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Value Engineering Applications in Transportation (2005)

Chapter: Appendix A - Relevant Federal Value Engineering Requirements

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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
×
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Suggested Citation:"Appendix A - Relevant Federal Value Engineering Requirements." National Academies of Sciences, Engineering, and Medicine. 2005. Value Engineering Applications in Transportation. Washington, DC: The National Academies Press. doi: 10.17226/13869.
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Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

45 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. 6866–6869. 3. “23 CFR Parts 627 et al., Design–Build Contracting; Final Rule,” Federal Register, Vol. 67, No. 237, Dec. 10, 2002, pp. 75905–75906. APPENDIX A Relevant Federal Value Engineering Requirements

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

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,

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

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

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.

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,

52 DC 20503, Telephone (202) 395-6803. Leon Panetta Director

6866 Federal Register / Vol. 62, No. 31 / Friday, February 14, 1997 / Rules and Regulations Issued in Jamaica, New York on February 6, 1997. James K. Buckles, Acting Manager, Air Traffic Division, Eastern Region. [FR Doc. 97–3753 Filed 2–13–97; 8:45 am] BILLING CODE 4910–13–M DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 341 Cold, Cough, Allergy, Bronchodilator, and Antiasthmatic Drug Products for Over–the–Counter Human Use CFR Correction In title 21 of the Code of Federal Regulations, parts 300 to 499, revised as of April 1, 1996, on page 247, in § 341.12, paragraph (h) should read: § 341.12 Antihistamine active ingredients. * * * * * (h) Doxylamine succinate. * * * * * [FR Doc. 97–55501 Filed 2-13-97; 8:45 am] BILLING CODE 1505-01-D DEPARTMENT OF TRANSPORTATION Federal Highway Administration 23 CFR Part 627 [FHWA Docket No. 94–12] RIN 2125–AD33 Value Engineering AGENCY: Federal Highway Administration (FHWA), DOT. ACTION: Final rule. SUMMARY: The FHWA is establishing a program requiring the application of a value engineering (VE) analysis for all Federal-aid highway projects on the National Highway System (NHS) with an estimated cost of $25 million or more. The regulation also provides State highway agencies (SHA) with information and guidance on performing VE reviews. This final rule also implements the VE provisions of section 303(b) of the National Highway System Designation Act of 1995. EFFECTIVE DATE: March 17, 1997. FOR FURTHER INFORMATION CONTACT: Keith Borkenhagen, Office of Engineering, 202–366–4630, or David Sett, Office of Chief Counsel, 202–366– 0780, Federal Highway Administration, 400 Seventh Street, SW., Washington, DC 20590. Office hours are from 7:45 a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal holidays. SUPPLEMENTARY INFORMATION: The FHWA recognizes that VE, when applied in the development of highway projects, is an effective and proven technique for improving quality, fostering innovation, reducing project costs, and eliminating unnecessary and costly design elements. An FHWA study has confirmed the effectiveness of VE in States with active VE programs and concluded that a significant improvement in program effectiveness would result if all States had active programs. As a result of this study, the FHWA published a notice of proposed rulemaking (NPRM) on November 16, 1994, seeking comments on a proposal to require all States to apply VE to selected Federal-aid highway projects. In the NPRM, the FHWA proposed to require States to establish, administer, and monitor VE programs; develop written procedures for implementing VE programs; and provide a trained staff or hire a qualified consultant to conduct studies on projects representing 50 percent of the dollar value of their Federal-aid highway program. In addition, the FHWA proposed to allow States to exempt certain categories of projects from reviews and be required to report the yearly results achieved through the application of VE to projects financed with Federal-aid highway funds. Comments were received from 39 SHAs, 22 consultant/contractor firms, 8 associations/agencies, 14 individuals, and the American Association of State Highway and Transportation Officials’’ VE task force. The following discussion summarizes the major comments. Eighteen States and thirty-eight organizations, firms, and/or individuals provided comments supporting VE. Sixteen States and two organizations provided comments opposing a Federal VE mandate. Three firms/individuals suggested that FHWA’s projected additional VE savings under the proposed rule of $100 million could approach $500 million. Twenty-one States requested clarification of the type and amounts of Federal-aid highway funds involved in determining the 50 percent dollar value while fourteen States, five organizations and four individuals suggested replacing this requirement with a dollar threshold or lower percentage. Two firms thought the 50 percent value was excellent because it gave States great flexibility in selecting projects while four individuals suggested that all projects should receive a VE analysis. Six States suggested that additional staff might be required to conduct all of the studies necessary to represent 50 percent of their Federal-aid program. Six States requested that VE change proposals and VE studies of standards be used to help meet the 50 percent dollar value, and five States requested that they be allowed to deduct the dollar value of exempted programs from the 50 percent requirement. Each of these comments concerns the threshold for application of Federal VE requirements. Because the National Highway System (NHS) Designation Act mandates a threshold of $25 million for projects on the NHS, the agency has virtually no discretion in the area. Eight comments suggested various changes to the training guidelines to require specific VE certification of team leaders and training workshops. All training requirements have been eliminated from the rule text. One firm suggested that a VE team leader be a Certified Value Specialist (CVS), as approved by the Society of American Value Engineers and a Professional Engineer (PE) while another firm suggested that a team leader be a CVS when leading studies of projects larger than a specific dollar threshold. The FHWA did not include these suggested requirements into the final rule because the States have the responsibility for establishing any certification and training requirements (e.g., CVS, PE) for their VE personnel. While the FHWA was in the process of analyzing these comments, the National Highway System Designation Act of 1995 (NHS Act) (Pub. L. 104–59, 109 Stat. 568) was enacted on November 28, 1995. Section 303(b) of the NHS Act directs the Secretary of Transportation to establish a program to require States to carry out a VE analysis for all projects on the NHS with an estimated total cost of $25 million or more. The Conference Report accompanying the NHS Act explains that this provision prohibits the Secretary from requiring VE on other projects, though ‘‘[a] State remains free to choose to undertake such analyses on additional projects at a State’s discretion.’’ The report also prohibits DOT from being prescriptive as to the form of VE analysis a State must undertake to satisfy the requirement. H.R. Conf. Rep. No. 345, 104th Cong., 1st Sess. 80 (1995). Based on this mandate, as well as the public comments made as part of the rulemaking process, the final rule has been revised substantially from the NPRM. The threshold for application of the VE requirement has been modified to be consistent with the statute. The

6867Federal Register / Vol. 62, No. 31 / Friday, February 14, 1997 / Rules and Regulations rule has also been significantly shortened, focusing on minimum programmatic needs to ensure proper VE studies are conducted and utilized by the States on qualifying projects. Beyond these minimum needs, the goal is to provide maximum flexibility to the States to conduct VE programs consistent with the rest of their transportation programs. Specific provisions that were included in the NPRM, but have been eliminated from the final rule due to the NHS Act requirement and in response to the comments received on the NPRM, include: The State reporting requirement; specific language describing the VE process; written procedural requirements; suggested project selection criteria; VE change proposal requirements; and VE training requirements. All of these changes give States greater authority to determine their own program requirements. Consistent with the Conference Report language, the rule text no longer contains any prescription regarding the form of VE a State must undertake on a specific qualifying project. The final rule does not provide for FHWA oversight of each VE study, instead focusing FHWA’s efforts on State implementation of VE programs. Because the method of conducting a VE study has become standardized and widely recognized in the field, study-by- study review is unnecessary. Instead, the final rule makes reference to the widely recognized process of VE studies. The statutory definition of VE is clarified. The end product of the study is described in greater detail in the rule’s definition of value engineering and, in § 627.5(a)(2), examples of the components of a multi-disciplined team are provided. Both of these additions are based on the widely-recognized VE study process. In order to provide States time to establish VE programs, States need not delay project approvals and letting schedules when establishing or changing VE programs to comply with these requirements. Many States already employ techniques that will meet these VE requirements, however, States should review all projects being designed, without delaying projects expected to be available for letting during the current fiscal year, to identify those needing a VE analysis. Any State choosing to use an innovative design/build concept to expedite the completion of an applicable NHS project must still comply with the requirement to perform a VE analysis on the project. In most cases the VE analysis should be performed prior to awarding the design/ build contract. The FHWA’s division offices will have program oversight responsibility. Rulemaking Analyses and Notices Executive Order 12866 (Regulatory Planning and Review) and DOT Regulatory Policies and Procedures The FHWA has determined that this action is not a significant regulatory action within the meaning of Executive Order 12866 or significant within the meaning of Department of Transportation regulatory policies and procedures. This regulation requires States to carry out a VE analysis for all projects on the NHS with an estimated total cost of $25 million or more. The threshold triggering the requirement to conduct a VE analysis under this regulation—projects on the NHS with an estimated total cost of $25 million or more—will greatly limit the economic impact of this final rule because the total number of federally- funded projects requiring VE analysis each year under this standard will be small. It is estimated that States use a substantial portion of their Federal-aid highway funds, approximately 59 percent, on non-NHS routes. In addition, the FHWA has found that States with VE programs, usually States with medium and large Federal-aid programs, already include these high cost NHS projects in their selection process and should not have to adjust their programs to comply with this regulation. The FHWA contends that States with small Federal-aid highway programs will not encounter NHS projects large enough to meet the dollar threshold requiring a VE analysis on a yearly basis and the regulation’s impact on these States will be limited. Therefore, the FHWA anticipates that the economic impacts of this rulemaking will be minimal, and has determined that a full regulatory evaluation is not required. The regulation may affect staffing levels in States that do not currently utilize VE. Establishing programs to assure that VE studies are performed on all applicable NHS projects will require each SHA to assign staff to carry out specific VE functions. The FHWA contends that the staff assignments needed to perform the functions required by this regulation will be minimal due to the limited number of projects that require an analysis and the fact that States may choose to hire consultants to perform the studies, thereby reducing the regulation’s impact on SHA staff. In addition, States with existing programs probably already have adequate staff assigned to carry out the VE functions of this rule. In either case, the study costs are eligible for reimbursement with Federal-aid highway funds at the appropriate pro- rata share for the type of project studied. Historically, any additional costs due to the need to hire or reassign staff to manage the VE program have been more than offset by the overall monetary savings resulting from the application of VE studies to highway projects. States with active VE programs report a return on investments of between 30 to 1 and 50 to 1. The opportunity for substantial overall savings exists. In 1994, California, Florida, and Massachusetts reported savings in excess of $100 million as a result of VE study recommendations. Since this regulation only requires a VE analysis of large ($25 million or greater) NHS projects, most local agencies’ projects will not fall into the category of projects requiring a VE analysis. Some local agencies, however, that receive large amounts of Federal- aid highway funds may find that they occasionally have a large NHS project that requires a VE analysis. When this occurs, the local agency, in the same manner as an SHA, may choose to conduct the study itself or hire a VE consultant to perform the study. As stated above, the cost of performing VE studies is project-related and is, therefore, eligible for reimbursement with Federal-aid highway funds. Regulatory Flexibility Act In compliance with the Regulatory Flexibility Act (5 U.S.C. 601–612), the FHWA has evaluated the effects of this rule on small entities. Based on the evaluation, the FHWA hereby certifies that this action will not have a significant economic impact on a substantial number of small entities. The FHWA has determined that most small entities (which generally receive small amounts of Federal-aid highway funds) will not have to perform VE studies because their projects are small and are not expected to fit the project selection criteria set forth in this regulation for performing VE studies. Executive Order 12372 (Intergovernmental Review) Catalog of Federal Domestic Assistance Program Number 20.205, Highway Planning and Construction. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities apply to this program.

6868 Federal Register / Vol. 62, No. 31 / Friday, February 14, 1997 / Rules and Regulations Executive Order 12612 (Federalism Assessment) This action has been analyzed in accordance with the principles and criteria contained in Executive Order 12612. Under the Federal-aid highway program, the FHWA reimburses States for costs incurred in highway construction projects. This regulation would simply provide that, as a condition of receiving such grants, States must carry out a value engineering (VE) analysis for all projects on the National Highway System (NHS) with an estimated cost of $25 million or more. This regulation recognizes the role of the States in employing VE and gives States wide latitude in establishing, administering, and monitoring their VE programs. Therefore, the FHWA has determined that this action does not have sufficient federalism implications to warrant the preparation of a separate federalism assessment. Paperwork Reduction Act This action does not require the collection of information for the purpose of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501–3520. National Environmental Policy Act The agency has analyzed this action for the purpose of the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) and has determined that this action would not have any effect on the quality of the environment. Regulation Identification Number A regulation identification number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN contained in the heading of this document can be used to cross reference this action with the Unified Agenda. List of Subjects in 23 CFR Part 627 Government procurement, Grant programs—transportation, Highways and roads. In consideration of the foregoing, the FHWA hereby adds part 627 to Chapter I of title 23, Code of Federal Regulations, as set forth below. Issued on: February 4, 1997. Rodney E. Slater, Federal Highway Administrator. The FHWA amends 23 CFR to add Part 627 to read as follows: PART 627—VALUE ENGINEERING Sec. 627.1 Purpose and applicability. 627.3 Definitions. 627.5 General principles and procedures. Authority: 23 U.S.C. 106(d), 106(f), 302, 307, and 315; 49 CFR 18. § 627.1 Purpose and applicability. (a) This regulation will establish a program to improve project quality, reduce project costs, foster innovation, eliminate unnecessary and costly design elements, and ensure efficient investments by requiring the application of value engineering (VE) to all Federal- aid highway projects on the National Highway System (NHS) with an estimated cost of $25 million or more. (b) In accordance with the Federal- State relationship established under the Federal-aid highway program, State highway agencies (SHA) shall assure that a VE analysis has been performed on all applicable projects and that all resulting, approved recommendations are incorporated into the plans, specifications and estimate. § 627.3 Definitions. Project. A portion of a highway that a State proposes to construct, reconstruct, or improve as described in the preliminary design report or applicable environmental document. A project may consist of several contracts or phases over several years. Value engineering. The systematic application of recognized techniques by a multi-disciplined team to identify the function of a product or service, establish a worth for that function, generate alternatives through the use of creative thinking, and provide the needed functions to accomplish the original purpose of the project, reliably, and at the lowest life-cycle cost without sacrificing safety, necessary quality, and environmental attributes of the project. § 627.5 General principles and procedures. (a) State VE programs. State highway agencies must establish programs to assure that VE studies are performed on all Federal-aid highway projects on the NHS with an estimated cost of $25 million or more. Program procedures should provide for the identification of candidate projects for VE studies early in the development of the State’s multi- year Statewide Transportation Improvement Program. (1) Project selection. The program may, at the State’s discretion, establish specific criteria and guidelines for selecting other highway projects for VE studies. (2) Studies. Value engineering studies shall follow the widely recognized systematic problem-solving analysis process that is used throughout private industry and governmental agencies. Studies must be performed using multi- disciplined teams of individuals not personally involved in the design of the project. Study teams should consist of a team leader and individuals from different speciality areas, such as design, construction, environment, planning, maintenance, right-of-way, and other areas depending upon the type of project being reviewed. Individuals from the public and other agencies may also be included on the team when their inclusion is found to be in the public interest. (i) Each team leader should be trained and knowledgeable in VE techniques and be able to serve as the coordinator and facilitator of the team. (ii) Studies should be employed as early as possible in the project development or design process so that accepted VE recommendations can be implemented without delaying the progress of the project. (iii) Studies should conclude with a formal report outlining the study team’s recommendations for improving the project and reducing its overall cost. (3) Recommendations. The program should include procedures to approve or reject recommendations and ensure the prompt review of VE recommendations by staff offices whose speciality areas are implicated in proposed changes and by offices responsible for implementing accepted recommendations. Reviews by these offices should be performed promptly to minimize delays to the project. (4) Incentives. The program may include a VE or cost reduction incentive clause in an SHA’s standard specifications or project special provisions that allows construction contractors to submit change proposals and share the resulting cost savings with the SHA. (5) Monitoring. The program should include procedures for monitoring the implementation of VE study team recommendations and VE change proposal recommendations submitted by construction contractors. (b) State VE coordinators. Individuals knowledgeable in VE shall be assigned responsibilities to coordinate and monitor the SHA’s program and be actively involved in all phases of the program. (c) Use of consultants. Consultants or firms with experience in VE may be retained by SHAs to conduct the studies of Federal-aid highway projects or elements of Federal-aid highway

6869Federal Register / Vol. 62, No. 31 / Friday, February 14, 1997 / Rules and Regulations projects required under § 627.1(a) of this part. Consultants or firms should not be retained to conduct studies of their own designs unless they maintain separate and distinct organizational separation of their VE and design sections. (d) Funding eligibility. The cost of performing VE studies is project related and is, therefore, eligible for reimbursement with Federal-aid highway funds at the appropriate pro- rata share for the project studied. [FR Doc. 97–3758 Filed 2–13–97; 8:45 am] BILLING CODE 4910–22–P 23 CFR Parts 630, 635, and 771 [FHWA Docket No. 96–3] RIN 2125–AD58 Federal-Aid Project Agreement AGENCY: Federal Highway Administration (FHWA), DOT. ACTION: Final rule. SUMMARY: The FHWA is amending its regulation on project agreements. The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 modified the requirement that preliminary engineering and right-of-way projects must be advanced to the construction stage within certain time limits. Changes to the agreement provisions reflect these adjustments. The new procedures provide more flexibility in the format of the agreement document and permit the development of a single document to serve as both the project authorization and project agreement document. Other changes were made to shorten the agreement document and to add clarity to the process. EFFECTIVE DATE: This final rule is effective March 17, 1997. FOR FURTHER INFORMATION CONTACT: Jack Wasley, Office of Engineering, 202–366– 0450, or Wilbert Baccus, Office of the Chief Counsel, 202–366–0780, FHWA, 400 Seventh Street, SW., Washington, DC 20590. Office hours are from 7:45 a.m. to 4:15 p.m., e.t., Monday through Friday except Federal holidays. SUPPLEMENTARY INFORMATION: The amendments in this final rule are based primarily on the notice of proposed rulemaking (NPRM) published in the January 30, 1996, Federal Register at 61 FR 2973 (FHWA Docket No. 96–3). All comments received in response to this NPRM have been considered in adopting these amendments. Under the provisions of 23 U.S.C. 110, a formal agreement between the State highway agency and the FHWA is required for Federal-aid highway projects. This agreement, referred to as the ‘‘project agreement,’’ is in essence a written contract between the State and the Federal government defining the extent of the work to be undertaken and commitments made concerning the project. Requirements covering project agreements are contained in this final rule. This final rule updates and modifies the existing Federal-aid project agreement regulation to incorporate changes mandated by the ISTEA, Pub. L. 102–240, 105 Stat. 1914, to streamline the project agreement form and provisions, and to allow more versatility in its use. This final rule amends the existing regulation in the following manner and for the reasons indicated below. Section 630.301 Purpose The statement of purpose is revised with minor changes for clarity. Section 630.303 Preparation of Agreement This section no longer requires the use of a specific form. Instead, a State has the flexibility to use whatever format is suitable to provide the information required for a project agreement document. Section 630.305 Modification of Original Agreement A State is still required to prepare a modification to a project agreement as changes occur. However, this section no longer requires the use of a specific form. Instead, a State is allowed to develop its own form for modification of the project agreement, provided it contains necessary information as identified by the regulation. Section 630.307 Agreement Provisions This section identifies the provisions that must be a part of each agreement. The project agreement has been simplified by eliminating all the boilerplate provisions that are not required from the agreement itself. The provisions that are necessary have been included in this section of the regulation. The simplified project agreement would incorporate, by reference to this section, these provisions into each agreement. The following discussion covers each of the required provisions. Section 630.307(a) is a general provision under which the State agrees to comply with title 23, United States Code (U.S.C.), the regulations implementing title 23, and the policies and procedures established by the FHWA. In addition, States must also comply with all other applicable Federal laws and regulations. This general provision is broad in scope and there is little need for other provisions which cover only a limited feature of title 23, U.S.C. Section 630.307(b) represents an acknowledgment by the State that it has a financial obligation for the non- Federal share of the cost of the project. Sections 630.307(c)(1) and (c)(2) contain provisions that implement statutory requirements concerning a State’s payback of Federal funds it has received for right-of-way acquisition or preliminary engineering should the project not be advanced within the designated statutory time frames. Paragraph (c)(1), Project for Acquisition of Rights-of-Way, implements the requirement in 23 U.S.C. 108(a) that the agreement between the State and the FHWA for right-of-way acquisition projects shall include a provision that construction shall begin within 20 years. This reflects an amendment to 23 U.S.C. 108(a) resulting from passage of section 1017(a) of the ISTEA. With regard to paragraph (c)(2), Preliminary engineering project, prior to passage of the ISTEA, an administrative decision by the FHWA required repayment of Federal-aid highway funds authorized for preliminary engineering if right-of-way acquisition or actual construction had not begun within 5 years after authorization of the preliminary engineering. The general concept of this provision is now found in the statute; section 1016(a) of the ISTEA incorporated this provision into 23 U.S.C. 102(b). One significant difference between the statutory provision and the existing FHWA practice is that 10 years instead of 5 years must pass before payback is required. Paragraph (c)(2) reflects the 10-year payback period. Sections 630.307(c)(3), (c)(4) and (c)(5) contain provisions for a drug-free workplace, suspension/debarment, and lobbying required by 49 CFR 29.630, 49 CFR 29.510 and 49 CFR 20.110, respectively. According to 49 CFR 29.630(c), a State is allowed to make one yearly certification for the drug-free workplace certification. Although the FHWA has used annual or quarterly program certifications for the others in the past, it was determined that these certifications do not fully comply with the provisions of previously cited requirements in 49 CFR 29.510 and 49 CFR 20.110. Placing language in the project agreement as part of the general provisions provides the separate certification action required for every project. Project-by-project certifications are deemed to fully satisfy the requirements in title 49, CFR, and

75905Federal Register / Vol. 67, No. 237 / Tuesday, December 10, 2002 / Rules and Regulations knowledge, the Florida DOT study is the best comprehensive comparison of a limited number of transportation projects that is currently available. The FHWA will consider all of the issues that have been identified in the comment period during the development of the Report to Congress. Simplification of SEP–14 Several commenters recommended that the SEP–14 be simplified. Others expressed an appreciation for the availability of this technique to proceed with projects that did not meet the statutory definition of a qualified project. Still others felt that it was appropriate for the FHWA to delegate approval authority to the Division Offices as proposed in the NPRM. We agree with these comments. The NPRM described several proposed methods to simplify the SEP–14 approval process. In addition, given the statutory definition for ‘‘qualified projects,’’ it will be necessary to maintain the SEP–14 program and make it available for non-qualified projects and other innovative contracting techniques. See the discussion for § 636.107 for additional details. Miscellaneous Two private individuals representing construction companies did not provide specific recommendations but expressed their concern regarding the use of design-build in the Federal-aid highway program. Generally, these commenters indicated the following concerns: (1) Design-build will limit competition and overall prices will increase; (2) the proposal process is too expensive except for the largest of firms; (3) quality and safety will suffer because design-build provides no incentive for either; (4) some contracting agencies might be biased in the evaluation process against firms that have a claim on a previous project; and (5) the benefits of faster project delivery have been improperly addressed by some in the industry. One commenter believed that the actual inconvenience to the public during construction is no shorter for design- build than it is for the traditional design-bid-build delivery system and this should be a primary consideration in selecting a project delivery method. The TCA provided specific recommendations to revise FHWA policy in 23 CFR 645.109, 23 CFR 645.113, and 23 CFR 645.115 to utilize design-build terminology. The FHWA recognizes this concern; however, we note that some sections of 23 CFR use terms that relate to the traditional design-bid-build process (i.e., plans, specifications, estimates, bids, etc.) and do not include terms that relate to the design-build process (i.e., Request for Proposal document, proposals, offerors, etc.). We did not propose to revise all sections of 23 CFR with this rulemaking. Such revisions are beyond the scope of this rulemaking action and will be considered in future rulemakings by the appropriate FHWA program office. Section-by-Section Analysis Part 627—Value Engineering Section 627.5 General Principles and Procedures The ACEC and the Design Professionals Coalition (DPC) were generally in agreement with the proposed value engineering provisions and the flexibility provided in the NPRM. The AASHTO, the DBIA, the Virginia DOT and the TCA suggested replacing the word ‘‘shall’’ with ‘‘may’’ in § 627.5(e) to allow for additional flexibility. The Associated General Contractors of America (AGC) and the American Road and Transportation Builders Association (ARTBA) generally supported the proposed value engineering language in the NPRM and recommended against the use of value engineering as part of the design-build proposal process. While the FHWA agrees with the commenters who suggested clarification of the NPRM language, we disagree with the suggestion that the use of the word ‘‘may’’ in lieu of ‘‘shall’’ would provide sufficient clarification. We agree that the final rule must explain how contracting agencies can meet the value engineering analysis requirement for design-build projects. Several commenters suggested that the final sentence of § 627.5(e)(2) be deleted as the existing value engineering regulation does not address value engineering change proposals during construction. The FHWA agrees with these commenters. This issue is not addressed in the existing value engineering regulation. Therefore, we have removed that sentence from the regulation. The AGC believed that including value engineering proposals as part of the proposal process only tends to add more subjective variables to the selection process. The ARTBA took a different viewpoint from the AGC. It suggested that the FHWA should consider the use of alternate technical concepts as a means of allowing the STDs to fulfill the value engineering analysis requirements. The Washington State DOT indicated that design-build proposers should have the widest possible range of expertise at their disposal when developing a proposal in a competitive environment. It suggested that the FHWA should provide flexibility to allow value engineering proposals developed by a design-build proposer to fulfill the value engineering analysis requirement. The TCA suggested that it had received a number of significant value engineering proposals under contract provisions and it is inappropriate for the FHWA to discourage such provisions. The DBIA suggested that while it is possible to request value engineering ideas during the procurement process and post-award, the fruitfulness of this process is highly questionable and very unlikely to yield measurable results. It concurred with the NPRM provisions that stated that ‘‘value engineering reviews are generally not recommended as part of the design-build proposal process.’’ The FHWA recognizes the differing viewpoints concerning the use of value engineering reviews conducted during the procurement process and post award. While such reviews may be useful in meeting a contracting agency’s project objectives, they do not necessarily meet the objectives of FHWA’s value engineering analysis requirement. The ARTBA, the TCA, the Colorado DOT and the Texas DOT suggested that the FHWA allow the use of alternate technical concepts during the proposal development process. These entities suggested that the alternate technical proposal process is similar to value engineering and may be even more thorough than any formal value engineering procedure presently required. These commenters stated that the proposed alternative technical proposals are typically well developed since they incorporate both designer and contractor input. Both the proposer and the contracting agency benefit from the use of this procedure as it gives the proposer a potential means of lowering its proposal price and the contracting agency receives 100 percent of the cost saving. The Colorado DOT requested that the FHWA make it clear that alternate technical concepts be allowed in the design-build procurement process. While the FHWA questions the overall effectiveness of a value engineering requirement during the proposal process or after contract award, several commenters provided convincing testimony that such provisions should not be prohibited. As long as the contracting agency maintains a fair and competitive process in reviewing, evaluating and recognizing

75906 Federal Register / Vol. 67, No. 237 / Tuesday, December 10, 2002 / Rules and Regulations alternate technical concepts, the FHWA has no objection to the use of alternate technical concepts. For this reason, we have modified the language in § 636.209 to allow the use of the alternate technical proposal concept as long as such alternate concepts do not change the assumptions used in the environmental decision making process. However, contracting agencies must not rely solely on an alternate technical concept requirement to fulfill the FHWA’s value engineering analysis requirement. SAVE International, a value engineering society, proposed a revision to this section that would require STDs to perform a value engineering analysis prior to the procurement process and allow other value engineering studies during the procurement process and during the life of the design-build contract at the discretion of the STD. This association stated that the greatest opportunity for savings exists prior to the initiation of the design-build procurement process, and therefore, recommended that the FHWA require a value engineering analysis at this point and allow additional value engineering studies afterwards. The FHWA agrees with the concept of requiring a value engineering analysis prior to the release of the Request for Proposal (RFP) document. SAVE International suggested two additional value engineering reviews but recommended that these two be discretionary; therefore, we did not feel it was necessary to include these provisions in the regulation. The AASHTO and the DBIA suggested that value engineering is inherent in the design-build process but also suggested that this section needs further clarification. The AASHTO questioned why the FHWA was modifying the existing value engineering regulation and several STDs (Florida, Utah, New Jersey and Washington) recommended no changes to the existing value engineering regulation. They indicated that the existing regulation applies to any Federal-aid highway project on the National Highway System greater than $25 million, regardless of whether is it a design-build or a design-bid-build project. These commenters suggested that the proposed modifications are not necessary. Still other commenters suggested several modifications to the NPRM language to clarify requirements. The TCA suggested that contracting agencies should be given the flexibility to determine which project procedures or contract requirements could be used to fulfill the value engineering analysis required by the FHWA. While the FHWA agrees with the commenters who suggested that value engineering concepts may be inherent in the design-build process, we disagree with the commenters who suggested that all design-build projects would fulfill the FHWA’s value engineering analysis requirement. The use of the design-build project delivery method does not fulfill the congressional mandate for a value engineering analysis on National Highway System projects greater than $25 million. In consideration of all of these comments, the FHWA believes that it is necessary to amend the NPRM language to clarify the minimum requirements for fulfilling the value engineering analysis requirement on design-build projects. For the purpose of clarification, we revised the language to require a value engineering analysis prior to the release of the RFP document. The NPRM provisions of paragraph (e)(2) have been deleted. The final rule clearly states that a value engineering analysis is required prior to the release of the RFP document. This will be the only requirement for fulfilling the value engineering analysis requirement for design-build projects on the National Highway System greater than $25 million. This does not preclude further value engineering reviews or studies at subsequent points in the procurement process or even after contract award. However, subsequent value engineering reviews will not be acceptable for the purposes of fulfilling the value engineering analysis requirement. Part 630—Preconstruction Procedures Section 630.203 Applicability The TCA suggested that this section be modified to provide an exception for design-build projects such that contracting agencies would not be subject to the FHWA’s requirements for the preparation, submission and approval of plans, specifications, estimates and supporting documents on Federal-aid projects. The FHWA disagrees with this comment. The FHWA’s requirements for reviewing and approving design-build RFP documents are contained in 23 CFR 635.112. Therefore, it is not necessary to modify § 630.203. Section 630.1010 Contents of the Agency Procedures The TCA suggested that a revision be made to the FHWA’s policies in Subpart J, Traffic Safety in Highway and Street Work Zones, to accommodate design- build projects. This commenter suggested that the existing regulations be modified to indicate that, for design- build projects, the design-builder would develop the traffic control plan. It was also suggested that the responsible person be an employee of the design- builder or a subcontractor. The FHWA disagrees with this comment. We did not modify this section and traffic control plans are beyond the scope of this rulemaking action. The FHWA will consider appropriate revisions to its policy in this area in a future rulemaking. Part 633—Required Contract Provisions Section 633.102 Applicability The TCA suggested that this section be modified to allow contracting agencies to strike or modify Section VII of Form FHWA–1273, Required Contract Provisions, that concerns minimum contracting responsibilities of the prime contractor. A similar recommendation was provided for Appendix B, Section VIII(4) for Appalachian projects. The FHWA disagrees with this comment. Although the FHWA proposed to change the contracting requirements of § 635.116 for design- build contracts in the NPRM, such a change would best be implemented with a modification to Form FHWA 1273, Required Contract Provisions and Attachment A for Appalachia projects. These changes are beyond the scope of this rulemaking. Part 635—Construction and Maintenance Section 635.102 Definitions The ACEC indicated the proposed modifications were acceptable. The TCA suggested that the FHWA add a definition for the term ‘‘contracting agency’’ (or cross-reference the definition in part 636), revise the definition of ‘‘design-build project,’’ revise the definition of ‘‘incentive/ disincentive for early completion,’’ and use the term ‘‘contracting agency’’ instead of ‘‘STD’’ in many sections within part 635. The TCA also suggested that the current definition of ‘‘design- build project’’ might preclude the STD from entering into multiple contracts relating to a single project. The FHWA agrees with the comment concerning the definition of a design- build project. We have modified the definition to read as follows: ‘‘Design- build project means a project to be developed using one or more design- build contracts.’’ The other suggested revisions are either beyond the scope of this rulemaking or are not appropriate.

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TRB’s National Cooperative Highway Research Program (NCHRP) Synthesis 352: Value Engineering Applications in Transportation examines the current value engineering (VE) practices of highway transportation agencies in the United States and Canada. Value engineering (VE) is the systematic review of a project, product, or process to improve performance, quality, and/or life-cycle cost by an independent multidisciplinary team of specialists. The report identifies the reported best practices, key strengths, and challenges of current VE study processes and agency programs, and offers guidance on applying and improving the effectiveness of VE in projects and programs.

NCHRP Synthesis 352 was published on December 8, 2005. An incorrect version of Figure 14 was included on page 33. This has been corrected in the on-line version of the report.

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