HD32 - Use of Value Engineering
House Joint Resolution Number 687, agreed to by the 1995 Session of the General Assembly, requested the Secretary of Administration (a) study the cost savings that have resulted from the use of value engineering (VB) in capital projects costing more than five million dollars and (b) ascertain to what extent, if any, such value engineering may benefit localities.
This study was assigned to the Bureau of Capital Outlay Management (BCOM) of the Department of General Services.
The BCOM developed the policy and procedures for implementing the use of value engineering on state capital projects and receives reports of agency value engineering study recommendations and agency action thereon. The BCOM also provides limited value engineering and cost analysis of capital project proposals as part of the process of developing the administration's capital budget submission.
The study examined recommendations developed by value engineering teams retained to review agency projects and cost data and other information submitted by the agencies related to acquiring the VE studies.
II. Summary of Findings
Value engineering of state capital outlay projects with an estimated construction cost of more than $5,000,000 began in July 1994. State procedures require that the VE study be conducted at the preliminary design stage. The project design is approximately 35% complete at preliminary design stage.
As of October 15, 1995, fourteen (14) of eighteen (18) capital projects subject to VE have been studied. Studies were waived for three correctional facility projects and one site development project. The median estimated construction amount of the projects was approximately $13,300,000. The projects were predominantly college academic and student support facilities. There was one major port facility project.
VE STUDY COSTS
The median cost of a VE study was approximately $29,000. The median cost of the design architect/engineer's participation was approximately $7,000. Additional design costs related to changes in the design resulting from accepted VE recommendations were approximately $10,000. The total of these costs ($46,000) represents approximately one-third of one percent of the median estimated construction cost.
ESTIMATED CONSTRUCTION COST SAVINGS
A typical VE study produced 44 recommendations of savings for the average project. State agencies typically accepted 16 of the recommendations for an acceptance rate of approximately 35%. The estimated value of the proposed recommendations totaled approximately $5.3 million while the total estimated value of accepted recommendations was approximately $1.5 million.
In terms of cost versus benefit each dollar spent in conducting the value engineering study and implementing an accepted VE recommendation produced a $22 reduction in the estimated construction cost of the project.
We noted that the predominance of recommendations occurred in the architectural area (34%) with electrical (20%), mechanical (19%), and structural (14%), the other significant design areas.
As noted earlier, approximately 35% of the recommendations are accepted. Most often recommendations are rejected because in the opinion of the design architect/engineer they are not technically acceptable (27%). Other most often cited reasons for rejection are owner requirement or preference (16%), affects building aesthetics (12%), program requirements (12%), and other (12%).
The study indicates a positive ratio of reduction in estimated construction cost to the cost of conducting the VE study. In the case of state projects value engineered since July 1994, estimated construction cost has been reduced $22 for each dollar spent in conducting the VE study. The study results are consistent with other public agency experience.
A particular deficiency in this study is the limited number of projects that have been value engineered since the program was launched in 1994 and particularly the sparsity of state projects that are reasonably similar to the schools and jails that represent the predominant types of projects constructed by localities. Another consideration is the propriety of the state mandating value engineering of local construction projects in which little, if any, state funding is involved.
We recommend that (1) localities be provided this study and encouraged through the auspices of the Commission on Local Government, Virginia Municipal League and Virginia Association of Counties to use value engineering on capital projects costing more than $5,000,000 and including less than $30,000 of state funding and (2) the General Assembly consider legislation requiring localities receiving state aid of $30,000 or more for construction projects with an estimated construction cost of greater than $5,000,000 to have the projects value engineered.