# Presentation: 147183

## 2005 AASHTO Value Engineering ConferenceUsing VE in Design Build

- Presented by:
- Jerry R. Blanding
- Innovative Contracting Engineer
- FHWA – NRC
- July 21, 2005
- Sheraton Gunter Hotel
- San Antonio, TX

## Using VE in Design Build

- Regulatory Definitions
- DB Final Rule – History & Application
- VE & DB A Federal Perspective
- Additional Resources

## Value Analysis/ Value Engineering

**23 CFR § 627.3 Definitions**
**Value engineering**. The **systematic application** of recognized techniques by a **multi-disciplined team** 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*****.**

**Notes:**
This is mandatory at $25 million dollars on the NHS.

## Why is Design-Build different from Design Bid Build?

**Why is Design-Build different from Design Bid Build?**

**Design-Build**

- 23 USC 112 (b)(1)
- Competitively Bid
- (Low bid)
**Construction **
**Contracts**

- 23 USC 112(b)(2)
- Qualifications based
- Selection, **Engineering /**
**Design Services**

**Notes:**
Why is design-build still experimental?

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.  

## 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.

## Value Analysis/ Value Engineering

- Design Build Final Rule:
- 23 CFR § 627.5 (e)
- 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**.

**Notes:**
The ACEC and the Design Professionals Coalition (DPC) were generally in agreement with the proposed value engineering provisions and the flexibility provided in the NPRM.  The AASHTO, the DBIA, the Virginia DOT and the TCA suggested replacing the word ‘‘shall’’ with ‘‘may’’ in § 627.5(e) to allow for additional flexibility.

The Associated General Contractors of America (AGC) and the American Road  and Transportation Builders Association (ARTBA) generally supported the proposed value engineering language in the NPRM and recommended against the use of value engineering as part of the design-build proposal process.  
While the FHWA agrees with the commenters who suggested clarification
of the NPRM language, we disagree with the suggestion that the use of the word ‘‘may’’ in lieu of ‘‘shall’’ would provide sufficient clarification. We agree that the  final rule must explain how contracting agencies can meet the value engineering analysis requirement for design-build projects.

## Using VE in Design Build – Florida DOT Example

- 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 includes all costs associated with the
- project including but not limited to:
- Design
- Right of Way
- Construction
- Administrative Cost.

## Using VE in Design Build – Florida DOT example

- The VE study shall be conducted during one of the following
- phases of project development:
- Initial Concepts
- Comparison of Alternatives
- Final Design
- For Design Build Projects, the VE study shall be conducted prior to
- the release of the Request for Proposal (RFP) Document.
- The greatest potential for improvement is during the Initial
- Concepts or Comparison of Alternatives review period.

**Notes:**
Initial Concepts – Mitigation of environmental commitments, risk analysis, project purpose

Comparison of Alternatives

## Design Build:

**Where We Are And How We Got Here **
**A Brief Look Back**

## TRB Task Force A2T51 - Innovative Contracting

**TRB Task Force A2T51 - Innovative Contracting**

- January 1988 -   23 representatives of the highway industry participated
- Mission of  TRB Task Force A2T51
- 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
- December 1991 - TRB Circular #386 – Innovative Contracting Practices

**Notes:**
In the late 1980’s, the transportation industry began to look at options to the traditional low-bid system.  In January 1988, the Transportation Research Board convened a group of 23 experts in the field of construction contracting to form  Task Force A2T51 - Innovative Contracting.  The  goals of this task force were to:  
1) Compile information on contracting practices
2) Assess how current practices affect quality, progress and cost
3) 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,

## Special Experimental Project No. 14Innovative Contracting

**Special Experimental Project No. 14****Innovative Contracting**

- Initiated 2/13/90
- Objective - Evaluate project specific contracting practices which
- Maintain product quality
- Reduce life cycle cost
- Practices proposed for evaluation
- Cost-plus-time Bidding
- Lane Rental
- Warranty Procedures
- Design-Build

**Notes:**
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 which 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, and
Design-Build

As of this date, A+B and lane rental were declare operational in 1995 and FHWA issued a warranty final rule in 1996.  The design-build contracting technique remains experimental however. 

## TEA-21 Design-Build Legislation Section 1307

- FHWA implemented the Final Rule in January 2003.
- After the final rule, states can use design-build without HQ 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.
- In 2005 FHWA will complete the required ‘Report to Congress’ on the effectiveness of design build.

**Notes:**
On June 9, 1998 President Clinton signed the Transportation Equity Act for the 21st Century.  Section 1307 of this law required FHWA to issue a design-build regulation by June 9,  2001.  

Congress limited the application of the design-build regulations to “qualified projects”  - and defined these as design-build ITS projects greater than $5 million or any other design-build project greater than $50 million.  The regulations will only apply to “qualified projects” and FHWA must continue to evaluate smaller projects under SEP-14.  FHWA cannot change or eliminate the statutory definition of a qualified project. This can only be done through a change in the law.

Section 1307 also requires FHWA to report back to Congress on the effectiveness of design-build by June 9, 2003.

## Existing SEP-14 Design-Build Contracts vs. “Qualified Projects”

***17%***

***83%***

*December 2002 FHWA SEP-14 data*
*http://www.fhwa.dot.gov/programadmin/contracts/sep14a.htm*

**Notes:**
Based on the nearly 300 design-build projects initiated under SEP-15, approximately 83% of these are  not  large enough to be considered as “qualified projects”.   FHWA expects that this trend will continue after the final rule is issued.

Congress limited the application of the design-build regulations to “qualified projects”  - and defined these as design-build ITS projects greater than $5 million or any other design-build project greater than $50 million.  The regulations will  apply to “qualified projects” and FHWA must continue to evaluate smaller projects under SEP-14.  FHWA cannot change or eliminate the statutory definition of a qualified project. This can only be done through a change in the law and the USDOT has proposed to do this in SAFETEA (Section 1813).

## Advantages of Design-Build

**Advantages of Design-Build**

- 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

**Notes:**
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, and
 Reduced Project Administration.

## Critical Characteristics for Public Sector Design-Build Projects Design-Build SelectorGeorgia  Institute of Technology / University of Coloradohttp://www.colorado.edu/engineering/civil/Design-Build/DBS/

_**Poor DB Projects Don’t Have:**_
- Well Defined Scope
- Shared Understanding of Scope
- Owner’s Construction Sophistication
- Adequate Owner Staffing
- Established Budget
- Established Completion Date

## Suitability 

- NEPA, and major ROW and utility issues must be clear
- Should have a “Strong design component”
- Reasons for selection should not be:
- Obligation of funds
- Compensate for inadequate agency resources

**Notes:**
From FHWA’s viewpoint there are also several other factors which must be followed to have a successful design-build project. 
NEPA, and major 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, 
 a means to compensate for inadequate agency resources 

## NEPA - RFP Release: Where Does VE Fit?

*NEPA*

*Construction*

*Final Design*

**Design-bid-build**

**Design-build**

*NEPA*

*Design-Builder’s Design and Construction*

*ROD, FONSI, CE*

*PS&E *

*RFQ*

*RFP*

*Draft RFP*

*Owner PE*

## FHWA 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 VE’s 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.

## FHWA Perspective on Using VE in Design Build

- 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 RFP at a reasonable point with the coordination of the Division Office.

## Innovative Contracting Best Practices Web Site

**Innovative Contracting Best Practices Web Site**

- Utah State University
- _http://www.ic.usu.edu_
- 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

**Notes:**
If you want to learn more about FHWA’s SEP-14 program and warranties, visit the Innovative Contracting Site at Utah State University.

## Slide 22

## Additional Resources on SEP-14 Design-Build Projects

- FHWA HIPA-30 web page
- http://www.fhwa.dot.gov/infrastructure/progadmin/contracts/d_build.htm
- WSDOT  Design-Build Process for Highway Projects
- http://www.wsdot.wa.gov/designbuild/db/dbguidebook.htm

**Notes:**
Here are some additional internet resources for those who might want additional information on the use of design-build in the highway industry.

FHWA’s web page has information about SEP-14 and certain information regarding the design-build rule making.

The Utah State University web site is partially funded by FHWA.  Doyt Bolling with USU established  the web site to be a collection of lessons learned in innovative contracting.

The Washington State DOT has published an excellent guideline for integrating the use of design-build project delivery in a traditional highway construction program.  

## Slide 24

## THE END – QUESTIONS?

- Jerry R. Blanding
- Innovative Contracting Engineer
- FHWA – NRC Baltimore
- 410-962-2253
- jerry.blanding@fhwa.dot.gov