[Federal Register Volume 62, Number 31 (Friday, February 14, 1997)]
[Rules and Regulations]
[Pages 6866-6869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3758]


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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.

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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

[[Page 6867]]

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 Sec. 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.

[[Page 6868]]

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.


Sec.  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.


Sec.  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.


Sec.  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

[[Page 6869]]

projects required under Sec. 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]
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