Value Engineering, 78399-78400 [2013-30816]
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Notices
OFFICE OF MANAGEMENT AND
BUDGET
Office of Federal Procurement Policy
Value Engineering
Office of Federal Procurement
Policy, Office of Management and
Budget.
ACTION: Notice of Final Revision to
Office of Management and Budget
Circular No. A–131, ‘‘Value
Engineering’’.
AGENCY:
The Office of Federal
Procurement Policy (OFPP) in the Office
of Management and Budget (OMB) is
publishing final revisions to OMB
Circular A–131, Value Engineering, to
update and reinforce policies associated
with the consideration and use of value
engineering (VE). VE is a wellestablished commercial practice for
cutting waste and inefficiency that can
help Federal agencies reduce program
and acquisition costs, improve the
quality and timeliness of performance,
and take greater advantage of innovation
to meet 21st century expectations and
demands. The revisions are designed to
ensure that the Federal Government has
the capabilities and tools to consider the
use of VE for new and ongoing projects,
whenever appropriate.
FOR FURTHER INFORMATION CONTACT:
Curtina Smith, OFPP, csmith@
omb.eop.gov.
SUPPLEMENTARY INFORMATION:
emcdonald on DSK67QTVN1PROD with NOTICES
SUMMARY:
A. Overview
VE refers to an organized effort to
analyze functions of systems,
equipment, facilities, services, and
supplies for the purpose of achieving an
agency’s essential functions at the
lowest life-cycle cost, consistent with
required levels of performance,
reliability, quality, and safety. VE
challenges agencies to continually think
about their mission and functions—in
the most basic terms—in order to
determine if their requirements are
properly defined and if they have
considered the broadest possible range
of alternatives to optimize value. It
promotes ‘‘share-in-savings’’ by
encouraging contract holders to identify
ways to reduce the cost of performance
on existing contracts and share with the
government in the savings produced
from the results. Most importantly, VE
enables agencies to achieve greater fiscal
responsibility and operate within tighter
budgetary constraints. By identifying
and eliminating unnecessary program
and acquisition costs that do not
contribute to the value, function, and
performance of the product or service,
VerDate Mar<15>2010
18:06 Dec 24, 2013
Jkt 232001
VE can permit programs to continue
delivering the same, or an even higher,
level of service for less money—a
critical capability for managing in a
fiscally austere environment.
Industry first developed VE during
World War II as a means of continuing
production, despite shortages of critical
materials and labor, by analyzing
functions to generate alternative
materials or systems to accomplish the
required tasks at 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.
Over the past several decades, a
number of agencies have successfully
integrated the use of VE analysis into
their management activities. These
agencies have reported life-cycle savings
through the use of VE in a broad range
of acquisition programs, including those
involving defense systems, civil works,
transportation, construction,
engineering, environmental, and
manufacturing projects. According to
recent reports of VE activities submitted
to OMB, VE has generated billions of
dollars in savings and cost avoidance.
For example, the Department of Defense
(DOD) reported cumulative savings of
over $10 billion in FYs 2011 and 2012.
The Department of Transportation’s
Federal Highway Administration reports
that annual savings for Federally-funded
state construction projects have ranged
from just over $1 billion to nearly $2
billion between FYs 2010 and 2012. 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 well over
$40 for every one dollar invested in VE
studies.
In 1988, OMB issued Circular A–131
to help agencies in their efforts to
establish and improve VE programs so
that they realize the benefits of using VE
techniques to reduce nonessential
contract and program costs. See 53 FR
3140. The Circular was revised in 1993
to require the use of VE as a
management tool. See 58 FR 31056.
OMB’s Office of Federal Procurement
Policy issued a series of memoranda in
the 1990s to remind agencies of their
responsibilities under the program.
Despite the demonstrated ability of
VE to facilitate more fiscally responsible
management and smarter buying, and its
continued popularity in the private
sector, Federal agency use of VE has
waned in recent years. Insufficient
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
78399
management attention and questions
about its applicability to performance
based contracting and other buying
practices have resulted in VE not being
considered in situations where it could
have helped agencies save resources.
The revisions being made to the Circular
are designed to clarify the role of VE in
helping agencies meet twenty-first
century demands and deliver better
value to the taxpayer.
B. Circular Revisions
On June 8, 2012, OMB’s OFPP issued
a notice in the Federal Register of
proposed changes to Circular A–131
(See 77 FR 34073, available at http://
www.whitehouse.gov/sites/default/files/
omb/procurement/a131-circularchanges-draft.pdf), which proposed
revisions that would:
• Reflect present-day buying
strategies and practices by explaining
that VE can be used with other
management improvement tools, such
as lean six sigma, and clarifying that
consideration of VE should not exclude
services, such as those acquired with
performance-based specifications, and
construction, including projects where
design-build methods are used;
• Adjust the threshold for considering
the application of VE, primarily to take
into account inflation;
• Reduce the number of projects on
which agencies are required to report to
OMB, update the reporting format to
include a description of the
methodology used to calculate savings,
and eliminate requirements for a
detailed cost summary of program
results from inception to date; and
• Remove the provision from the
current Circular requiring agency IGs to
conduct an automatic audit of VE
programs every two years, instead
allowing agency management to work
with their IGs to consider when review
of VE activities may be warranted and
relying on 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.
As a result of public comments
(discussed below) and discussion with
Federal agencies, OFPP is finalizing the
proposed Circular with certain changes
and additional refinements.
Specifically, these changes and
refinements to the Circular, which
largely address matters relating to scope,
agency responsibilities, and application,
include:
• Establishing a definition of ‘‘value
engineering study’’ for purposes of the
Circular to recognize that VE may be
E:\FR\FM\26DEN1.SGM
26DEN1
emcdonald on DSK67QTVN1PROD with NOTICES
78400
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Notices
tailored and scaled based on factors
such as the cost or complexity of the
project, the stage in the project lifecycle,
and project schedule.
• Clarifying that VE is a process
generally performed in a workshop
environment by a multidisciplinary
team of contractor and/or in-house
agency personnel (such as an integrated
project team (IPT)), which is facilitated
by agency or contractor staff that is
experienced, trained and/or certified in
leading VE teams through a series of
specific phases.
• Directing agencies subject to the
Chief Financial Officers Act (CFO Act)
to identify a senior accountable official
responsible for ensuring the appropriate
consideration and use of VE, including
maintaining agency guidelines and
procedures for identifying agency
programs and projects with the most
potential to yield savings from VE
studies and reporting results to OMB.
• Requiring CFO Act agencies to
maintain guidelines and procedures for
identifying programs and projects with
the most potential to yield savings from
VE studies.
• For new projects and programs,
increasing the threshold for considering
VE from $1 million to $5 million, to
recognize that the application of VE has
the greatest value early in the
investment lifecycle on high dollar
programs and projects.
• For existing projects and programs,
granting to agencies the discretion to
determine the extent to which VE shall
be applied, but requiring agencies to
establish criteria to help agency
managers determine when VE may be
suitable.
• Clarifying that documentation must
be maintained to explain the basis of
waivers and, where VE studies are
conducted, the reason for not
implementing recommendations made
in the studies.
• Emphasizing that VE can also be
used with acquisition and commodity
management techniques, such as
strategic sourcing and modular
contracting, to improve performance
and quality, lower cost, manage risks
more effectively, and shorten project
delivery.
The complete text for the final revised
OMB Circular A–131, ‘‘Value
Engineering’’ is available on the OMB
Web site at http://www.whitehouse.gov/
omb/circulars_a131/.
C. Public Comments
In response to its June 8, 2012 notice
of proposed changes to Circular A–131,
OFPP received public comments from
thirteen respondents, including a
number of comments expressing
VerDate Mar<15>2010
18:06 Dec 24, 2013
Jkt 232001
support for the renewed attention on
this management tool. Copies of the
public comments received are available
for review at http://
www.regulations.gov/
#!docketDetail;D=OFPP-2012-0002. A
short summary of the comments and
OFPP’s responses and changes adopted
in the final revised Circular are
described below:
1. Applicability. Several respondents
commented on the applicability of the
Circular’s policy. Specifically, concern
was raised that the requirement for
agencies to use VE ‘‘where appropriate’’
is too vague and should be clarified.
OFPP seeks to focus the application of
VE where it is likely to have the greatest
value while allowing agencies to tailor
the use of the tool to meet their mission
needs. To clarify this goal, the final
Circular requires VE for all new agency
projects and programs if the project cost
estimate is at least $5 million, except
where the agency expressly waives the
requirement. This threshold (which is
substantially higher than the $1 million
threshold in the current version of the
Circular) recognizes that VE generally
has the greatest impact when it is
applied early in the investment lifecycle
to higher dollar programs and projects.
That said, agencies are encouraged to
establish a lower threshold for their
agency, as appropriate, after taking into
account: (i) The historical costs of their
major acquisitions, (ii) projects that
have a significant impact on lifecycle
costs or agency operations, and (iii)
projects with a significant potential for
repeat savings, such as manufacturing
projects where savings can be applied to
future units produced.
The final Circular gives agencies
discretion to determine the extent to
which VE shall be applied to existing
programs and projects, but requires
agencies to establish criteria to help
agency managers determine when VE
may be suitable. Criteria might include
a combination of factors such as the
priority of the program or project to the
agency and the presence of cost
overruns, performance shortfalls and/or
schedule delays.
Furthermore, the final Circular
requires CFO Act agencies to designate
a senior accountable official to
strengthen accountability for the
meaningful consideration of VE. This
official’s responsibilities include (i)
maintaining agency guidelines and
procedures, (ii) making training
available for program, project,
acquisition, information technology,
and other agency personnel, (iii)
developing plans for using VE and
ensuring that funds necessary for
conducting agency VE studies are
PO 00000
Frm 00076
Fmt 4703
Sfmt 9990
identified and included in annual
budget requests to OMB, and (iv)
making sure VE activities are
appropriately documented and results
are reported to OMB.
2. Measurement of net life-cycle cost
savings. One respondent stated that
coverage in the proposed revisions
discussing how to measure the net lifecycle cost savings from value
engineering, conflicts with the Federal
Acquisition Regulation (FAR) clause
52.248–1(b) ‘‘Government costs,’’ which
states that the term does not include the
normal administrative cost of processing
the Value Engineering Change Proposal
(VECP). The respondent stated that the
Circular should be revised to include
administrative costs in the overall lifecycle cost within the context of
executing the value engineering
function at the agency level.
OFPP has revised the wording of the
final Circular to clarify that the net lifecycle cost savings from value
engineering is determined by
subtracting the Government’s cost
(including administrative costs of
processing VECPs that were excluded in
calculating VECP saving shares) of
performing the value engineering
function over the life of the program
from life-cycle savings generated by
value engineering function.
3. Coverage in the FAR. One
respondent stated that the current
coverage of VE in the FAR is complex
and should be updated to (1) reflect a
more streamlined and user-friendly
approach to the value engineering
change proposal process, (2) encourage
broader application of VE in situations
where use of VE could save money and
allow both parties to share in the
savings.
OFPP agrees that successful use of VE
requires that application to Federal
contracts be clear and practical to use.
OFPP intends to work with FAR
Council members to consider potential
regulatory revisions that might help to
simplify its application in Federal
acquisition. It also intends to work with
the Federal Acquisition Institute and the
Defense Acquisition University on
appropriate training materials for the
acquisition workforce.
Joseph G. Jordan,
Administrator for Federal Procurement
Policy.
[FR Doc. 2013–30816 Filed 12–24–13; 8:45 am]
BILLING CODE P
E:\FR\FM\26DEN1.SGM
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Agencies
[Federal Register Volume 78, Number 248 (Thursday, December 26, 2013)]
[Notices]
[Pages 78399-78400]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30816]
[[Page 78399]]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
Value Engineering
AGENCY: Office of Federal Procurement Policy, Office of Management and
Budget.
ACTION: Notice of Final 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 publishing final revisions to OMB
Circular A-131, Value Engineering, to update and reinforce policies
associated with the consideration and use of value engineering (VE). VE
is a well-established commercial practice for cutting waste and
inefficiency that can help Federal agencies reduce program and
acquisition costs, improve the quality and timeliness of performance,
and take greater advantage of innovation to meet 21st century
expectations and demands. The revisions are designed to ensure that the
Federal Government has the capabilities and tools to consider the use
of VE for new and ongoing projects, whenever appropriate.
FOR FURTHER INFORMATION CONTACT: Curtina Smith, OFPP,
csmith@omb.eop.gov.
SUPPLEMENTARY INFORMATION:
A. Overview
VE refers to an organized effort to analyze functions of systems,
equipment, facilities, services, and supplies for the purpose of
achieving an agency's essential functions at the lowest life-cycle
cost, consistent with required levels of performance, reliability,
quality, and safety. VE challenges agencies to continually think about
their mission and functions--in the most basic terms--in order to
determine if their requirements are properly defined and if they have
considered the broadest possible range of alternatives to optimize
value. It promotes ``share-in-savings'' by encouraging contract holders
to identify ways to reduce the cost of performance on existing
contracts and share with the government in the savings produced from
the results. Most importantly, VE enables agencies to achieve greater
fiscal responsibility and operate within tighter budgetary constraints.
By identifying and eliminating unnecessary program and acquisition
costs that do not contribute to the value, function, and performance of
the product or service, VE can permit programs to continue delivering
the same, or an even higher, level of service for less money--a
critical capability for managing in a fiscally austere environment.
Industry first developed VE during World War II as a means of
continuing production, despite shortages of critical materials and
labor, by analyzing functions to generate alternative materials or
systems to accomplish the required tasks at 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.
Over the past several decades, a number of agencies have
successfully integrated the use of VE analysis into their management
activities. These agencies have reported life-cycle savings through the
use of VE in a broad range of acquisition programs, including those
involving defense systems, civil works, transportation, construction,
engineering, environmental, and manufacturing projects. According to
recent reports of VE activities submitted to OMB, VE has generated
billions of dollars in savings and cost avoidance. For example, the
Department of Defense (DOD) reported cumulative savings of over $10
billion in FYs 2011 and 2012. The Department of Transportation's
Federal Highway Administration reports that annual savings for
Federally-funded state construction projects have ranged from just over
$1 billion to nearly $2 billion between FYs 2010 and 2012. 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
well over $40 for every one dollar invested in VE studies.
In 1988, OMB issued Circular A-131 to help agencies in their
efforts to establish and improve VE programs so that they realize the
benefits of using VE techniques to reduce nonessential contract and
program costs. See 53 FR 3140. The Circular was revised in 1993 to
require the use of VE as a management tool. See 58 FR 31056. OMB's
Office of Federal Procurement Policy issued a series of memoranda in
the 1990s to remind agencies of their responsibilities under the
program.
Despite the demonstrated ability of VE to facilitate more fiscally
responsible management and smarter buying, and its continued popularity
in the private sector, Federal agency use of VE has waned in recent
years. Insufficient management attention and questions about its
applicability to performance based contracting and other buying
practices have resulted in VE not being considered in situations where
it could have helped agencies save resources. The revisions being made
to the Circular are designed to clarify the role of VE in helping
agencies meet twenty-first century demands and deliver better value to
the taxpayer.
B. Circular Revisions
On June 8, 2012, OMB's OFPP issued a notice in the Federal Register
of proposed changes to Circular A-131 (See 77 FR 34073, available at
http://www.whitehouse.gov/sites/default/files/omb/procurement/a131-circular-changes-draft.pdf), which proposed revisions that would:
Reflect present-day buying strategies and practices by
explaining that VE can be used with other management improvement tools,
such as lean six sigma, and clarifying that consideration of VE should
not exclude services, such as those acquired with performance-based
specifications, and construction, including projects where design-build
methods are used;
Adjust the threshold for considering the application of
VE, primarily to take into account inflation;
Reduce the number of projects on which agencies are
required to report to OMB, update the reporting format to include a
description of the methodology used to calculate savings, and eliminate
requirements for a detailed cost summary of program results from
inception to date; and
Remove the provision from the current Circular requiring
agency IGs to conduct an automatic audit of VE programs every two
years, instead allowing agency management to work with their IGs to
consider when review of VE activities may be warranted and relying on
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.
As a result of public comments (discussed below) and discussion
with Federal agencies, OFPP is finalizing the proposed Circular with
certain changes and additional refinements. Specifically, these changes
and refinements to the Circular, which largely address matters relating
to scope, agency responsibilities, and application, include:
Establishing a definition of ``value engineering study''
for purposes of the Circular to recognize that VE may be
[[Page 78400]]
tailored and scaled based on factors such as the cost or complexity of
the project, the stage in the project lifecycle, and project schedule.
Clarifying that VE is a process generally performed in a
workshop environment by a multidisciplinary team of contractor and/or
in-house agency personnel (such as an integrated project team (IPT)),
which is facilitated by agency or contractor staff that is experienced,
trained and/or certified in leading VE teams through a series of
specific phases.
Directing agencies subject to the Chief Financial Officers
Act (CFO Act) to identify a senior accountable official responsible for
ensuring the appropriate consideration and use of VE, including
maintaining agency guidelines and procedures for identifying agency
programs and projects with the most potential to yield savings from VE
studies and reporting results to OMB.
Requiring CFO Act agencies to maintain guidelines and
procedures for identifying programs and projects with the most
potential to yield savings from VE studies.
For new projects and programs, increasing the threshold
for considering VE from $1 million to $5 million, to recognize that the
application of VE has the greatest value early in the investment
lifecycle on high dollar programs and projects.
For existing projects and programs, granting to agencies
the discretion to determine the extent to which VE shall be applied,
but requiring agencies to establish criteria to help agency managers
determine when VE may be suitable.
Clarifying that documentation must be maintained to
explain the basis of waivers and, where VE studies are conducted, the
reason for not implementing recommendations made in the studies.
Emphasizing that VE can also be used with acquisition and
commodity management techniques, such as strategic sourcing and modular
contracting, to improve performance and quality, lower cost, manage
risks more effectively, and shorten project delivery.
The complete text for the final revised OMB Circular A-131, ``Value
Engineering'' is available on the OMB Web site at http://www.whitehouse.gov/omb/circulars_a131/.
C. Public Comments
In response to its June 8, 2012 notice of proposed changes to
Circular A-131, OFPP received public comments from thirteen
respondents, including a number of comments expressing support for the
renewed attention on this management tool. Copies of the public
comments received are available for review at http://www.regulations.gov/#!docketDetail;D=OFPP-2012-0002. A short summary of
the comments and OFPP's responses and changes adopted in the final
revised Circular are described below:
1. Applicability. Several respondents commented on the
applicability of the Circular's policy. Specifically, concern was
raised that the requirement for agencies to use VE ``where
appropriate'' is too vague and should be clarified.
OFPP seeks to focus the application of VE where it is likely to
have the greatest value while allowing agencies to tailor the use of
the tool to meet their mission needs. To clarify this goal, the final
Circular requires VE for all new agency projects and programs if the
project cost estimate is at least $5 million, except where the agency
expressly waives the requirement. This threshold (which is
substantially higher than the $1 million threshold in the current
version of the Circular) recognizes that VE generally has the greatest
impact when it is applied early in the investment lifecycle to higher
dollar programs and projects. That said, agencies are encouraged to
establish a lower threshold for their agency, as appropriate, after
taking into account: (i) The historical costs of their major
acquisitions, (ii) projects that have a significant impact on lifecycle
costs or agency operations, and (iii) projects with a significant
potential for repeat savings, such as manufacturing projects where
savings can be applied to future units produced.
The final Circular gives agencies discretion to determine the
extent to which VE shall be applied to existing programs and projects,
but requires agencies to establish criteria to help agency managers
determine when VE may be suitable. Criteria might include a combination
of factors such as the priority of the program or project to the agency
and the presence of cost overruns, performance shortfalls and/or
schedule delays.
Furthermore, the final Circular requires CFO Act agencies to
designate a senior accountable official to strengthen accountability
for the meaningful consideration of VE. This official's
responsibilities include (i) maintaining agency guidelines and
procedures, (ii) making training available for program, project,
acquisition, information technology, and other agency personnel, (iii)
developing plans for using VE and ensuring that funds necessary for
conducting agency VE studies are identified and included in annual
budget requests to OMB, and (iv) making sure VE activities are
appropriately documented and results are reported to OMB.
2. Measurement of net life-cycle cost savings. One respondent
stated that coverage in the proposed revisions discussing how to
measure the net life-cycle cost savings from value engineering,
conflicts with the Federal Acquisition Regulation (FAR) clause 52.248-
1(b) ``Government costs,'' which states that the term does not include
the normal administrative cost of processing the Value Engineering
Change Proposal (VECP). The respondent stated that the Circular should
be revised to include administrative costs in the overall life-cycle
cost within the context of executing the value engineering function at
the agency level.
OFPP has revised the wording of the final Circular to clarify that
the net life-cycle cost savings from value engineering is determined by
subtracting the Government's cost (including administrative costs of
processing VECPs that were excluded in calculating VECP saving shares)
of performing the value engineering function over the life of the
program from life-cycle savings generated by value engineering
function.
3. Coverage in the FAR. One respondent stated that the current
coverage of VE in the FAR is complex and should be updated to (1)
reflect a more streamlined and user-friendly approach to the value
engineering change proposal process, (2) encourage broader application
of VE in situations where use of VE could save money and allow both
parties to share in the savings.
OFPP agrees that successful use of VE requires that application to
Federal contracts be clear and practical to use. OFPP intends to work
with FAR Council members to consider potential regulatory revisions
that might help to simplify its application in Federal acquisition. It
also intends to work with the Federal Acquisition Institute and the
Defense Acquisition University on appropriate training materials for
the acquisition workforce.
Joseph G. Jordan,
Administrator for Federal Procurement Policy.
[FR Doc. 2013-30816 Filed 12-24-13; 8:45 am]
BILLING CODE P