VALUE ENGINEERING & COST SAVING ISSUES ON USA DEPARTMENT OF

TRANSPORTATION (DOTS)

Dwifitra Y. Jumas 1
Martalius Peli Wahyudi Putra 3 Sukra Arnaldi4
2

Department of Quantity Surveying, Universitas Bung Hatta

ABSTRACT: On highway projects, VE teamwork by involving construction, design, and maintenance staff review the
project features and look for ways to improve quality, foster innovation, and control costs. Studies done by Federal Highway
Administration (FHWA), the American Association of State of State Highway (AASHTO) and the Society of American
Value Engineers International (SAVE) have shown that the value engineering process leads to better project performance
and cost saving. This paper provides the information of the need to more fully utilize the value engineering process on
highway projects. The following objectives have been identified for this paper; Identify the value engineering practices
currently used by DOTs, the cost saving area and the primary issues of value engineering on transportation projects

Keywords: Value engineering, Cost saving, Highway project

1. INTRODUCTION
Conceptually, the goal of a value engineering study is to achieve true value for the owner. The value may come in the
form of removing unnecessary costs to the project, or it may come in the form of providing a more workable product
that would decrease the cost of owning and operating the facility. Thus, value, in this context, is considered to be
amount of money that we receive in return of a product or service.

Lawrence Miles, the first attributed to value engineering, defines VE as keeping performance and achieving lowest cost.
This original definition is similar to Zimmerman and Hart. They describe VE as a proven management technique using
a systematized approach to seek out the best functional balance, reliability, and performance of a product or project.
More specially, the Society of American Value Engineers (SAVE) defined value engineering as “the systematic
application of recognized techniques by a multi-disciplined team which identifies the function of a product or service;
establishes a worth for that function; generates alternatives through the use of creative thinking; and provides the
needed functions, reliably, at the lowest overall cost”. More simply stated, the Federal Highway Administration
(FHWA) defines value engineering as “an organized application of common sense and technical knowledge directed at
finding and eliminating unnecessary costs in project”.

2. GOAL AND OBJECTIVE OF THIS PAPER

The goal of this paper is to provide the information of the need to more fully utilize the value engineering process on
highway projects. The following objectives have been identified for this study:
1. Identify the value engineering practices currently used by DOTs
2. Identify the cost saving area of value engineering practices on transportation projects
3. Identify the primary issues of value engineering on transportation projects
4. Identify practices to alleviate or minimize the impact of major value engineering issues.

3. BACKGROUND AND SIGNIFICANCE OF WORK

Since the mid-1970s, the U.S. Department of Transportation and Federal Highway Administration (FHWA) encouraged
value engineering on transportation projects. State must now conduct life cycle cost and VE analyses of any project
segments on National Highway System that cost $25 million or more. The Office of Management and Budget (OMB)
also requires federal departments and agencies to use value engineering as a management tool, where appropriate, to
reduce program and acquisition costs. Another strong VE advocate is the American Association of State Highway and
Transportation Officials (AASHO), whose Value Engineering Task Force was formed to promote the methodology in
all areas of state and federal transportation programs.

Based on the above information, many value engineering studies have been conducted by the state departments of
transportation (DOTs). For instance, during the fiscal year 2002, thirty-eight of the state DOTs conducted one or more
VE studies in-house or through a consultant (VE Summary Report). As illustrated by the results of a VE program, many
of these states can be and often successfully on saving hundred million dollars each year on highway infrastructure
projects

4. CRITERIA FOR EVALUATING VALUE

To analyze a construction project, the value follows the categories of quantifiable and abstract. The quantifiable values
are those values that we can price. Abstract values relating to a construction project would be the esthetic value of
natural undisturbed areas versus those where construction has occurred. In Table 1, Zimmerman and Hart summarize
those criteria for evaluating value.
 Table 1: Summary of Criteria for Evaluating Value

Number Criteria for Evaluating Value

1 Initial cost
2 Energy cost
3 Return of profit
4 Functional performance
5 Reliability
6 Operability
7 Maintenance ability
8 Quality
9 Salability
10 Regard of esthetics and environment
11 Owner requirement
12 Safety

Another way, the relationship between value, function (worth), quality and cost can be symbolized as follow:
According to Carlos Fallon,
Worth
Value = __________________________
Cost

According to Dell’ Isola,

Function + Quality
________________________________
Value =
Cost

Where;
Worth = The least cost of providing the needed function and the required performance
is found by means of the costs of units which are functionally equivalent
Function = The specific work that a design / item must perform
Quality = The owner’s or user needs, desires and expectations
Cost = The life cycle cost of the product

In order to get the greater the potential for saving, value engineering must be applied early in the design cycle. Another
word, a design recommendation made in the early stage of a project has considerably more influence on life-cycle costs,
where cost of implementing VE recommendation is the least (design change). The concept stage of design is defined as
the stage in a project’s development when the planning process is complete but the design contract has not yet been
awarded or the in-house design team has not yet begun design (Gernerd, 1993). Moreover, the value engineering team
can and should review the project without being overburdened by the critical schedule and outside influence of the
design concept. This principle, if made in proper timing and planning, can result in significant savings as illustrated in
Figure 1 (AASHTO guidelines, 1987).

Figure 1: VE Savings Potential during Life of a Project

In contrast, VE can be applied at other stages of design and even at the implementation phase by introducing a Value
Engineering Change Proposal (VECP), will yield benefits and improvement but with less rate of return
(Alasheash,1994).
5. VALUE ENGINEERING IN PRE-CONSTRUCTION
According to AASHTO and NCHRP, implementation guidelines in pre-construction include the following:
1) Project selection
It is important to select projects that provide the maximum opportunity to improve the public investment by
quality enhancement or life cycle cost saving. Some typical characteristics of potential VE projects to be chosen
as explained in those publication are:

ˆ Projects that substantially exceed initial cost estimates

ˆ Complex or multi-part items or processes that provide unique but costly functions
ˆ Items using critical or high-cost materials
ˆ Items requiring difficult construction or fabrication procedure
ˆ Items that perform a questionable function
ˆ Items that simply appear too costly to build, operate, or maintain
ˆ Project that have grown complex, possibly by development over a long period of time
ˆ Major structures
ˆ Projects with complicated or costly traffic control or detours.
2) Timing
In general, the earlier VE is applied the greater the potential for saving
3) Participation
When VE is applied in pre-construction areas, every effort should be made to involve construction,
maintenance, and operations personnel in addition to design personnel. Decisions made in early stages of project
development have considerably more influence on life-cycle costs than those made in the construction and
maintenance phases, and operations and maintenance costs typically account for a high percentage of life-cycle
costs.
4) Standard plans and specification and design criteria
Serious consideration should be given to organizing and initiating a systematic and outgoing team effort to
review and analyze all standard plans and specification currently in use.
5) VE teams
The creative phase of the job plan calls for the techniques that are likely to be more effective when a number of
persons with diverse backgrounds and viewpoints work as teams.

According to the data provided by FHWA during fiscal year 2002, 38 states have conducted one or more VE Change
Proposals. Below is a list of states that have conducted VE Change Proposals.
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, FLH, Florida, Illinois, Indiana,
Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New
Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South
Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin.

Four hundred sixteen VE Change Proposals were submitted during FY 2002 with 347 VE Change Proposals approved,
totaling $ 61.101 million in potential project saving as indicated in Figure 8.

1,500

1,000

500

0
VE VE Approved
VE Studies
Recommedations Recommendation
In-House Personnel 223 1,062 455
Outside Consultant 154 1,282 514

Figure 2: Number of Value Engineering Study

 $4,000,000,000

$3,000,000,000

$2,000,000,000

$1,000,000,000

$0
Cost of VE Value of all VE Value of
Studies Recommendati Approved

Value in $ $9,020,000 $3,050,100,000$1,043,300,000

Figure 3: Cost and Value of VE Study

Return on
Investment
$ 116 to $ 1

$1,043,300,000
$1,500,000,000
$1,000,000,000
$9,020,000
$500,000,000
$0
Program Costs Adopted
Recommendation

Figure 4: Return on Investment Fiscal Year 2002

The summary report is helpful in indicating which states currently have active and successful programs. Three common
methods of ranking VE programs are:
1) The number of VE studies
2) The ratio of recommended savings per study
3) The ratio of approved savings per study

The number of studies indicates a level of activity rather than of success. Simply performing many studies does not lead
to a successful VE program, although it does lead to more VE experience and thus hopefully to increased success in the
future. A high recommended saving to study cost ratio indicates that the VE teams performed well at generating money
saving alternatives. On the other hand, a high approved saving to study cost ratio indicates not only that the teams
generated good alternatives but also the decision makers were receptive to VE analysis. This acceptance of VE at
various management levels is essential to success of the VE program.

Table 2 summarizes the “top ten” states by each of the ranking strategies. It is interesting to note that some states appear
in one or two of the lists. One example is Wisconsin, which apparently excels at generating money saving alternatives
but not getting them approved. Possibly, the management levels of the DOT are skeptical of VE studies and merely
include them to fulfill the FHWA mandate. Another possibility is that the VE teams fail to adequately take into account
the project participants and issues when making recommendations. Without further information, it is impossible to
diagnose the specific problem.
 Table 3: “Top Ten” States in VE Fiscal Year 2002(FHWA)

Number
of VE Number of Number of
State Studies State Recommended State Approved

Florida 50 California 290 Virginia 152

Virginia 48 Virginia 244 Texas 81

California 37 Florida 211 Florida 79

Pennsylvania 21 Alaska 142 California 75

Tennessee 20 Texas 132 Washington 71

New Jersey 18 New York 101 Tennessee 66

Texas 18 Tennessee 99 Maryland 45

North Caroline 16 Washington 89 Ohio 38

Washington 14 Ohio 88 Arizona 32

Ohio 12 Wisconsin 77 Alaska 31

Representatives of DOTs in seven of them, California, Florida, Ohio, Tennessee, Texas, Virginia, and Washington
appear in all three of the top ten lists in Table 3. They have shown that VE studies are one of suitable program for the
potential savings or a favorable return on the cost of the analysis and other benefits.

6. VE IN CONSTRUCTION
VE program during construction deals with VE in the post contract award phase and focus on the role of contractor
which is the contractors choose to participate in Value Engineering Change Proposal (VECP). According to the
Federal-aid Policy Guide, FAPG G011.9, a Value Engineering Change Proposal is defines as:
“a construction contract provision which encourages the contractor to propose changes in the
contract requirements which will accomplish the project’s functional requirements at a least cost or
improve value or service at no increase in cost. The net savings of each proposal is usually shared
with the contractor at a stated reasonable rate”.

A contractor who participates in a VECP will show opportunity to demonstrate ingenuity and construction excellence
and will receive financial benefit. Further, AASHTO also describes one or more of the following benefits to the state:
ˆ Enhance the design at reduced cost to the state
ˆ Results in a net savings over the contract cost
ˆ Advances the project completion date

In order to invite VECPs from the contractors, the state includes in the contract document a Value Engineering
Incentive Clause (VEIC) specifically defining the basic requirements and evaluation criteria of the program. Before
initiating a VECP program, a state may want to secure an interpretation from the attorney general or other appropriate
source as to the legality of their VEIC provision.

According to the data provided by FHWA during fiscal year 2002, 38 states have conducted one or more VE Change
Proposals. Below is a list of states that have conducted VE Change Proposals.
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, FLH, Florida, Illinois, Indiana,
Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New
Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South
Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin.

Four hundred sixteen VE Change Proposals were submitted during FY 2002 with 347 VE Change Proposals approved,
totaling $ 61.101 million in potential project saving as indicated in Figure 5.
 416
Saving
$ 61.101 million
420
400

380 347

360
340

320

300
VECP's Submited VECP's Approved

Figure 5: Number of Value Engineering Change Proposals

VECPs VECPs
State Submitted State Approved
Oregon 41 Oregon 40
Ohio 33 California 29

California 30 Washington 23

Michigan 29 Florida 20
Washington 26 Ohio 19
Florida 24 Iowa 18

North Carolina 24 Michigan 18

Tennessee 23 Tennessee 18
Virginia 22 Arizona 16
Pennsylvania 20 North Carolina 16
Table 4: “Top Ten” States in VE Change Proposals Fiscal Year 2002

Even though VE Change Proposals seem successful (83.4% approved), it is interesting to note that some states which
are currently active on VE during development did not participate on VE Change Proposals or only submitted one or
two VECPs. One example is Texas, which only submitted one VECP, but not getting it approved (See VE Summary
Report, Appendix I). There are many possibilities why they did not participation. One possibility is the contractors
perhaps feel that the contracting officer against them because they had the idea before award and delay it on VECPs in
order to get a VE savings share. However, in a paper by Jean S. Jines, if the contractor has a cost-saving idea prior to
bid submission, the rules of the sealed bidding process will preclude their processing it before receiving the award. It is
because of contractor’s responding to an Invitation for Bid (IFB) as the result of a sealed bid procurement. Another
reason for contractors may not submit VECPs is that they feel a change to an existing contract may be not successful;
indeed it will introduce an undesirable technical or programmatic risk.

7. CONCLUSION
The VE report guide/ VE team guide is a good example to follow the VE study methodology. Therefore, the set of
techniques that we can use in VE Methodology are:
ˆ Identify key project (scope & delivery) performance criteria
ˆ Establish the baseline of the current project performance by evaluating and rating the effectiveness of the current
design concepts
ˆ Identify the change in performance of alternative project concepts generated by the study
ˆ Measure the alternative project concepts to the baseline project’s performance as a measure of overall value
improvement.

Furthermore, by using the VE analysis tool including: (1) cost model, (2) function analysis/FAST diagram, (3)
performance criteria matrix, (4) performance rating matrix, and (5) highway user life cycle benefit-cost analysis, the VE
team decided the most significant VE alternatives known as accepted alternatives
 In conclusion, under value engineering, highway projects are reviewed and opportunities for better, less expensive
means of completing the projects are analyzed. The intention is to improve project quality and productivity, foster
innovation, optimize design elements, and ensure overall economical costs.

8. RECOMMENDATIONS
The following recommendations are some general points that should be kept in mind when applying the value
engineering process:
1. Timing of Value Engineering
It is recommended to conduct VE study at early state of design (programming and concept or after preliminary
estimate) to maximize benefit and minimize time and afford. More especially if the project ranks high in VE
potential. The earlier in the process the study takes place, the higher the savings that are generally realized.

2. Creative thinking and analysis

Creative thinking and organized analytical procedures comprise a major part of a VE study. In an analysis, creative
thinking activities are conducted first followed by idea development and refinement to come up with alternative
ways to approach a project. Using various VE analysis tools including cost model, function analysis/FAST
diagram, performance criteria matrix, performance highway matrix, and life cycle benefit-cost analysis is a good
ways to analyze alternatives.

3. Other recommendations
ˆ In order to get significant results on lowest life cycle cost, constructability and post construction reviews
may act as a precursor to VE by providing information through contractor input and lessons learned from
past projects so that VE may be more effective. It is because the information available during planning and
design is typically limited.
ˆ Recording of data should be kept in a data base for future use in reports and future studies. Adequate data
must be collected during the implementation of proposal up to the close out VE study.
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