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45 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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46 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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47 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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48 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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49 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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50 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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51 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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52 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.