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Value Engineering at FHWA

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Presentation on theme: "Value Engineering at FHWA"— Presentation transcript:

1 Value Engineering at FHWA
Ken Leuderalbert, P.E., PMP FHWA VE Program Manager SAVE International® 2012 Annual Conference Government Value Management Conference June 14, 2012

2 Presentation Agenda Overview of FHWA/State DOT Program
VE Program Performance Overview of FHWA VE Regulations Future VE Initiatives/Goals

3 FHWA/State DOT Overview
The Federal-aid highway program can best be described as a federally-assisted, state administered program, funding authorized in the Federal-aid highway acts is distributed to the State Department of Transportation (DOT) for projects developed by the individual DOTs. Each DOT develops a VE program and applies VE analyses to projects on the designated Federal-Aid System (Interstate and National Highway Systems) and other projects at their discretion. In FY 2011, the application of VE techniques continued to be an effective tool in improving the quality and cost effectiveness of the Federal-aid Highway Program. As a result of the DOTs performing 378 VE analyses, and approving a total of 1,224 design recommendations, a significant construction cost savings of nearly $1 Billion was realized. In addition, the DOTs approved 341 VECPs which totaled $38 million.

4 FHWA’s Interest with VE
So what is FHWA’s interest in the VE program? Put simply, VE has proven itself to be an effective cost control process that has been time tested. In this time of limited transportation funding it becomes essential that State DOTs and Federal Highway do everything in their power to stretch their transportation dollars. VE is but one of the many activities a State DOT may undertake to meet the goal of cost containment. VE has been time tested and proven to provide significant project cost savings. Take a look at the last 5 years, the period from 2006 to State DOTs conducted 1784 VE studies, implementing 6,327 recommendations. Those are implemented recommendations which resulted in nearly $10 billion in project cost savings or cost avoidance over the last five years. While these numbers are significant, State DOTs and FHWA is just scratching the surface. There is much more that can be done in the area of VE analysis. If all state DOTs develop a comprehensive VE program the results could be phenomenal. It is important to understand what we mean when we talk about project cost savings. The recommendations that VE teams make involve construction, right of way, utility or other direct project savings. These savings mean that the project studied will not cost as much as anticipated and the savings can be used to fund additional transportation work. Now we all realize that States aren’t sitting around with a lot of extra money floating around. However, the fact that, through VE analysis, a project costs less, means that there is more money for other projects. Now there will be those that claim VE just doesn’t work. We hear it all the time, we tried it one time and had disastrous results, the project was delayed and the recommendations couldn’t be implemented. VE is not a miracle process. It has to be done right, with the right team, on the right project, and at the right time. If a State DOT puts forth the effort, studies projects at the right time, staffs VE teams with qualified Team Leaders and team members, follows the VE Job Plan and quickly resolves VE recommendations, either accepting or rejecting them, they will see positive results from the VE program and consequently stretch their tax dollars. 1784 studies resulting in nearly $10 billion in project cost savings or avoidance over the last five years.

5 FHWA’s Interest with VE
On average the VE program has produced the following benefits: VE teams recommend ~ 10% project savings State DOTs implement ~50% of all VE recommendations VE recommendations save ~5% of projects construction costs For every dollar spent on VE analyses, agencies realize a $165:1 return on investment Should be at about 1:45 Let’s take a closer look at what can be expected when VE is done right. On average, a VE team will recommend cost savings equaling about 10% construction cost savings every time they conduct a VE study. On average, management implements 50% of all proposed recommendations. That means, every time a VE team comes together their recommendations will result in 5% construction cost savings on average. Let’s put it in real terms, if a State DOT studies a $10 million dollar project, which is not such a big project any more, the State DOT could expect to realize $500,000 direct project savings from the VE study. Now I know we all deal in terms of multi-million dollar projects and the concept of cost savings could get lost in the shear magnitude of what we deal with every day, but $500,000 is a lot of money, money that could be used on other projects. A $25 million dollar project would result in $1 ¼ million in project savings, on average. Lets take a look at the return on investment for the VE program. On average, the cost to conduct a VE study is extremely low compared to the implemented savings. The return on investment over the last five years is 165 to 1. That means, if you spend $5,000 to pay for a VE study, the team will return $825,000 dollars of direct project cost savings, on average. $5,000 for the VE team and they give you back $825,000 in implemented project savings. What’s not to like, when you see these results?

6 FHWA’s Interest with VE
VE Program 2016 Goals: Maximize VE effect of project cost and performance 55% of VE Recommendations Implemented 8% of Project Construction Costs Saved Enhance Quality of State VE Program All States have established VE Program and Policy 50% of all VE studies conducted prior to 30% plans Improve FHWA’s Stewardship of VE Program Division engaged in VE Studies Divisions verifying required VE Studies are Conducted With the intent of maximizing VE program performance, FHWA has developed some program performance measures. There are three categories of measures, project performance, State VE Program and Federal Highway’s stewardship of the VE program. Regarding program performance, FHWAs 2016 goal is for State DOTs to implement 55% of proposed VE recommendations and save 8% project cost savings. To improve the quality of the State VE program, FHWA is looking for all state DOTs to have an active VE program and policies. It has been proven that early VE analysis of the project provides greater cost savings, so FHWA has a 2016 goal of 50% of all VE studies are conducted prior to the completion of 30% final design plans. There are three categories to measure FHWAs Stewardship of the VE program. We want Divisions engaged in VE studies, verifying that the required VE studies are conducted, ensure VE analyses are documented, ensure VE recommendations are acted upon and approved recommendations incorporated into the project design and to enhance the overall consistency of FHWAs stewardship of the VE program. FHWA collects annual data that is used to assess overall performance in each of these areas. (use the annual measures to give greater depth)

7 Overview of FHWA VE Regulations
Previous update to VE regulation was 1997 Jun 23, 2011 – NPRM Published Aug 22, 2011 – end of public comment period Mar 15, 2012 Final Rule Published in Federal Register April 16, 2012 Implementation Date of Final Rule Now let’s move on to the NPRM The last major revision to the VE regulation was in 1997, however, Federal Highway did incorporate some minor changes in 2002 which included requirements to conduct a VE analysis on design build projects. Federal Law codified through the United States Code changed some of the VE requirements, specifically including bridge projects and Major Projects as applicable projects for a VE analysis. In June 2011 Federal Highway published the Notice of Proposed Rule Making amending the existing VE regulations in 23 CFR 627 to be consistent with these VE statutory requirements contained in Federal Law and with Office of Management and Budget requirements. It’s important to note, the changes made to the VE regulation were not significant in that State DOTs were already required to maintain a VE program, conduct VE analysis on applicable projects, follow the systematic VE analysis process and report on program results. The public comment period ended on August 2011 where the comments were compiled, reviewed, and acted upon by federal highway. I have provided a summary of significant comments for each section of the regulation in the next part of this presentation.

8 Changes to VE Regulation
There are now five section to VE Regulation: 627.1 Purpose and Applicability 627.3 Definitions 627.5 Applicable Projects 627.7 Programs 627.9 Conducting a VE Analysis There are now five sections in the VE regulation: 627.1 Purpose and Applicability defines the need to develop policies and procedures for the State VE Program 627.3 Several Definitions were added to this section ensuring that everyone clearly understands the terms used in the regulation. 627.5 Applicable Projects clarified and defined federally required projects that must undergo a VE analysis 627.7 VE Programs includes the specific requirements for State DOT policies and procedures, and, 627.9 Conducting a VE Analysis includes specific instructions regarding the conduct of VE analysis The following provides an in-depth review of each section in the new VE regulation along with an overview of the significant comments received during the NPRM process. It is hoped that by reviewing the comments received and federal highways response to the comment that you will better understand federal highways approach to the issue.

9 Overview of 2012 VE Regulation
Section Purpose and Applicability Prescribes programs, policies and procedures to ingrate VE into project planning and development Establish and sustain policies and procedures to monitor, assess and report on VE program and analyses conducted Section was amended to clarify the requirements for State DOTs to establish the policies and procedures to plan, conduct, monitor, assess, and report on the VE program, the VE analyses conducted, and the VE Change Proposals (VECP) accepted. 2. Clarifies the requirement that each state DOT must establish and sustain a VE program and that the program will establish policies and procedures indentifying when a VE analysis is required. The policies should also identify when a VE analysis is encouraged on all other projects where there is a high potential to realize the benefits of a VE analysis. 3. This section also clarified that DOTs shall ensure that sub-recipients conduct VE analyses as required. This is an important point. As more and more projects are administered through local public agencies and projects become bigger and more complex, it is important that the State DOT has the controls in place to ensure that required projects undergo a VE analysis. Hopefully, not as a requirement but as a way to control costs, improve projects and encourage innovation.

10 Overview of 2012 VE Regulation
Section Definitions Added definitions for: Bridge Project Project Total Project Costs VE Analysis VE Job Plan VECP Should be at about 2:15 The definitions section was expanded significantly to cover terms used throughout the VE regulation. The following are some of the new and more significant definitions. A Bridge Project includes any project where the primary purpose is to construct, reconstruct, rehabilitate, resurface or restore a bridge. While this seems fairly straight forward some asked whether an interchange project where the majority of costs are in bridges was in fact a bridge project. The definition was provided to clearly define that the primary purpose of an interchange project is not to construct or rehabilitate a bridge, rather to construct an interchange and therefore is not defined as a bridge. Total project costs includes the cost of all phases of work, environment, design, right-or-way, utilities and construction regardless of the funding of each phase. That is, even if the design is 100% state funded, the design is included in the total project costs to determine if it is an applicable project.

11 Overview of 2012 VE Regulation
VE Job Plan Structure for conducting and documenting results of VE analysis Information Phase Function Analysis Phase Creative Phase Evaluation Phase Development Phase Presentation Phase Resolution Phase 1. Now comes an extremely important part of the VE analysis. The VE Job Plan has been written to clearly define the process used to conduct the VE analysis. There are 7 phases that each VE study must follow. (1) Information Phase is used to gather project information including project commitments and constraints, project plans, specifications and estimates and present it to the team so they all understand the project. (2) Function Analysis Phase Analyze the project to understand the required functions which includes breaking the project down into it’s component pieces so they can be easily understood and analyzed. (3) The Creative Phase is used to Generate ideas on ways to accomplish the required functions which improve the project’s performance, enhance its quality, and lower project costs. (4) The Evaluation Phase is used to Evaluate and select feasible ideas for development. (5) The Development Phase Develops the selected alternatives into fully supported recommendations including drawings, and estimates. (6) During the Presentation Phase The team prepares presentation material in order to present the VE recommendation to the project stakeholders. (7) The Resolution Phase: Evaluates, resolves, documents and implements all approved recommendations. It is important to remember that the VE Job Plan merely identifies the process that the VE analysis must follow. As stated earlier, each phase of the VE Job Plan can be scaled to meet the specific project needs. For instance, simpler projects will not take as long to go through each phase where more complex project will take more time and effort.

12 Overview of 2012 VE Regulation
Section Applicable Projects All FAHP NHS Projects >$25M All FAHP Bridge Projects >$20M All Major Projects on or off the NHS Projects with delayed construction that undergo a scope or design change resulting in meeting threshold Any FAHP projects FHWA determines appropriate Section was changed from General Principles and Procedures to Applicable Projects to clarify when a VE analysis is required by FHWA. The section was amended to clarify that VE analyses are to be conducted prior to completion of final design and all approved recommendations are to be incorporated into the projects Plans, Specifications and Estimate prior to construction. The definition for applicable projects has not changed much since these are defined in federal law. All federally funded projects on the NHS with a total project cost greater than $25 million, all federally funded bridge projects, either on or off the NHS with a total project cost greater than $20 million, and all major projects either on or off the NHS require a VE analysis. We already discussed projects with a delay in construction letting where there is a scope or design change resulting in the project meeting the definition of an applicable project. These projects require a VE analysis since the project has moved back into the design phase and a VE study is required. However, projects that are under the threshold at final design and there is no scope or design change are not required to undergo a VE analysis. For example, if during the letting delay construction costs escalate pushing the project over the threshold, a VE analysis is not required since there has been no scope or design change. Divisions and State DOTs should use caution, however, if a project is nearing the threshold during the design phase, a VE analysis should be conducted in order to ensure you meet federal VE regulations. The last bullet is to emphasize that Divisions have the authority to require a VE analysis when they determine it is appropriate. Please keep in mind, that should the Division require a VE analysis above the required analysis, this should be communicated to the State DOT early enough to not impact the project schedule. Examples of projects possibly warranting additional VE analysis could be where a project continues to rise above the initial estimates where it could be expected the project may benefit from the analysis or a major project where individual construction projects are large and complex. Another example could be a State program where each project falls below the threshold but taken together totals up to a significant program for instance a resurfacing program or bridge deck replacement program. These types of applicable projects are up to the Division in coordination with the State DOT to determine if a VE analysis is appropriate.

13 Overview of 2012 VE Regulation
Section VE Programs State DOTs must establish and sustain a VE program Document Policies and Procedures Identify, Schedule and Conduct VE Analysis Ensure VE analysis follows VE Job Plan Resolve and implement approved recommendations Monitor and Assess VE Program Submit annual report to FHWA Section State DOTs must establish and sustain a VE program which includes: monitoring and assessing the VE program to ensure that all VE requirements are met and taking corrective actions necessary to improve the VE program. submitting an annual report to FHWA documenting the performance of the VE program. Annually my office sends out a VE call for data which provides the format for reporting the State VE data. establish VECP policies and procedures which include the processes of how VECPs are submitted, reviewed and approved by the State DOT, and, Establish the policies and procedures to ensure that LPA administered projects meeting the thresholds for applicable projects undergo a VE analysis and meet all the requirements of the VE regulation. The VE program must include the process the State DOT will use to ensure that all VE analysis are conducted on all projects meeting the thresholds for applicable projects. Once again, how a State DOT meets this requirement is up to them. Some State DOTs conduct an annual review of their STIP to identify potential projects and then tracks these on a list of potential VE projects.

14 Overview of 2012 VE Regulation
Section Conducting a VE Analysis Independent, multi-disciplined team Team leader with VE expertise Use of consultants Timing of VE analysis Consider all project objectives/commitments Follow the VE Job Plan Section clarifies the specific requirements associated with conducting a VE analysis including the use of an independent, multidisciplinary team, effective planning and timing of the VE analysis, the use of the VE Job Plan, preparing and documenting the formal written report, incorporating approved recommendations into the design of projects, and encouraging the use of VECPs in the construction phase of projects. Once again, we covered many of these issues and much of this is not new. VE always required an independent, multi-disciplined team. Team independence ensure that the team can conduct a critical VE analysis without being biased to the project. That is, they have the ability to question and challenge prior project decisions. I understand that teams challenging prior project decisions makes State DOT management and project managers nervous, however, it is through this rigorous scrutiny where the decisions are either verified or found to be without merit in some cases. The multi-disciplined team is meant to bring those professionals uniquely qualified to analyze the project together in a setting that they rarely are able to operate. For instance, how often does maintenance, construction, right of way, design and safety get to come together to collaborate on a project? This collaboration produces dramatic and proven results. In this section we emphasize the importance of a qualified and experienced VE team leader. The team leader is the most important component to ensure a successful VE analysis. Being an effective VE team leader takes a unique set of skills, knowledge and understanding of the VE process as well as transportation delivery. Consultants may be a good source of providing qualified VE team leaders or to fill out a VE team with needed project specific expertise. Many State DOT have VE consultants on retainer to ensure they have the needed expertise when they need it. We already discussed the timing of VE analysis. The earlier you conduct a VE analysis the greater the project savings on the project. This is due in part to the fact that there is time to incorporate VE recommendations into the project. We all know that near the end of the project design, final plans are prepared and many times cannot be modified without having a negative impact on the project schedule and budget. Because of this, federal highway recommends that project be studied early in the project development cycle, possibly near public involvement during the environmental phase so that good recommendations can be presented to the public and incorporated into the project. Project commitments and constraints identified during the environmental phase must be considered during the VE analysis to ensure the VE recommendations do not have a negative impact. And follow the VE Job Plan. This is your roadmap to where you want to go and maximize VE performance.

15 State Actions to Implement the VE regulation
Simple, do everything we just talked about. Identify a VE Coordinator Develop a VE Policy/Procedure Develop an Annual List of Projects Identify VE analysis resources for each study Follow VE Job Plan Resolve Recommendations Report on Program Performance Should be at about 2:45 1. The next two pages serve as an overview of actions that should be taken by a State DOT in order to be compliant with the updated federal regulation. This can serve as a checklist for a state. This list does not cover everything in the regulation just the high level issues. 2. Identify a VE coordinator and establish the roles and responsibilities for the position. 3. Develop or update VE policies and procedures taking into account the issues we discussed today, paying special attention to the process necessary for the State DOT to carry out the responsibilities of the VE program and oversight of LPAs in the conduct of VE analyses. 4. We already discussed a best practice of identifying a candidate list of VE projects. This list should identify the appropriate point in the life of the project to conduct the VE analysis as well as an approximate time frame for conducting the study. 5. Identify the resources needed for the VE analysis, for instance who is the appropriate VE team leader that is the right fit for the specific project. What team disciplines should be represented on the project. Make sure you are getting experience and qualified team members. They are the ones that will provide successful VE results.

16 Division Stewardship of VE Program
Review and Approve VE Policies and Procedures Review of Annual List of VE Projects Ensure VE analysis is conducted on all required projects Monitor and participate in VE analyses Monitor Recommendation Resolution Process Annually Report on VE Program Results This, as in the State actions are the major activities a Division should undertake to ensure effective stewardship of the State VE program. Please keep in mind, this list is not everything a Division must do to ensure compliance with the federal regulation, it is just the major activities. The Division should review the State DOT VE policies and Procedures and if acceptable approve them. If they do not meet the minimum requirements as stated in the VE regulation, Divisions should work with the State DOT to update the policies and procedures. Divisions should review and retain the annual list of VE projects developed by the state DOT and ensure the analysis are conducted on all required projects. Monitor and participate as appropriate in VE analysis. This does not mean that Divisions must attend all VE meetings, however, if they have not attended one in the past, they should do so in order to understand the process better. Periodically attending VE meetings will assist the Division in achieving a better understanding of the State VE program. Attending VE presentations should help the Division better understand the State program and recommendations made. Divisions should ensure that VE recommendations are acted upon in a timely manner and that all accepted VE recommendations are incorporated into the project. Annually report on the results of the VE program.

17 FHWA Future Activities
Release 2011 VE Performance Report - Spring Update the VE Order (Policy) – Summer/Fall Initiate Development of VE Stewardship & Oversight Tool Box for FHWA Divisions – Summer Enhance consistency of FHWA efforts Provide guidance and resources to assist divisions with carrying out specific VE tasks or functions The 2011 VE Call for Data has closed. I want to thank all of those that helped to pull this information together and get it input into the system. Great job. I have started the process of validating the data, so I may need to call some divisions for clarification. I hope to get the performance report and accomplishments report completed this Spring. As a reminder, the 2010 performance report and accomplishments report is posted on our web site. I have a link to our web site on the next slide. The VE Policy fairly closely follows the new VE regulation. However, some changes will be required. I hope to get this completed early this summer I plan to initiate the development of a VE Stewardship and Oversight Tool Box which is intended to serve two purposes: Enhance the consistency of FHWAs efforts in providing support to the State DOTs. Assist Divisions in their Stewardship and Oversight of the State VE Program. Once again, it will highlight what some offices are doing in order to provide effective S&O.

18 FHWA VE Program Website
Share Successful VE Practices: VE Training: Recording of VE Webinar Outreach: VE regulations and policies: Should be at about 3:00 The annual VE call for data will be used to assess the overall performance of the FHWA VE program. Stay tuned as Federal highway develops additional improvement activities using this data. I provided some web links to help you deliver the VE program Federal highway has identified successful VE practices which is on our web page. VE training can be obtained from our NHI course at the following link. And finally federal highway has a plethora of VE information on our web site including the updated VE regulation and policies.

19 Other VE Resources AASHTO VE Technical Committee: AASHTO VE Guide:
AASHTO VE Guide: There is an AASHTO VE technical committee. The objective of this technical committee is to establish and maintain policy to assist states in the development of individual Value Engineering Programs, ensure integrity and uniformity of value engineering practices, and promote value engineering within all areas of state and federal transportation programs. They also, plan and deliver a biennial transportation value engineering conference. Their next VE conference will be in Minneapolis in July 2013. I provided a link to the AASHTO Guide which was developed by the AASHTO VETEC. SAVE International is the non-profit organization internationally recognized as the leader in VE. If you get a chance check out their web site for some valuable reference materials.

20 Questions and Answers Questions on VE regulations and policies:
Ken Leuderalbert VE Program Manager VE Website: It is important to realize that we have consultants, local agencies, state dots, division and others on this webinar and I don’t want to slight anyone. The proper way to handle project specific issues are to contact your State DOT or FHWA Division as appropriate. Of course I will always take your call and address your issues as appropriate, but, I don’t want to circumvent anyone in the chain of authority. Once again, should you have any questions regarding the VE program, policies, or guidance please feel free to contact me. Thank you Now lets get to the questions.

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