Frequently Asked Questions

Passage of the National Highway Systems (NHS) Act of 1995 included a value engineering (VE) mandate directing the U.S. Secretary of Transportation to develop a program requiring State Departments of Transportation (DOT) to carry out a VE analysis for projects on the NHS costing $25 million or more. The Federal Highway Administration (FHWA) published its VE Regulation implementing this mandate on February 14, 1997. This web page responds to frequently asked questions about the VE mandate.

Question 1: Explain the cut-off dates for deciding whether or not a VE study must be performed on an applicable project?

The NHS law was passed in November 1995 and FHWA's VE regulation became effective on March 17, 1997. If a project's design was completed before March 17, 1997, no VE study is required.

Question 2: What costs should be included to determine whether or not a project meets the $25 million NHS limit requiring a VE study?

The law indicates that VE studies are to be performed during the design process, therefore, all costs associated with environmental studies, preliminary engineering, final design, ROW, and construction should be used to determine a project's overall cost. Funding provided by State and/or local agencies should also be included (cannot just include Federal-aid highway funds).

Question 3: Who has the final say on whether or not a "project" has a $25 million cost, the State or FHWA?

FHWA's VE regulation requires State DOTs to identify projects requiring a VE analysis early in the development of their Statewide program. When identifying projects, State DOTs must include total cost for all phases described in question 2 above.

Question 4: When is the best time to perform a VE study? Before the ROD, after the ROD, during PE or final design?

VE studies can be performed anytime. Ideally, two studies should be performed on each project. The first study should be done early in the development phase to help minimize project impacts, develop an EIS or ROD, decide the best type of facility to build, and pinpoint its location. The second study should be performed during the 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. The law, however, only requires that a study be made during the design phase.

Question 5: If a VE study is made during a project's development phase (pre final design), does another study have to be made during the project's final design phase?

The law states that the "review and analysis of a project" be made during its design phase and that "suggestions may include combining or eliminating otherwise inefficient or expensive parts of the original proposed design for the project and total redesign of the proposed project using different technologies, materials, or methods." This clearly indicates Congress intended for the VE analysis to include the various design aspects of a project. However, the way State DOTs develop/design projects today, it may not always be practical to wait until the final design before performing a VE study since many of the design elements are being set in the environmental documents and public hearings.

If a State DOT chooses to perform a VE study in the development phase, then it will need to determine "how much" and "to what detail" the design was reviewed by the study in order to decide whether or not additional VE studies are required. Obviously, some design items can be reviewed anytime a VE study is performed, however, when a VE study is performed early in the development phase, generally speaking, there is insufficient design information available and the study team make-up does not include the various design/construction specialists to properly analyze the project's design.

Performing a study before the project's design is adequately defined does not meet the law's intent to "redesign of the project using different technologies, materials, or methods" since these terms apply more to specific design features than development processes. Whether or not a VE study adequately evaluates a project's design should be made on a project-by-project basis and should be a State and/or FHWA field office determination.

Question 6: Can FHWA require a State DOT to perform additional VE studies of a project that has already had a study of the overall project? (e.g. A study was performed on a $60 million project which will be split into two, $30 million projects for final design.)

While States are free to choose how and when to perform VE studies, clearly Congress intended that these studies review the design elements of the entire project (why else impose the requirement?). Major design elements must be reviewed. In the above example, since the final design elements will be developed in the two smaller projects, additional VE studies of the two final designs may be required. Common sense indicates the State should perform enough VE studies to adequately cover the design of the project without being excessive.

Question 7: On an applicable project, if the project will be split into more than one construction contract, must a VE study be done on each construction contract?

Breaking a large project into several small construction contracts does not require additional VE studies as long as the project's overall design has been studied.

Question 8: How can VE be done during the development or environmental phase without negatively impacting the environmental agreements, especially when some of these agreements to make the project viable have resulted in a more costly project?

VE studies are performed to add value to a project, not simply to reduce costs. VE studies should question project decisions that add cost to a project without improving its overall function. 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."

Decisions and/or agreements from environmental studies and public hearings can be questioned. Of course, the VE team must realize that suggestions negatively impacting environmental or public hearing agreements could place the entire project at risk, since they may require supplemental studies or hearings. Still, all valid suggestions should be included in the study report. Management must determine what impact the VE suggestion may have on the environmental or public hearing agreement before deciding whether or not to approve the suggestion.

Question 9: If a State DOT uses the design build concept to build a project, what is available to value engineer?

A State's decision to use design-build as their method to design and construct a project does not remove the VE requirement. In such cases, State DOTs should perform VE studies on project information developed during the environmental and/or preliminary engineering phase. It is not practicable to perform a VE study in the design-build contract phase.

Question 10: Is there a shelf life to a VE study, or does a VE study need to be reevaluated or redone after a certain amount of time has passed?

Once a VE study has been performed, no additional VE studies need to be performed on that project unless the project is completely changed and the State determines that the new project would likely benefit from another VE study.

Question 11: Do State DOTs still have to report year-end VE results to FHWA since the VE regulation does not mention this year-end report?

The Office of Management and Budget's (OMB) Value Engineering Circular A-131 requires all Federal agencies to report year-end VE data. This OMB requirement is not inconsistent with the NHS VE requirement. The collection of VE information is still required by DOT's VE Order 1395.1A and FHWA's VE policy guide (FAPG 6011.9).

Question 12: Does performing a VE study also qualify for meeting the requirement to perform a Life-Cycle Cost analysis?

Properly conducted VE studies evaluate the Life-Cycle cost impacts of the general project and all VE recommendations made to the project and would qualify as a Life-Cycle cost analysis.

Question 13: Does a life-cycle cost analysis or benefit/cost analysis qualify for a VE review?

Neither a life-cycle cost analysis nor a benefit/cost analysis qualifies as a VE review. Neither of these analyses evaluates a project's design using the method discussed above. However, it should be noted that life-cycle cost analysis is used in the VE process.

Question 14: What if any penalties can and should be assessed against a State DOT if an applicable project does not receive a VE analysis?

The law requires that a VE analysis be completed on all applicable projects. The FHWA can withhold Federal-aid highway funds on any eligible project that did not receive a VE analysis. Hopefully, before the FHWA would take action to withhold Federal funds, the State's VE program would be reviewed and modified to assure that all eligible projects would receive a VE analysis.

Question 15: Are all the different VE/VA methods (recognized techniques) acceptable to FHWA, since no specific requirements are mentioned in the law?

VE has been around for over 50 years and is called different things (value engineering, value analysis, value management, value methodology, etc., etc.) by different people. Still, the basic concept/process is very similar. In 1997, SAVE International published a "Value Methodology Standard" in an effort to provide a generic description of the overall process for everyone to use. This standard is quite general and allows for interpretation by VE practitioners. FHWA should accept any true VE process (systematic application of recognized techniques) and not nit-pick slight differences in how VE is taught or performed.

Value studies must incorporate the VE concept/process. They cannot be a different form of review process. Value studies are made by multi-disciplined teams who's objective is to: (1) investigate/analyze the design of an existing project, (2) analyze project functions and costs, (3) creatively speculate on alternative ways to perform the various functions, (4) evaluate the best and/or least life-cycle cost alternatives, (5) develop acceptable alternatives into fully supported recommendations, and (6) present the team's recommendations to management.

Question 16: Can a VECP provision be used to pay a contractor extra for a concept that reduces the time it takes to complete a project, but does not result in direct contract costs savings?

Paying a contractor extra for reducing the time it takes to complete a project is allowed under an incentive/disincentive (I/D) clause in a contract. How a contractor reduces (through a VECP or other process) the time it takes to complete a project is not a factor in determining the incentive paid, only the time involved is used. On projects without I/D clauses, the State has made a determination the project is not of a critical nature requiring an incentive payment for early completion. Therefore, contractors submitting VECPs that simply reduce the time needed to complete a project should not receive special compensation under the VECP special provision. Instead, critical projects should incorporate a contract time mechanism (liq. damages incorporating RUC, I/D, or A+B bidding) to provide the financial incentive to complete work in a timely manner.

Question 17: Can a State DOT (and Federal funds) pay for the development costs of VECPs?

It is FHWA's position that contractors should not be reimbursed for VECP development costs because the VECP process must involve a shared risk between a contractor and the State DOT. Without a shared risk, the process is unbalanced. A contractor benefiting from both the VECP dollar savings and reimbursement for his/her development and implementation cost has no risk. Having no risk would allow a contractor to flood a State with all types of cost saving ideas that may or may not benefit a project instead of only legitimate, supportable VECPs that benefit a project. AASHTO's VE Guide also indicates this cost should be paid by the contractor by stating "a contractor's participation in a VECP program involves a certain amount of risk. It costs money to search for realistic savings that will be shared by the State."

While the policy of not reimbursing VECP development costs is the best practice, FHWA should not prohibit a State DOT from choosing to reimburse these costs. If a State chooses to reimburse these costs, the State DOT and/or FHWA needs to make sure there is proper documentation to justify payment. Documentation should address whether the change is a legitimate VECP or a simple cost saving suggestion.

FHWA's VE regulation allows for reimbursement of VE study costs, however, it is silent on reimbursement for the cost of preparing a VECP. For consistency, payment of VECP development costs should only be made when the VECP is developed using a systematic problem-solving analysis process similar to what is found in a VE study and reimbursement should be made only on approved VECPs (FHWA cannot pay for something that is not incorporated into a project). State DOTs should assure that paying these costs does not result in a double payment. It is strongly suggested that any State proposing to pay these costs include some required development items, similar to the eight items required in the FAR, Parts 48 and 52 in their VECP specification to assure adequate information, support, and documentation is provided with each VECP.