payback of Federal funds it has
[FR Doc. 973758 Filed 21397; 8:45 am] 102240, 105 Stat. 1914, to streamline received for right-of-way acquisition or
BILLING CODE 491022P the project agreement form and preliminary engineering should the
provisions, and to allow more versatilityproject not be advanced within the
in its use. This final rule amends the designated statutory time frames.
23 CFR Parts 630, 635, and 771 existing regulation in the following Paragraph (c)(1), Project for Acquisition
manner and for the reasons indicated of Rights-of-Way, implements the
[FHWA Docket No. 963] requirement in 23 U.S.C. 108(a) that the
below.
RIN 2125AD58 agreement between the State and the
Section 630.301 Purpose FHWA for right-of-way acquisition
Federal-Aid Project Agreement The statement of purpose is revised projects shall include a provision that
with minor changes for clarity. construction shall begin within 20
AGENCY: Federal Highway
years. This reflects an amendment to 23
Administration (FHWA), DOT. Section 630.303 Preparation of U.S.C. 108(a) resulting from passage of
ACTION: Final rule. Agreement section 1017(a) of the ISTEA.
SUMMARY: The FHWA is amending its This section no longer requires the With regard to paragraph (c)(2),
regulation on project agreements. The use of a specific form. Instead, a State Preliminary engineering project, prior to
Intermodal Surface Transportation has the flexibility to use whatever passage of the ISTEA, an administrative
Efficiency Act (ISTEA) of 1991 modified format is suitable to provide the decision by the FHWA required
the requirement that preliminary information required for a project repayment of Federal-aid highway funds
engineering and right-of-way projects agreement document. authorized for preliminary engineering
if right-of-way acquisition or actual
must be advanced to the construction Section 630.305 Modification of construction had not begun within 5
stage within certain time limits. Original Agreement years after authorization of the
Changes to the agreement provisions
A State is still required to prepare a preliminary engineering. The general
reflect these adjustments. The new
modification to a project agreement as concept of this provision is now found
procedures provide more flexibility in
changes occur. However, this section no in the statute; section 1016(a) of the
the format of the agreement document
longer requires the use of a specific ISTEA incorporated this provision into
and permit the development of a single
form. Instead, a State is allowed to 23 U.S.C. 102(b). One significant
document to serve as both the project
develop its own form for modification of difference between the statutory
authorization and project agreement
the project agreement, provided it provision and the existing FHWA
document. Other changes were made to practice is that 10 years instead of 5
contains necessary information as
shorten the agreement document and to years must pass before payback is
identified by the regulation.
add clarity to the process. required. Paragraph (c)(2) reflects the
EFFECTIVE DATE: This final rule is Section 630.307 Agreement Provisions 10-year payback period.
effective March 17, 1997. This section identifies the provisions Sections 630.307(c)(3), (c)(4) and
FOR FURTHER INFORMATION CONTACT: Jack that must be a part of each agreement. (c)(5) contain provisions for a drug-free
Wasley, Office of Engineering, 202366 The project agreement has been workplace, suspension/debarment, and
0450, or Wilbert Baccus, Office of the simplified by eliminating all the lobbying required by 49 CFR 29.630, 49
Chief Counsel, 2023660780, FHWA, boilerplate provisions that are not CFR 29.510 and 49 CFR 20.110,
400 Seventh Street, SW., Washington, required from the agreement itself. The respectively.
DC 20590. Office hours are from 7:45 provisions that are necessary have been According to 49 CFR 29.630(c), a State
a.m. to 4:15 p.m., e.t., Monday through included in this section of the is allowed to make one yearly
Friday except Federal holidays. regulation. The simplified project certification for the drug-free workplace
SUPPLEMENTARY INFORMATION: The agreement would incorporate, by certification. Although the FHWA has
amendments in this final rule are based reference to this section, these used annual or quarterly program
primarily on the notice of proposed provisions into each agreement. The certifications for the others in the past,
rulemaking (NPRM) published in the following discussion covers each of the it was determined that these
January 30, 1996, Federal Register at 61 required provisions. certifications do not fully comply with
FR 2973 (FHWA Docket No. 963). All Section 630.307(a) is a general the provisions of previously cited
comments received in response to this provision under which the State agrees requirements in 49 CFR 29.510 and 49
NPRM have been considered in to comply with title 23, United States CFR 20.110. Placing language in the
adopting these amendments. Code (U.S.C.), the regulations project agreement as part of the general
Under the provisions of 23 U.S.C. 110, implementing title 23, and the policies provisions provides the separate
a formal agreement between the State and procedures established by the certification action required for every
highway agency and the FHWA is FHWA. In addition, States must also project. Project-by-project certifications
required for Federal-aid highway comply with all other applicable are deemed to fully satisfy the
projects. This agreement, referred to as Federal laws and regulations. This requirements in title 49, CFR, and
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Federal Register / Vol. 67, No. 237 / Tuesday, December 10, 2002 / Rules and Regulations 75905
knowledge, the Florida DOT study is the bids, etc.) and do not include terms that the widest possible range of expertise at
best comprehensive comparison of a relate to the design-build process (i.e., their disposal when developing a
limited number of transportation Request for Proposal document, proposal in a competitive environment.
projects that is currently available. The proposals, offerors, etc.). We did not It suggested that the FHWA should
FHWA will consider all of the issues propose to revise all sections of 23 CFR provide flexibility to allow value
that have been identified in the with this rulemaking. Such revisions are engineering proposals developed by a
comment period during the beyond the scope of this rulemaking design-build proposer to fulfill the value
development of the Report to Congress. action and will be considered in future engineering analysis requirement.
rulemakings by the appropriate FHWA The TCA suggested that it had
Simplification of SEP14 received a number of significant value
program office.
Several commenters recommended engineering proposals under contract
that the SEP14 be simplified. Others Section-by-Section Analysis provisions and it is inappropriate for the
expressed an appreciation for the Part 627--Value Engineering FHWA to discourage such provisions.
availability of this technique to proceed The DBIA suggested that while it is
with projects that did not meet the Section 627.5 General Principles and possible to request value engineering
statutory definition of a qualified Procedures ideas during the procurement process
project. Still others felt that it was The ACEC and the Design and post-award, the fruitfulness of this
appropriate for the FHWA to delegate Professionals Coalition (DPC) were process is highly questionable and very
approval authority to the Division generally in agreement with the unlikely to yield measurable results. It
Offices as proposed in the NPRM. proposed value engineering provisions concurred with the NPRM provisions
We agree with these comments. The and the flexibility provided in the that stated that ``value engineering
NPRM described several proposed NPRM. reviews are generally not recommended
methods to simplify the SEP14 The AASHTO, the DBIA, the Virginia as part of the design-build proposal
approval process. In addition, given the DOT and the TCA suggested replacing process.''
statutory definition for ``qualified the word ``shall'' with ``may'' in The FHWA recognizes the differing
projects,'' it will be necessary to § 627.5(e) to allow for additional viewpoints concerning the use of value
maintain the SEP14 program and make flexibility. engineering reviews conducted during
it available for non-qualified projects The Associated General Contractors of the procurement process and post
and other innovative contracting America (AGC) and the American Road award. While such reviews may be
techniques. See the discussion for and Transportation Builders Association useful in meeting a contracting agency's
§ 636.107 for additional details. (ARTBA) generally supported the project objectives, they do not
proposed value engineering language in necessarily meet the objectives of
Miscellaneous FHWA's value engineering analysis
the NPRM and recommended against
Two private individuals representing the use of value engineering as part of requirement.
construction companies did not provide the design-build proposal process. The ARTBA, the TCA, the Colorado
specific recommendations but expressed While the FHWA agrees with the DOT and the Texas DOT suggested that
their concern regarding the use of commenters who suggested clarification the FHWA allow the use of alternate
design-build in the Federal-aid highway of the NPRM language, we disagree with technical concepts during the proposal
program. Generally, these commenters the suggestion that the use of the word development process. These entities
indicated the following concerns: (1) ``may'' in lieu of ``shall'' would provide suggested that the alternate technical
Design-build will limit competition and sufficient clarification. We agree that the proposal process is similar to value
overall prices will increase; (2) the final rule must explain how contracting engineering and may be even more
proposal process is too expensive except agencies can meet the value engineering thorough than any formal value
for the largest of firms; (3) quality and analysis requirement for design-build engineering procedure presently
safety will suffer because design-build projects. required. These commenters stated that
provides no incentive for either; (4) Several commenters suggested that the proposed alternative technical
some contracting agencies might be the final sentence of § 627.5(e)(2) be proposals are typically well developed
biased in the evaluation process against deleted as the existing value engineering since they incorporate both designer
firms that have a claim on a previous regulation does not address value and contractor input. Both the proposer
project; and (5) the benefits of faster engineering change proposals during and the contracting agency benefit from
project delivery have been improperly construction. The FHWA agrees with the use of this procedure as it gives the
addressed by some in the industry. One these commenters. This issue is not proposer a potential means of lowering
commenter believed that the actual addressed in the existing value its proposal price and the contracting
inconvenience to the public during engineering regulation. Therefore, we agency receives 100 percent of the cost
construction is no shorter for design- have removed that sentence from the saving. The Colorado DOT requested
build than it is for the traditional regulation. that the FHWA make it clear that
design-bid-build delivery system and The AGC believed that including alternate technical concepts be allowed
this should be a primary consideration value engineering proposals as part of in the design-build procurement
in selecting a project delivery method. the proposal process only tends to add process.
The TCA provided specific more subjective variables to the While the FHWA questions the
recommendations to revise FHWA selection process. The ARTBA took a overall effectiveness of a value
policy in 23 CFR 645.109, 23 CFR different viewpoint from the AGC. It engineering requirement during the
645.113, and 23 CFR 645.115 to utilize suggested that the FHWA should proposal process or after contract award,
design-build terminology. consider the use of alternate technical several commenters provided
The FHWA recognizes this concern; concepts as a means of allowing the convincing testimony that such
however, we note that some sections of STDs to fulfill the value engineering provisions should not be prohibited. As
23 CFR use terms that relate to the analysis requirements. long as the contracting agency maintains
traditional design-bid-build process The Washington State DOT indicated a fair and competitive process in
(i.e., plans, specifications, estimates, that design-build proposers should have reviewing, evaluating and recognizing
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75906 Federal Register / Vol. 67, No. 237 / Tuesday, December 10, 2002 / Rules and Regulations
alternate technical concepts, the FHWA While the FHWA agrees with the build projects, the design-builder would
has no objection to the use of alternate commenters who suggested that value develop the traffic control plan. It was
technical concepts. For this reason, we engineering concepts may be inherent in also suggested that the responsible
have modified the language in § 636.209 the design-build process, we disagree person be an employee of the design-
to allow the use of the alternate with the commenters who suggested builder or a subcontractor.
technical proposal concept as long as that all design-build projects would The FHWA disagrees with this
such alternate concepts do not change fulfill the FHWA's value engineering comment. We did not modify this
the assumptions used in the analysis requirement. The use of the section and traffic control plans are
environmental decision making process. design-build project delivery method
beyond the scope of this rulemaking
However, contracting agencies must not does not fulfill the congressional
rely solely on an alternate technical action. The FHWA will consider
mandate for a value engineering
concept requirement to fulfill the appropriate revisions to its policy in
analysis on National Highway System
FHWA's value engineering analysis this area in a future rulemaking.
projects greater than $25 million.
requirement. In consideration of all of these Part 633--Required Contract Provisions
SAVE International, a value comments, the FHWA believes that it is
engineering society, proposed a revision necessary to amend the NPRM language Section 633.102 Applicability
to this section that would require STDs to clarify the minimum requirements for The TCA suggested that this section
to perform a value engineering analysis fulfilling the value engineering analysis
prior to the procurement process and be modified to allow contracting
requirement on design-build projects. agencies to strike or modify Section VII
allow other value engineering studies For the purpose of clarification, we
during the procurement process and of Form FHWA1273, Required
revised the language to require a value Contract Provisions, that concerns
during the life of the design-build engineering analysis prior to the release
contract at the discretion of the STD. minimum contracting responsibilities of
of the RFP document. The NPRM the prime contractor. A similar
This association stated that the greatest provisions of paragraph (e)(2) have been
opportunity for savings exists prior to recommendation was provided for
deleted. The final rule clearly states that Appendix B, Section VIII(4) for
the initiation of the design-build a value engineering analysis is required
procurement process, and therefore, Appalachian projects.
prior to the release of the RFP
recommended that the FHWA require a document. This will be the only The FHWA disagrees with this
value engineering analysis at this point requirement for fulfilling the value comment. Although the FHWA
and allow additional value engineering engineering analysis requirement for proposed to change the contracting
studies afterwards. design-build projects on the National requirements of § 635.116 for design-
The FHWA agrees with the concept of Highway System greater than $25 build contracts in the NPRM, such a
requiring a value engineering analysis change would best be implemented with
million. This does not preclude further
prior to the release of the Request for a modification to Form FHWA 1273,
value engineering reviews or studies at
Proposal (RFP) document. SAVE Required Contract Provisions and
subsequent points in the procurement
International suggested two additional Attachment A for Appalachia projects.
process or even after contract award.
value engineering reviews but These changes are beyond the scope of
However, subsequent value engineering
recommended that these two be this rulemaking.
reviews will not be acceptable for the
discretionary; therefore, we did not feel
purposes of fulfilling the value Part 635--Construction and
it was necessary to include these
engineering analysis requirement. Maintenance
provisions in the regulation.
The AASHTO and the DBIA suggested Part 630--Preconstruction Procedures
that value engineering is inherent in the Section 635.102 Definitions
Section 630.203 Applicability
design-build process but also suggested The ACEC indicated the proposed
that this section needs further The TCA suggested that this section modifications were acceptable. The TCA
clarification. The AASHTO questioned be modified to provide an exception for suggested that the FHWA add a
why the FHWA was modifying the design-build projects such that definition for the term ``contracting
existing value engineering regulation contracting agencies would not be agency'' (or cross-reference the
and several STDs (Florida, Utah, New subject to the FHWA's requirements for definition in part 636), revise the
Jersey and Washington) recommended the preparation, submission and definition of ``design-build project,''
no changes to the existing value approval of plans, specifications, revise the definition of ``incentive/
engineering regulation. They indicated estimates and supporting documents on disincentive for early completion,'' and
that the existing regulation applies to Federal-aid projects. use the term ``contracting agency''
any Federal-aid highway project on the The FHWA disagrees with this instead of ``STD'' in many sections
National Highway System greater than comment. The FHWA's requirements for
within part 635. The TCA also suggested
$25 million, regardless of whether is it reviewing and approving design-build
that the current definition of ``design-
a design-build or a design-bid-build RFP documents are contained in 23 CFR
build project'' might preclude the STD
project. These commenters suggested 635.112. Therefore, it is not necessary to
from entering into multiple contracts
that the proposed modifications are not modify § 630.203.
relating to a single project.
necessary.
Still other commenters suggested Section 630.1010 Contents of the The FHWA agrees with the comment
several modifications to the NPRM Agency Procedures concerning the definition of a design-
language to clarify requirements. The The TCA suggested that a revision be build project. We have modified the
TCA suggested that contracting agencies made to the FHWA's policies in Subpart definition to read as follows: ``Design-
should be given the flexibility to J, Traffic Safety in Highway and Street build project means a project to be
determine which project procedures or Work Zones, to accommodate design- developed using one or more design-
contract requirements could be used to build projects. This commenter build contracts.'' The other suggested
fulfill the value engineering analysis suggested that the existing regulations revisions are either beyond the scope of
required by the FHWA. be modified to indicate that, for design- this rulemaking or are not appropriate.
