FAA Issues New Life Cycle Cost Analysis Discount Rate Guidance for Airfield Pavement Analyses
The FAA has issued new guidance in the form of a Program Guidance Letter (PGL) on cost-effective analyses. The Airport Improvement Program (AIP) PGL released last week is now the official FAA Guidance on the discount rate for use in life cycle cost analysis (LCCA) to compare the cost-effectiveness of airfield pavement alternatives. This change will correct Airport Improvement Handbook Table U-8, which had required design engineers to use a 7 percent discount rate in LCCAs to compare the cost-effectiveness of pavement alternatives. The 7 percent discount rate has hampered concrete pavement’s competitiveness in the pavement alternative selection process. The FAA will update the discount rate requirement for life cycle cost-effective analyses in AIP Handbook to require using the Office of Management and Budget (OMB) rate, which is updated annually.
The PGL also changes the requirement for a 20-year analysis period to allow the design engineer to choose an appropriate time period for the LCCA. Gary Mitchell, P.E., ACPA’s Chief of Engineering and Construction, commented, “These changes will significantly improve concrete pavement’s life-cycle cost competitiveness. The 7 percent rate was based on 1990’s data, and the change to using the OMB published rate is in line with today’s economic environment. ACPA has been supportive of the FAA on this change for some time, and we are excited to see it finally come to fruition.”
The OMB published discount rate is currently 0.4 percent for a 20-year analysis period and 0.5 percent for a 30-year analysis period. The longer-term analysis period allowance change will give a significant advantage to longer-term pavement alternatives compared to the 7 percent rate FAA had required for past cost-effective analyses. Allowing an extension of the analysis period will also be more reasonable given concrete pavements’ longer life performance. “We have recently had a couple of projects that were changed from flexible to rigid pavement as a result of using an appropriate discount rate for the LCCA,” Mitchell added. Here is a link to the PGL on the FAA website.