Category:130 Value Engineering

130.1 Discussion

Value engineering (VE) was developed during World War II by the General Electric Company to deal effectively with shortages of skilled labor and raw materials. VE is a systematic method of examining performance to improve the value of projects or processes, value being defined as the ratio of performance to cost and thus capable of being increased by either lowering the cost or improving the performance. Although wartime shortages are a distant memory, MoDOT today faces a distinct shortage of available highway funding that places great importance on value-based, i.e., "practical", design. While VE in the classic sense tends to be somewhat more structured, VE and Practical Design are truly one and the same. The goal of VE is to build the right project at the right time, achieving delivery of project purpose and need with proper project scope.

MoDOT uses VE to ensure that the public receives full value for every tax dollar invested in Missouri’s transportation system. VE techniques are used to improve productivity in nearly every aspect of MoDOT’s operation, including practices, processes, and procedures. In highway construction, VE encourages contractors to submit proposals for modifying the plans, specifications, or other requirements of the contract to reduce the project’s construction cost.

130.1.1 Laws and Regulations

In 1970 the United States Congress recommended using VE on federal-aid highway projects. More recent federal regulations and technical advisories as well as Federal Highway Administration (FHWA) policy and guidance require and support VE, including:

• The National Highway Systems (NHS) Act of 1995 included a VE mandate directing the U.S. Secretary of Transportation to develop a program requiring state departments of transportation to conduct a VE analysis for projects on the NHS costing $25 million or more.
• In 1997, 23 CFR Part 627—Value Engineering introduced the requirement that VE be applied to all federal -aid highway projects on the NHS with a value of $25 million or more ($20 million on Major Bridge projects).
• Title 23 USC § 106(e) and (g), as amended.
• FHWA’s Federal-Aid Policy Guide September 8, 1998, Transmittal 24.
• The American Association of State Highway and Transportation Officials’ (AASHTO’s) 2001 publication AASHTO Guidelines for Value Engineering, 2nd Edition.

130.1.2 Process / Procedure

Although the law only requires a single study during the design phase, VE studies can be performed anytime and ideally two studies should be performed on each project. The first study is done early in the project development phase to help minimize impacts, decide the best type of facility to build, and pinpoint its location during preparation of the location study/environmental document. The second study should be performed during the project’s final design phase to address design- issues (geometrics, final vertical and horizontal alignments, drainage, construction staging, traffic control, signalization, pavement and structure details, etc.) and "fine tune" the project before letting it to construction.

VE studies are performed to add value to a project, not simply to reduce costs. VE studies should challenge project scope that exceeds delivering project purpose and need. As stated in the law, VE studies are made "to provide suggestions for reducing the total cost of the project and providing a project of equal or better quality."

130.1.3 VE Organization

Value Engineering is a most beneficial program and requires staff to accomplish program goals. The Value Engineering Administrator (VEA) manages the overall operation of MoDOT’s VE program. The VEA is responsible for tracking the VE program and reporting its progress to both management and the FHWA. The VEA leads studies and may assist with the initial selection of teams for district VE studies, if necessary, and provide training guidelines and facilitation. The VEA compiles recommendations from the VE study and submits them for approval as follows:

• The district or division engineer can approve and implement VE recommendations that do not change policy, standards, or the scope of the original project. A copy of the VE study and the district or division engineer’s approval is submitted to the affected districts, divisions, and the VEA. The VEA notifies the team members of the study results and tracks results of each study.
• The Chief Engineer approves VE recommendations that affect more than one division/district or that change policy, standards, or the scope of the project. The VEA notifies affected divisions, districts, and the team members and tracks results of each study.

Each district engineer selects a district value engineering contact (DVEC) to coordinate VE activities in that district. The DVEC is responsible for the district's VE program. The DVEC should be at a level consistent with the supervision and management responsibilities of the VE effort. The DVEC is responsible for scheduling the location of the study, selecting team members from the district, and arranging transportation to the project site. The DVEC serves as a team member on the VE study to become familiar with the process and leads VE studies as required to meet the demands of the program.

130.1.4 VE Workplan/Project Selection

Each year, a value engineering work plan is to be completed within 30 days after approval of the MoDOT highway right-of-way and construction program. The districts should coordinate with the DVEC and VEA to identify and develop the work plan for their respective design programs. The value engineering work plan, upon final acceptance and approval by the Chief Engineer, supplements the right-of-way and construction program.

The VE project selection criteria is used to determine which projects have the greatest potential for study. The transportation project manager completes the VE project selection form and submits it to the DVEC and VEA to aid in preparation of the VE work plan. DVECs work with project managers to schedule VE studies for all projects with an estimated cost of $25 million or more and for projects over $10 million that score above 5 on the VE project selection form. The DVEC sends the district’s annual study schedule to the VEA for inclusion in the MoDOT VE work plan.

Divisions or districts may also request VE studies. Project VE studies are generally done at the district level. VE studies on procedures, processes, specifications, standard plans, and details of statewide impact are generally done at the division level.

The VE study report and recommendations are presented to the district and/or division upon completion of the study. Affected districts and divisions will receive copies of the study within five (5) working days from its completion. The DVEC works with project managers to evaluate the recommendations of the VE team. The project managers submit responses to the study recommendations to the VEA.

130.1.5 VE Study Process

At MoDOT, VE entails a systematic process of review and analysis of a project during its design/project development phase, resulting in recommendations to improve value while addressing the project’s purpose and need. A VE study has 3 distinct phases outlined below:

Pre-Study Phase: The VEA works with the TPM and DVEC to set up the study (see the Project Manager's Guide for additional information).

Study Phase: A multidisciplinary team conducts the VE review by:

• investigating and analyzing the planning, design, and constructability of a project;
• identifying project functions and costs and worth;

• creatively speculating on alternate ways to perform the various functions;
• evaluating the best and/or least life-cycle alternatives;
• developing acceptable alternatives into supported recommendations; and
• presenting the team’s recommendations to district management.

Post Study Phase: Approval and implementation of VE recommendations

130.1.6 VE Study Types

In the past, some Value Engineering recommendations were rejected because they challenged standards. That barrier is now broken, making VE a most beneficial management tool to accomplish practical design. While some VE opportunity is lost with practical design, since projects are being scaled back, VE tactics have changed to adapt to the new environment.

Now there are 5 types of VE studies:

• Concept Stage VE (CSVE) - the focus is on coming up with many alternates, the goal being to choose the best alternate to accomplish project P&N. It works best for the CSVE to be conducted prior to signing DEIS or before conceptual submittal if a CE. (3 to 5 day study).
• Preliminary Stage VE (PSVE) - this is the traditional VE study conducted prior to preliminary plan submittal. The focus here is usually on improving the existing design, often, by this stage, the footprint is usually set and it may be too late for major functional enhancements. (3 to 5 day study).
• Constructability Review- this type of VE study that concentrates on constructability, traffic management, "bidability", innovative contracting, etc. Can be done at any stage from conceptual to final plans. (length of study can be 2 to 4 hours, 1 to 2 days, up to 3 to 5 days).
• Practical Design Review (VE/PDR) - this is a quick/short review (2 to 4 hours up to 1 to 2 days) which can be conducted at any stage from conceptual to final plans. Following are some characteristics of a PDR:

• Led by district staff or design liaisons
• Team composition- Consists of Central Office and district staff including an estimator, reviewer, standards person, liaison, and other disciplines (construction, bridge, traffic, etc). Teams may be small, only 3 to 5 persons, or large, mirroring project core teams.
• Follows VE job plan- Investigate, Identify basic functions the project must achieve, speculate on solutions, and evaluate/develop ideas-provide cost savings when possible.
• Project Info usually sent out prior to study, team members investigate and speculate individually, this is submitted back to the team leader to be compiled and sent to team before the study begins.
• Report findings in simple letter format
• Project manager/district replies using the same letter- they identify which recommendations are implemented and the cost savings.

• Process Value Analysis - this type of VE study concentrates on process improvement. The goal is to take an innovative and practical look at any of our processes. Subjects could include anything, i.e., maintenance operations, construction standards or purchasing specifications. (length of study can be 2 to 4 hours, 1 to 2 days, up to 3 to 5 days)

MoDOT is conducting more Concept Stage VE studies, developing many alternates to identify the best solution. VE/Practical Design Review’s conducted during final design build consensus through collaboration and ensure we have the most practical solution, reducing last minute scrutiny of projects. Project managers use VE as a proven problem-solving system and realize secondary benefits including better project scope definition and increased value by optimizing the ratio of project performance and project cost.

130.1.7 NEPA Considerations

Given the potential for impacts to resources outside the NEPA study area or changes to previously approved designs, the environmental and historic preservation sections will have a stake in most VE studies; however, decisions and/or agreements from environmental studies and public hearings can be questioned. Members from one or both sections can provide the team with needed information to help in the process.

When VE studies are conducted post-NEPA, caution must be exercised to ensure that commitments made in standing, approved NEPA documents are not contradicted. This would also apply to assumptions made for post-NEPA approvals, such as Section 404 permits, approvals from the U.S. Fish and Wildlife Service, as well as others. Although the VE team must realize that suggestions negatively impacting environmental or public hearing agreements could place the entire project at risk as they may require supplemental studies or hearings, all valid suggestions should be included in the study report. Management must consider what impact the VE suggestion may have on the environmental or public hearing agreement before deciding whether or not to approve the suggestion.

130.1.8 Additional Information

The FHWA's Value Engineering for Highways provides further details on the VE technique and its applicability to highway projects and functions. It has been widely distributed as part of FHWA's training effort and a copy should be available in each state DOT and FHWA office. Additional copies may be obtained from the FHWA VE coordinator. The AASHTO’s Guidelines for Value Engineering, 2nd Edition also provides an excellent description of VE.

MoDOT’s Value Engineering Team Leader Guide and Project Manager’s Guide offer specific, in-depth information for those involved in these respective capacities.

130.2 Contractor initiated VECPs

Contractor initiated Value Engineering Change Proposals (VECPs) and Practical Design Value Engineering Change Proposals (PDVECPs) are handled in accordance with Sec 104.6 of the Missouri Standard Specifications for Highway Construction. The process used to evaluate the change proposal is presented in EPG 104.13 Construction Inspection Guidance for Sec 104.

VECPs provide a product of equal or improved quality by reducing the project’s total cost, improving the project’s safety, or decreasing the time required to complete the project. This proposal is initiated by the contractor (using the VE Change Proposal) who receives 50% of the savings associated with the proposal should it be approved by MoDOT.

A PDVECP may provide a product of lesser value; use an existing item in place or underrun contract items. The PDVECP shall not adversely affect safety or function of the final product. This proposal is initiated by the contractor, using the VE change proposal who receives 25% of the savings associated with the proposal should it be approved by MoDOT.

All reasonable documented engineering costs incurred by the contractor to design and develop a value engineering proposal shall be reimbursed and subtracted from the savings of the construction costs. All costs incurred by MoDOT to review and implement the VECP will be at the Commission’s expense.

For example, a contractor submits a VECP with a reduction in construction costs of $100,000. The documented engineering costs for the proposal total $20,000. The actual net savings are determined by subtracting the engineering costs ($20,000) from the reduced construction cost ($100,000). In this example, the net savings is $80,000 that is split between MoDOT and the contractor using either the 50/50 or 75/25 ratio dependent upon the type of VE approved.

Examples of Value Engineering Proposals can be found on the Value Engineering Web Page.