Value Engineering Applications in Transportation (2005)

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Value engineering (VE) is the systematic review of a project, product, or process to improve performance, quality, and/or life-cycle cost by an independent multidisciplinary team of spe- cialists. It is the focus on the functions that the project, product, or process must perform that sets VE apart from other quality-improvement or cost-reduction approaches. The purpose of this synthesis is to summarize the current VE practices in highway trans- portation agencies in the United States and Canada. Many of these agencies use VE during the planning, design, and construction phases of their projects. Some agencies have expanded the application of VE to standards and processes as well. In the United States, VE has been used to improve transportation projects for more than 30 years. It was initially applied during construction, in the form of Value Engineering Change Proposals to reduce overall construction costs. However, many transportation agencies now recognize that greater benefits can be realized if VE is introduced earlier in the development of the project. VE can be used to establish project scope, support effective decision making, increase project performance and quality, balance project objectives, and manage community expectations. NCHRP initially studied VE in transportation in 1981. NCHRP Synthesis of Highway Practice 78 summarized key observations and forecast transportation agency expectations at the time. The synthesis also provided a capsule history of VE in transportation before and after the formal involvement of the federal government. In 1973, FHWA developed a VE training and support program to assist state transportation agencies (STAs). Further encour- agement, support, and guidance in VE eventually came from AASHTO in the form of the initial edition of its Guidelines on Value Engineering in 1987. Although interest in VE at the state level began to increase, only a few states were actively using VE by the early 1990s. This has since changed with the introduction of federal legislation. In 1991, an audit of federal VE practices by the President’s Council on Integrity and Effi- ciency concluded that more could and should be done by federal agencies to realize the ben- efits of VE. Principal direction was issued by the Office of Management and Budget (OMB). OMB Circular A-131, updated in 1993, requires all federal departments and agencies to use VE, where appropriate, to reduce program and acquisition costs. Circular A-131 also stipu- lated that each department or agency be required to designate a VE manager, develop a mon- itoring program, and annually report VE results (only for those departments and agencies with more than $10 million expenditure programs). The 1995 Highway Designation Act instructed the Secretary of Transportation to establish a program that required VE on all fed- eral-aid projects valued at more than $25 million. FHWA VE Regulation 23 CFR Part 627 was issued in 1997 to fulfill this directive. The federal mandate has increased the number of STAs actively involved in VE. The over- all value of the approved VE study recommendations fluctuates annually. In addition, sev- eral STAs have enhanced their VE programs by developing agency-specific VE policies and guidelines and/or introduced new elements to their VE toolkits. Several Canadian trans- SUMMARY VALUE ENGINEERING APPLICATIONS IN TRANSPORTATION

portation agencies have recently introduced VE into their engineering and construction phases, drawing on the lessons learned from their U.S. counterparts. Until now, this increased VE activity in North America has not been comprehensively studied. This synthesis was developed using information collected during a detailed literature search and from documents provided by or available from selected transportation agencies and municipalities in North America. In addition, a survey questionnaire exploring VE pol- icy, guidelines and applications, project selection, implementation and monitoring issues, industry preparedness, and future opportunities, was distributed to transportation agencies in the United States and Canada. Additional insight, gained from the author’s personal experi- ences and through contacts, is also shared, where appropriate. The survey questionnaire, sent to U.S. and Canadian transportation agencies and selected municipalities, was structured to gain an understanding of current practices in VE, and the challenges and opportunities that exist. Fifty agencies participated in the survey. Approxi- mately two-thirds of the respondents (33 of 50) indicated that the statutory requirement was “always” or “often” the reason that VE was being used. About half of the respondents (27 of 50) indicated that VE was done to meet their funding requirements. Although these results are encouraging and suggest that the legislation is having the desired effect, annual FHWA VE activity reports indicate that only a select few STAs undertake the majority of VE stud- ies on federal-aid projects. However, this observation might be misleading. For example, the current $25 million cost threshold effectively precludes several STAs because they do not have projects in this range and consequently do not have large or active VE programs. Some STAs are also doing VE studies on state-funded projects (i.e., non-federal-aid projects) and these results are not reported at the national level. Municipal transportation VE studies are also not reported at the national level. The respondents were asked to describe their VE programs using the conventional SWOT (strengths/weaknesses/opportunities/threats) approach. Some common ground was noted in terms of the varied characteristics that the respondents used to describe their programs and experience: • The VE process and procedures are well-defined and generally well-understood at most levels within an STA, including senior management. VE is recognized as an effective way to improve the performance of a project and/or reduce unnecessary capital and operating costs. • A key ingredient to the success of the VE program is the quality (qualifications and experience) of the team leader and specialists. • VE is more effective and influential on the performance, quality, and cost of a project when performed relatively early in the development of the project schedule. • The $25 million cost threshold trigger for federal-aid projects serves as both motivation and as a limitation for some STAs. Some modest-size transportation agencies with proj- ects falling below the $25 million threshold rarely do VE, whereas some larger trans- portation agencies rarely consider VE on state-funded or lower-cost federal-aid projects. • A commonly defined and understood approach to measure implementation benefits (improved performance and/or lower life-cycle costs) of VE studies and VE program success needs to be developed. • Training is necessary to maintain VE programs and the corporate enthusiasm to allo- cate resources to VE. However, training initiatives are typically influenced more by the overall funding of transportation programs. • VE can effectively be integrated with or into other technical or management improve- ment approaches, such as asset management, road safety audits, context-sensitive design, and accelerated construction technology teams. Working with FHWA and STAs, AASHTO’s VE Technical Committee has evolved to fulfill a key partnership role in the successful mentoring of VE in the United States. This 2

committee continues to promote VE and to provide VE support to the STAs. They have recently started to develop guidelines to determine the nonmonetary effectiveness of VE pro- posals by measuring performance. Interest in project performance measures developed in California has now spread to selected STAs and at least one Canadian province. In the United States, STAs continue to develop and evolve their VE programs in response to current legislation. In some cases, STAs have expanded their programs to consider non- federally mandated projects, enhanced their basic VE procedures with additional tools, and/or increased the range of projects, products, and processes considered for VE. It is acknowledged that the level of VE activity will continue to vary considerably between STAs, owing to the number, complexity, and value of the projects that constitute their annual trans- portation programs. Although it is recognized that more VE studies can be performed, it is apparent that road users, taxpayers, and the economy are already benefiting from more effi- cient and cost-effective transportation facilities across the country as a result of VE applica- tions in transportation. 3