Using Value Engineering in Design-Build
As defined by the Federal Highway Administration, value engineering (VE) and design-build (DB) serve different but complementary functions. VE is the systematic application of recognized techniques used by a multidisciplinary team. VE is used to identify the function of a product or service, establish a worth for that function, generate alternatives through the use of creative thinking, and provide the needed functions to accomplish the original purpose of the project reliably and at the lowest life-cycle cost without sacrificing safety, necessary quality, and environmental attributes of the project.
How is design-build different
from design-bid-build?
23 CFR Part 636 - Design Build
Design-bid-build means the traditional project delivery method where design and construction are sequential steps in the project development process.
Design-build contract means an agreement that provides for design and construction of improvements by a contractor or private developer. The term encompasses design-build-maintain, design-build-operate, design-build-finance, and other contracts that include services in addition to design and construction. Franchise and concession agreements are included in the term if they provide for the franchisee or concessionaire to develop the project which is the subject of the agreement.
23 CFR 636.103
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DB is a project delivery method primarily used by owners to award the project on a qualifications based selection, accelerate start of construction, reallocate risk, establish fixed cost, and firm completion date. Because many of the characteristics of a DB project resemble a VE type study, some have concluded that VE is unnecessary in the case of such a project. However the Design-Build Final Rule [23 CFR § 627.5 (e)] states, "In the case of a Federal-aid design-build project...the (State) shall fulfill the...requirement by performing a value engineering analysis prior to the release of the Request for Proposals document."
For example, in the State of Florida, all projects with an estimated cost of $20 million or more shall have a minimum of one VE study conducted during project development. The estimated cost shall include all costs associated with the project including but not limited to:
- Design
- Right-of-Way
- Construction
- Administrative Cost
The VE study shall be conducted during one of the following phases of project development:
- Initial Concepts (e.g., mitigation of environmental commitments, risk analysis, project purpose)
- Comparison of Alternatives
- Final Design
For design-build projects, the VE study shall be conducted prior to the release of the RFP. The greatest potential for improvement is during the Initial Concepts or Comparison of Alternatives review period.
Design-Build: Where We Are and How We Got Here—A Brief Look Back
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TEA-21 Design-Build Legislation
Section 1307
FHWA implemented the Final Rule in January 2003.
Since the Final Rule, States can use design-build without headquarters approval for "Qualified Projects."
- ITS projects > $5 million
- Other projects > $50 million
SEP-14 will continue for smaller projects unless Congress approves language in the reauthorization bill eliminating this threshold. Note: Congress removed the thresholds noted above with the passage of SAFETEA-LU. Division Administrators can now authorize any design-build project that is in conformance to the DB Final Rule. SEP-14 will continue for proposals submitted that do not fit under current rules and regulations.
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Why did design-build start out as experimental? The FHWA's statute for construction contracting, in 23 USC 112 (b)(1), requires that all construction contracts be awarded to the lowest responsive bidder. Section 112 (b)(2) requires engineering service contracts to be awarded on qualifications-based selection procedures, or Brooks Act requirements. When these two services are combined in one contract--a design-build contract, the resulting contract does not fully comply with both sections.
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In the late 1980s, the transportation industry began to look at options to the traditional low-bid system. In January 1988, the Transportation Research Board (TRB) convened a group of 23 experts in the field of construction contracting to form Task Force A2T51 on Innovative Contracting. The goals of this task force were to:
- Compile information on contracting practices.
- Assess how current practices affect quality, progress, and cost.
- Suggest measures for improving contracting practices and promoting quality in construction.
In December 1991, this task force published a summary of their findings in TRB Circular 386 – Innovative Contracting Practices. At the request of A2T51 Chairman Dwight Bowers, FHWA initiated an experimental program called Special Experimental Projects No. 14 or SEP-14, on February 13, 1990. The objective of SEP-14 was to evaluate project specific contracting practices that had the potential to:
- maintain product quality, and/or,
- reduce life cycle cost.
Initially the State DOTs expressed an interest in four specific contracting techniques:
- Cost-plus-time bidding (A+B bidding)
- Lane rental
- Warranty procedures
- Design-build
As of this date, A+B and lane rental were declared operational in 1995, and FHWA issued a Warranty Final Rule in 1996. The Design-Build Final Rule became operational in January 2003.
TEA-21 Section 1307, also required FHWA to report back to Congress on the effectiveness of design-build. In 2006, FHWA will complete the required Report to Congress on the effectiveness of design-build.
Proponents of the design-build delivery method claim the following advantages over the traditional design-bid-build method:
- Single point of responsibility
- Quality/Innovation
- Potential time or cost savings
- Improved risk management
- Earlier knowledge of firm costs
- Lower incidence of claims
- Reduced project administration
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Innovative Contracting Best Practices Web Site
Practical information on warranties, A+B, lane rental, and design-build contracting
- What is it?
- Why should you use this?
- Criteria for project selection?
- Who is currently using it?
- Example provisions
Additional Resources on SEP-14 Design-Build Projects
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Professor Keith Molenaar, with the University of Colorado at Boulder, has compiled a database concerning critical characteristics for successful design-build projects. The purpose of this Web site is to assist public owners in selecting the right type of project for design-build. Correct project selection is one of the most important factors in determining the success of a design-build project. (Design-Build Selector (DBS) Web site)
Some of the key factors, gained from experience and lessons learned, that must be considered in project selection include:
- Well-defined scope
- Shared understanding of scope
- Owner's construction sophistication
- Adequate owner staffing
- Established budget
- Establish completion date
From the FHWA's viewpoint, there are also several other factors that should be closely followed to have a successful design-build project.
- National Environmental Policy Act (NEPA) and major right-of-way (ROW) and utility issues must be clear.
- The project should have a "strong design component." Minimal preliminary design frequently stimulates innovation in the design process.
- Reasons for selection should not be:
- the quick obligation of funds, or
- a means to compensate for inadequate agency resources.
The following statements represent the FHWA's perspective on using VE in design-build:
- VE is a mandate for NHS projects $25 million and over.
- VE must be performed prior to release of the RFP.
- Multiple VEs may be appropriate for major projects.
- VE studies are performed to add value to a project, not simply to reduce costs.
- All valid suggestions should be included in the study report. Management must determine what impact the VE suggestions may have on the environmental or public hearing agreements.
- VE should be performed on NEPA alternatives or on selected RFP requirements.
- FHWA has not objected as long as VE is done prior to release of the RFP at a reasonable point with the coordination of the Division Office.
For more information, contact:
Jerry Blanding
Innovative Contracting Engineer
Construction and Project Management Technical
Service Team
FHWA Resource Center
(410) 962-2253
jerry.blanding@fhwa.dot.gov
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