[Federal Register Volume 77, Number 111 (Friday, June 8, 2012)]
[Pages 34073-34074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-13903]



Office of Federal Procurement Policy

Value Engineering

AGENCY: Office of Federal Procurement Policy, Office of Management and 

ACTION: Proposed revision to Office of Management and Budget Circular 
No. A-131, ``Value Engineering''.


SUMMARY: The Office of Federal Procurement Policy (OFPP) in the Office 
of Management and Budget (OMB) is proposing to revise OMB Circular A-
131, Value Engineering, to update and reinforce policies associated 
with the consideration and use of Value Engineering (VE). VE is an 
effective technique for cutting waste and inefficiency--helping Federal 
agencies save billions of dollars in program and acquisition costs, 
improve performance, enhance quality, and foster the use of innovation. 
The proposed revisions are designed to ensure that the Federal 
Government has the capabilities and tools to consider and apply VE 
techniques to the maximum extent appropriate.

DATES: Interested parties should submit comments in writing to the 
address below on or before August 7, 2012.

ADDRESSES: Comments may be submitted by any of the following methods:
     Online at: http://www.regulations.gov.
     Facsimile: 202-395-5105.
     Mail: Office of Federal Procurement Policy, ATTN: Curtina 
Smith, New Executive Office Building, Room 9013, 725 17th Street NW., 
Washington, DC 20503.
    Instructions: Please submit comments only and cite ``Proposed 
Revision to OMB Circular A-131'' in all correspondence. All comments 
received will be posted, without change or redaction, to 
www.regulations.gov, so commenters should not include information that 
they do not wish to be posted (for example because they consider it 
personal or business confidential).

[email protected]. Availability: Copies of the proposed revision to 
OMB Circular A-131 are available on OMB's Web site at http://www.whitehouse.gov/omb/circulars_default/.


[[Page 34074]]

A. Overview

    Value Engineering (VE) refers to an organized effort to analyze 
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 levels of performance, reliability, 
quality, and safety. Industry first developed VE during World War II as 
a means of continuing production despite shortages of critical 
materials by analyzing functions to generate alternative materials or 
systems to accomplish the required tasksat a lower cost. The Federal 
Government subsequently adopted this tool as a mechanism to incentivize 
contractors to continually think of ways to drive greater efficiency in 
their production methodologies by allowing them to share with the 
Government in the savings generated by their value engineering change 
proposals. VE can reduce program costs and optimize performance.
    Currently, several Federal agencies have reported life-cycle 
savings through the use of VE in a broad range of acquisition programs, 
such as those involving defense systems, transportation, construction, 
engineering, environmental, and manufacturing projects. According to 
annual reports of VE activities submitted by Federal agencies to OMB, 
value engineering generates billions of dollars in savings and cost 
avoidance annually for the Federal Government. For example, the 
Department of Defense (DOD) reported savings of nearly $2 billion in 
fiscal year (FY) 2009 and $3.4 billion in FY 2010. The Department of 
Transportation's Federal Highway Administration reports that annual 
savings for Federally-funded state construction projects have ranged 
from $1.8 to $3.2 billion between 2005 and 2009. The Department of 
State reports that it has used VE to identify hundreds of millions of 
dollars in total life cycle savings since FY 2008--saving an average of 
$46 for every one dollar invested in VE studies. Opportunities for 
savings exist at other agencies.
    OMB Circular A-131 requires agencies to establish VE programs so 
that the agencies will realize the benefits of using VE techniques to 
reduce nonessential contract and program costs. OMB first issued the 
Circular in January 1988 (53 FR 3140), and the Circular was last 
revised in May 1993 (58 FR 31056). The Circular specifically requires 
agencies to: (1) Identify a focal point within each agency to monitor, 
manage and maintain data on agency VE programs; (2) establish criteria 
and guidelines for screening programs and projects which might benefit 
from the application of VE techniques; (3) develop guidelines to 
evaluate VE proposals; (4) actively solicit VE ideas from contractors; 
and (5) emphasize, through training and other means, the potential of 
VE to reduce unnecessary costs. Since issuing the Circular in 1988, OMB 
has issued three memoranda in April 1995, October 1996, and February 
1997 emphasizing the importance and benefits of VE and reminding 
agencies of their responsibilities under the program. As a result of 
proposed revisions in this notice, the previously-issued OMB memoranda 
have been overtaken by events and are hereby formally rescinded.
    In this notice, OFPP is proposing to revise Circular A-131 to 
reflect present-day buying strategies and practices, such as 
performance-based service contracting, to ensure that the Federal 
Government is effectively considering and taking full advantage of VE, 
whenever appropriate, to cut waste and inefficiency and promote greater 
fiscal responsibility. The revisions that are proposed in this notice 
     Reinforce the importance of giving meaningful 
consideration to VE to save money and improve performance. The proposal 
states that VE should be considered for all appropriate agency program 
management activities and capital assets (as defined in OMB Circular A-
11 and the Capital Programming Guide), as well as to appropriate 
supply, service, architect-engineering, and construction contracts. 
Through the use of VE, agencies successfully identify and remove 
nonessential functions and associated costs, ensure realistic budgets, 
and improve and maintain acceptable levels of quality.
     Explain that VE can be used with various contract types 
and methods of contracting. The proposal explains that VE can be 
incorporated into the acquisition strategy to improve results achieved 
from contracts. VE can be used when contracting for services, when 
using various contract delivery methods, such as design-build, or when 
using performance-based specifications.
     Explain that VE can be used with other management tools. 
The proposal explains that VE can be used with other management tools 
designed to improve processes, such as lean six sigma.
     Increase the threshold for the application of VE. The 
proposal would raise the threshold from $1 million to $2 million, 
primarily to take into account inflation since the $1 million level was 
adopted. Agencies would have the discretion to set lower thresholds for 
those projects that have a significant impact on agency operations.
     Strengthen training. The proposal states that agencies 
should provide training to appropriate program and contract staff in 
the application and implementation of VE on contracts. OFPP will work 
with the Federal Acquisition Institute and the Defense Acquisition 
University on appropriate training materials for the acquisition 
     Reduce reporting requirements. The proposal would reduce 
from 20 to 5 the number of projects to be reported annually to OMB and 
would update the reporting format to include a description of the 
methodology used to calculate savings. The proposal would also 
eliminate Part III of the Circular in its entirety; Part III has 
required a detailed cost summary of program results from inception to 
     Remove outdated terminology and update references. The 
proposal would remove outdated terminology and update references to 
include currently prevalent methodologies and techniques such as 
performance-based acquisition, the design/build project delivery 
process, and integrated product/project/process teams.
     Remove automatic Inspector General (IG) review. The 
proposal would remove the provision requiring agency IGs to conduct an 
automatic audit of VE programs every two years. We expect management 
review of agency VE programs to be considered over time through 
internal control assessments of acquisition functions conducted in 
connection with OMB Circular A-123, Management Accountability and 
Control. Agency management should also work with their IGs, as 
appropriate, to consider when IG review of VE activities may be 
    OMB requests comments on these proposals as well as on other 
aspects of the Circular.

Joseph G. Jordan,
Administrator for Federal Procurement Policy.
[FR Doc. 2012-13903 Filed 6-7-12; 8:45 am]