March 28, 2007
Final Report on Value Engineering in FHWA's Federal-Aid Highway Program
Project ID: MH-2007-040
On March 28, we issued report on FHWA's oversight of value engineering in the Federal-aid highway program and its effectiveness. The audit objectives were to determine whether FHWA's oversight is adequate to ensure that: (1) value engineering studies are performed on all Federal-aid projects that have an estimated cost of $25 million or more; (2) value engineering studies are performed on all Federal-aid projects that have a high potential for cost savings; and (3) all value engineering recommendations that can be implemented are approved, permitting the greatest degree of potential savings to be achieved. Value engineering provides a substantial opportunity for states to obtain the most value from Federal-aid funds by achieving savings on planned construction projects. Furthermore, it has the potential to serve as a key tool in FHWA's stewardship of Federal funds. Historically, states have saved an average of 5 percent of estimated project costs by performing value engineering studies and accepting recommendations. From FY 2001 through FY 2004, states collectively reported $4.2 billion in recommended savings (about $1 billion annually). During the same 4-year period, we estimate that if the states had conducted all required value engineering studies and had accepted more recommendations, they could have saved an estimated $725 million in Federal funds. Had these savings been achieved, states would have had the opportunity to start additional planned projects. To facilitate FHWA achieving this potential benefit in the future, we are recommended that FHWA revise its value engineering policy to require (1) responsible state management to sign off on the rejection of value engineering recommendations that contain substantial cost savings; (2) value engineering studies to include support of potential savings, (3) and FHWA Division Offices' value engineering coordinators to either monitor or participate in all state value engineering studies for Federal-aid projects. We also recommended that FHWA develop performance goals for measuring the effectiveness of state value engineering programs and goals for the responsible Division Office personnel, incorporate value engineering into annual internal control reviews, and collect and disseminate value engineering best practices to the states' transportation departments.