VALUE ENGINEERING IN 

THE FEDERAL-AID HIGHWAY PROGRAM 

Federal Highway Administration 

Report Number: MH-2007-040 

Date Issued: March 28, 2007
U.S. Department of 

Memorandum

Transportation 

Office of the Secretary 

of Transportation 

Office of Inspector General 

Subject: ACTION: Report on 

Value Engineering in the 

Federal-Aid Highway Program 

Report No. MH-2007-040 

Date: March 28, 2007 

From: Kurt Hyde 

Assistant Inspector General 

 for Surface and Maritime Programs 

Reply to 

Attn. of: JA-40 

To: Federal Highway Administrator 

This report presents the results of our audit of the Federal Highway 

Administration’s (FHWA) oversight of value engineering (VE) in the Federal-aid 

highway program and the effectiveness of the states’ respective VE processes. VE 

is the systematic process of review and analysis of a project, during the concept 

and design phases, by a multi-disciplined team of persons not involved in the 

project. The analysis is documented in a report that contains recommendations 

for: (a) delivering the project safely, reliably, and at the lowest overall cost; 

(b) improving the value and quality of the project; and (c) reducing the time to 

complete the project. The National Highway System Designation Act of 1995 (the 

1995 Act), requires states to perform value engineering analysis for all Federal-aid 

highway projects on the National Highway System (NHS) with an estimated cost 

of $25 million or more. In implementing the 1995 Act, FHWA enacted a 

provision that provides for states to be reimbursed for the cost of conducting value 

engineering studies for projects under the Federal-aid program. 

Over the years, value engineering has evolved into a management tool that can be 

used alone or with other management techniques to improve operations and 

project quality and reduce project costs, by streamlining operations and 

implementing cost saving recommendations. It can also increase the use of 

environmentally sound and energy efficient practices and materials. Nationally, 

state departments of transportation have realized substantial savings by using 

value engineering. 
ii

Our objectives were to determine whether FHWA’s oversight is adequate to 

ensure that: (1) value engineering studies are performed on all Federal-aid NHS 

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. 

We conducted this performance audit in accordance with Generally Accepted 

Government Auditing Standards prescribed by the Comptroller General of the 

United States, except for standard 7.57, Data Gathered by Management. 

The conditions identified in this report are based on our review of FHWA 

documents and state documents (for example, Connecticut’s VE studies and 

interviews with the FHWA VE coordinator) and state highway officials (such as 

Washington State’s Secretary of Transportation). Our estimates of savings lost are 

based on FHWA’s official data for fiscal year (FY) 2001 through FY 2004. The 

FHWA data are the only nationwide data available on the subject, and are widely 

used and accepted by outside experts and policymakers. FHWA uses this 

information to compile its Annual Federal-Aid Value Engineering Summary 

Report, which is submitted to the Secretary and the Office of Management and 

Budget (OMB). The Transportation Research Board (TRB) used the same data in 

its assessment of state value engineering programs. We validated the data for the 

10 states we visited and deemed it sufficiently reliable for use in this report. We 

also performed such tests as we considered necessary to detect fraud, waste, and 

abuse. Additional details of our objectives, scope, and methodology are in 

Exhibit A. 

Congress first sought to apply value engineering to highway projects in the late 

1960s, at a time when the highway network was being significantly expanded. 

The Federal-aid Highway Act of 1970 reflected this growing interest with a 

provision requiring that value engineering or other cost reduction analyses be 

performed on any Federal-aid highway project and that states certify and report to 

the Secretary that design alternatives were considered in a public forum. 

Provisions in the Code of Federal Regulations (CFR) part 23, section 627.1, 

required states to establish a program to improve project quality, reduce project 

costs, foster innovation, eliminate unnecessary and costly design elements, and 

ensure efficient investments by requiring the application of value engineering. 

OMB Circular A-131 (May 1993 update) requires all Federal agencies to use value 

engineering, where appropriate, to reduce program and acquisition costs and to 

report to OMB each fiscal year on the results of value engineering. Section 

303(b)(f)(1) of Public Law 104-59, the National Highway System Designation Act 

of 1995, provides, “The Secretary shall establish a program to require States to 

carry out a value engineering analysis for all projects on the NHS with an 
iii

estimated total cost of $25,000,000 or more.”1 The 23 CFR Part 627.1(a) codified 

this provision requiring “the application of value engineering to all Federal-aid 

highway projects on the NHS with an estimated cost of $25 million or more.” 

Each year, FHWA awards more than $30 billion to states through Federal-aid 

grants. In each of our annual Top Management Challenges reports from 2003 

through 2006,2

 we have pointed to the need for FHWA to make improvements in 

the area of grants management. Ensuring that states have effective value 

engineering programs in place is a component of grants management. In addition, 

savings generated by implementing value engineering recommendations reduce 

states’ project costs. Savings realized by implementing value engineering 

recommendations on Federal-aid projects are not returned to FHWA, thereby 

allowing states to reapply the Federal share of these savings (which is generally 

80 percent) to other needed projects, such as repairing structurally deficient 

bridges, improving existing roadways, or constructing new bridges or roadways. 

In an age when Highway Trust Fund revenues are not keeping pace with state 

infrastructure needs, more effective value engineering programs will enable states 

to do more with available Federal funds. 

RESULTS IN BRIEF 

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 percent3

 of estimated project costs by performing value engineering studies and 

accepting resulting 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 conducting required 

NHS value engineering studies and high-potential non-NHS value engineering 

studies, and accepting more recommendations, could have saved an estimated 

$725 million in Federal funds.4

 (See Table 1 on the next page.) Had these savings 

been achieved, additional planned projects could have been started. 

 

1

 In 2005, the Safe Accountable Flexible Efficient Transportation Equity Act: A Legacy for Users, PL 109-59, 

lowered the threshold for requiring value engineering studies on bridge projects to $20 million. Because we 

reviewed states for the period of FY 2001 through FY 2004, this did not affect our conclusions. 2

 The Office of Inspector General annual reports on the United States DOT Top Management Challenges can be found 

on our website: www.oig.dot.gov. 3

 To calculate our estimate that 5 percent of estimated project costs could be saved from performing required VE 

studies, we analyzed FHWA’s Annual Federal-Aid Value Engineering Summary Report(s) from FY 2001 through 

FY 2004. Our calculation was corroborated by the Transportation Research Board’s December 2005 National 

Cooperative Highway Research Program’s Synthesis 352. 4

 The Federal participation rate of most Federal-aid projects is generally 80 percent, while projects such as Federal 

Lands and Emergency Relief can go as high as 100 percent, with states or other allowable sources being responsible 

for the balance. To conservatively calculate the Federal share of the potential savings lost, we used 80 percent of the 

$906 million in estimated savings, which is approximately $725 million. 
iv

To assess FHWA’s oversight of the value engineering program, we judgmentally 

selected and visited 10 states.5

 We selected these states because they possessed 

attributes such as not reporting any value engineering studies, approving low or 

high percentages of recommendations, or receiving large amounts of Federal-aid 

dollars. Based on our work in these states, we concluded that for state value 

engineering programs, FHWA provided limited oversight, such as facilitating 

states’ use of value engineering and identifying and disseminating states’ best 

practices. 

We also engaged the assistance of the U.S. Army Corps of Engineers (the Corps), 

under the direction of the Office of Inspector General (OIG) Engineer Advisor, to 

review and assess the appropriateness and adequacy of North Carolina and 

Michigan’s value engineering programs, processes, and studies and their 

compliance with FHWA policy. These states were selected because they had 

approved a low percentage of recommendations. 

Table 1. Summary of Estimated Savings Lost

(FY 2001-FY 2004)

Area of Improvement Estimated Savings Lost 

($ in millions) *

Performing Value Engineering Studies 

3⁄4 39 NHS Projects (in 7 states)--$98.4 million 

3⁄4 9 Non-NHS Projects** that OIG identified as 

having a high potential of cost savings (in 3 

states)--$19 million***

$117 

Approval of Value Engineering Recommendations to 

achieve the 44.4 percent national average in all states 

(in 28 states) 

$789 

Total $906 

Federal Share $725 

Source: These savings were computed using FHWA’s data and a calculation methodology developed in conjunction with the 

OIG Statistician. 

*

 See Scope and Methodology section of Exhibit A for information on how the estimates were calculated. ** With respect to Federal-aid projects not on the NHS or NHS projects with estimated costs less than $25 

million, 23 U.S.C. 106(e) states, “For such projects as the Secretary determines advisable, plans, specifications, 

and estimates for proposed projects on any Federal-aid highway shall be accompanied by a value engineering 

analysis or other cost reduction analysis.” *** VE studies were not required per Federal Regulations, but we chose to include these projects because of the 

 potential savings. 

 

5

 There are 52 Division Offices: the 50 states, the District of Columbia, and Puerto Rico. For purposes of this report, 

we refer to the District of Columbia as a “state.” 
v

Seven of Ten States Reviewed Missed Opportunities to Achieve 

Significant Savings by Not Performing Required Value Engineering 

Studies 

Section 303(b)(f)(1) of Public Law 104-59, the National Highway System 

Designation Act of 1995, provides, “The Secretary shall establish a program to 

require States to carry out a value engineering analysis for all projects on the NHS 

with an estimated total cost of $25,000,000 or more.”6

 Regulations in 23 CFR 

Part 627.1(a) codified this provision requiring “the application of value 

engineering to all Federal-aid highway projects on the NHS with an estimated cost 

of $25 million or more.” Neither Federal law nor regulations allow exceptions to 

these requirements, and FHWA is not allowed to grant waivers. 

FHWA’s Policy Guide states, “The FHWA will assure that a VE study is 

performed on all Federal-aid funded NHS projects with an estimated cost 

(includes design, right-of-way, and construction costs) of $25 million or more, and 

on other Federal-aid projects where its employment has high potential for cost 

savings.” For purposes of our analysis, we considered all non-NHS Federal-aid 

projects with an estimated cost exceeding $25 million to have a high potential for 

cost savings.7

 We assessed the use of value engineering on 314 NHS projects in 

10 states for the period FY 2001 through FY 2004 and found that the application 

of value engineering varied across those states. Of the 10 states, 3 (Massachusetts, 

Washington, and Wisconsin) performed value engineering studies on all 

25 projects that met the $25 million threshold. 

In contrast, the remaining seven states (California, Connecticut, Michigan, New 

Jersey, North Carolina, Texas, and the District of Columbia) did not perform 

required value engineering studies on 39 of the 289 projects (13 percent) that met 

the threshold. If the seven states had performed the required studies for the 

39 projects, collectively valued at $2.0 billion, and achieved the 5-percent national 

average savings,8

 we estimate they could have saved an additional $98.4 million 

($24.6 million annually) and reprogrammed the savings to other projects. For 

example: 

• North Carolina DOT (NCDOT) officials did not perform required value 

engineering studies on five design-build projects valued at $435 million even 

though they acknowledged that design-build projects are not exempt from the 

Federal requirement to conduct value engineering studies. If these studies 

 

6

 In 2005, the Safe Accountable Flexible Efficient Transportation Equity Act: A Legacy for Users, PL 109-59, 

lowered the threshold for requiring value engineering studies on bridge projects to $20 million. Because we 

reviewed states for the period of FY 2001 through FY 2004, this did not affect our conclusions. 7

 We considered non-NHS Federal-aid projects with an estimated cost exceeding $25 million to have a high potential 

for cost savings. According to FHWA, some projects with estimated costs below $25 million could also have a high 

potential for cost savings, while other projects exceeding $25 million, such as repaving existing roadways, may not. 8

 The 5-percent savings average is computed by dividing the value of approved recommendations by the estimated 

cost of projects for which value engineering studies were performed for FY 2001 through FY 2004. 
vi

had been performed and had produced the national 5-percent average 

savings, North Carolina could have saved and reprogrammed an estimated 

$21.7 million. 

• The Texas and California state DOT central offices delegated the 

responsibility for ensuring performance of value engineering studies to the 

district levels. However, the central offices did not follow up to ensure that 

the districts performed the studies. Consequently, between these two states, 

27 additional studies should have been performed. If these studies had been 

performed and had produced the national 5-percent average savings, these 

states collectively could have saved an estimated $62.7 million. 

Further, our audit showed that value engineering studies were not conducted on 

nine additional Federal-aid projects in the District of Columbia, North Carolina, 

and Texas that are not on the NHS, all with estimated costs exceeding $25 million. 

By not performing these value engineering studies, the three states collectively lost 

the opportunity to save an additional estimated $19 million, had the studies 

produced the national 5-percent average savings. We estimate that if these NHS 

and non-NHS Federal-aid highway projects had undergone the required value 

engineering studies, the remaining seven states in our sample could have saved an 

additional $117 million. 

Value Engineering Recommendations That Were Not Implemented 

Resulted in Additional Missed Opportunities for Significant Savings 

For those projects on which value engineering studies were performed, states did 

not approve many of the resulting recommendations. From FY 2001 through 

FY 2004, 5 of the 10 states we visited (Connecticut, North Carolina, California, 

Michigan, and Wisconsin) collectively approved 23 percent of the proposed 

recommendations, which contrasts with the nationwide approval average of 

44.4 percent.9

 We calculated that had those five states achieved the 44.4 percent 

national average, and saved the national average of $1.18 million on each accepted 

recommendation,10 an additional estimated $381 million (a combined Federal 

share of approximately $305 million) could have been saved and reprogrammed to 

other qualifying projects. 

During the same FY 2001 through FY 2004 time period, 23 states that were not in 

our judgmental sample of states visited, did not meet the 44.4 percent national 

average. We calculated that, if those states had achieved this national average, an 

 

9

 Our 44.4 percent average estimate of value engineering recommendations is based on our analysis of FHWA’s 

Annual Federal-Aid Value Engineering Summary Report(s) from FY 2001 through FY 2004. Our calculation was 

corroborated by the Transportation Research Board’s December 2005 National Cooperative Highway Research 

Program’s Synthesis 352. 10 The national average of $1.18 million in savings includes all accepted recommendations. Value engineering 

recommendations can increase or decrease project costs. 
vii

estimated additional $408 million (of which the Federal share is approximately 80 

percent or $326 million) could have been saved and reprogrammed to other 

qualifying Federal-aid projects. Nationally, had the 28 states (5 visited plus 23 not 

visited) achieved the national average for the percentage of recommendations 

implemented, we estimate they could have saved an additional $789 million (about 

$197 million annually). 

According to state DOT and FHWA officials, low acceptance rates of value 

engineering recommendations occurred because: (1) state officials did not promote 

to staff the fiscal benefits of using value engineering, (2) the states perceived that 

value engineering studies caused unneeded project delays, and (3) value 

engineering studies were performed too late in the design process to approve and 

implement recommendations. States have the final decision whether to accept or 

reject recommendations. However, these decisions should be documented and 

available for FHWA’s review. In assessing why states did not accept 

recommendations, we found that only 2 of the 10 Division Offices we visited 

participated in the implementation process or required documentation justifying 

the decisions for rejecting the recommendations. Without independent FHWA 

review we cannot be assured that states were correct in rejecting their respective 

recommendations. 

FHWA’s Oversight of State Value Engineering Programs Needs To Be 

Significantly Strengthened 

To ensure that states use value engineering analyses throughout highway project 

development, design, and construction, FHWA Division Offices should increase 

their oversight and strengthen existing policies. Enhanced FHWA oversight is 

needed in the areas of: 

• Limited time to develop expertise. FHWA VE coordinators stated that 

their tenures were too short (2 to 3 years) and during their tenures, they were 

responsible for other assignments. Additionally, they opined that their 

limited tenures did not allow them the time to acquire sufficient knowledge 

and training to perform as coordinators. 

• Discontinued performance measures. FHWA’s performance goal of 

increasing the use of VE and measures to achieve greater cost savings was 

discontinued in FY 2001, limiting the agency’s ability to assess the VE 

program’s effectiveness and to reveal problem areas within the program. 

• No review of internal controls over the VE program. FHWA is 

implementing two processes to assess controls and improve oversight of 

grants management—the Financial Integrity Review and Evaluation (FIRE) 

Program and its program of corporate risk assessments. However, FHWA 
viii

does not specifically assess its internal controls over the VE program as part 

of either process. 

FHWA Needs to Disseminate States’ Best Practices to Improve Value 

Engineering 

FHWA initiated a task force to improve the value engineering process and 

establish new value engineering performance measures. The task force, which 

first met in 2005 and comprises many stakeholders–including experts from both 

FHWA and the states, could identify and disseminate best practices. FHWA has 

not collected and disseminated best practices that could enhance the benefits of 

value engineering studies. However, we identified a range of best practices 

already being used. For example: 

• In Washington State, senior management and outside stakeholders participate 

in the value engineering process and the state has adopted the Society of 

American Value Engineers (SAVE) International’s methodology, which 

facilitates implementing the best alternatives recommended. 

• New Jersey value engineering team members are trained annually by the 

National Highway Institute. This training includes conducting a value 

engineering study on an active project. In fostering a multi-disciplinary 

approach, New Jersey offers this training to both engineers and nonengineers. 

• Massachusetts requires written justification for value engineering 

recommendations that are not approved and challenges questionable 

justifications for rejection. 

We analyzed the effectiveness of value engineering programs in the states visited 

and generally found that states with best practices ranked higher overall in key 

indicators of value engineering effectiveness than states that had not adopted best 

practices. Further, adopting best practices can make state value engineering 

studies more cost-effective. For example, over the 4-year period, FY 2001 

through FY 2004, Washington State produced a return on investment of $523 for 

each $1 spent performing value engineering studies and approved 83 percent of its 

recommendations, while the national average for return on investment was 

$128 for each $1 spent, with a 44.4 percent recommendation approval rate. New 

Jersey and Massachusetts yielded the highest percentages of project savings. 

Implementing the following recommendations will help FHWA and the states 

generate more savings from the value engineering process. 
ix

RECOMMENDATIONS 

Our recommendations are summarized below. The complete list of 

recommendations begins on page 11. 

We recommend that FHWA revise its value engineering policy to: 

• Require responsible state management (for example, the chief engineer) to 

sign off on the rejection of value engineering recommendations that contain 

substantial cost savings. 

• Establish requirements for the support of cost estimates, including the 

evaluation of life-cycle cost alternatives. 

• Require the FHWA Division Offices’ value engineering coordinators to 

either monitor or participate in all state value engineering studies for Federalaid projects. 

To strengthen the FHWA oversight of the value engineering program and to better 

monitor value engineering performance, we also recommend that FHWA: 

• Develop performance goals for measuring the effectiveness of state value 

engineering programs and for evaluating the responsible Division Office 

personnel. 

• Incorporate value engineering into either the FIRE reviews or the corporate 

risk assessment process to determine whether all required studies were 

performed and to assess how the states determine to either accept or reject 

recommendations. 

• Collect and disseminate best practices to the states’ departments of 

transportation. 

SUMMARY OF MANAGEMENT COMMENTS AND OFFICE OF 

INSPECTOR GENERAL RESPONSE 

On January 31, 2007, we provided FHWA a draft copy of this report. On 

March 2, 2007, FHWA provided us its formal response, which is included in its 

entirety in the Appendix. 

In its response, FHWA fully concurred with all of our recommendations and 

provided planned corrective actions that will begin as early as March 2007. 

Specifically, FHWA plans to (1) revise Federal regulations by updating FHWA 

policy, developing technical guidance, and producing outreach material; 

(2) convene a working group to evaluate and establish performance goals and 

measures to assess FHWA’s value engineering program; (3) incorporate an 

assessment of state value engineering programs into the corporate risk assessment 
x

program; and (4) develop value engineering technical guidance, best practices, and 

outreach materials. Additionally, in discussing the results of our review, FHWA 

officials accepted our calculations of the estimated savings lost from states not 

performing required value engineering studies and from not achieving the 

44.4 percent national average of recommendations approved. 

ACTIONS REQUIRED 

FHWA’s planned actions were responsive to our recommendations and we 

commend FHWA for promptly initiating actions to address each of our 

recommendations. However, the recommendations will be considered unresolved 

until FHWA provides target dates for completed corrective actions. In accordance 

with DOT Order 8000.1C, we would appreciate receiving, within 30 days, 

estimated completion dates for all planned corrective actions. 

We appreciate the cooperation and assistance provided by FHWA and Army 

Corps of Engineers representatives during this audit. If you have any questions 

concerning this report, please call me at (202) 366-5630, or Rebecca Anne Batts, 

Deputy Assistant Inspector General for Surface and Maritime Programs, at 

(202) 493-0331. 

# 
TABLE OF CONTENTS 

FINDINGS .............................................................................................. 1

States Need To Perform Value Engineering Studies In 

Order To Achieve Substantial Savings ............................................. 1

States Are Not Implementing Many Value Engineering 

Recommendations, Missing Further Opportunities to 

Achieve Significant Savings .............................................................. 3

FHWA Can Strengthen Its Oversight of State VE 

Programs........................................................................................... 6

FHWA Needs To Disseminate States’ Best Practices for 

Value Engineering............................................................................. 9

RECOMMENDATIONS........................................................................ 11

MANAGEMENT COMMENTS AND OFFICE OF 

INSPECTOR GENERAL RESPONSE................................................. 13

EXHIBIT A. OBJECTIVES, SCOPE, AND 

METHODOLOGY................................................................................. 15

EXHIBIT B. ACTIVITIES CONTACTED OR VISITED........................ 20

EXHIBIT C. MAJOR CONTRIBUTORS TO THIS 

REPORT .............................................................................................. 21

APPENDIX. MANAGEMENT COMMENTS........................................ 22
Findings 

1

FINDINGS 

States Need To Perform Value Engineering Studies In Order To 

Achieve Substantial Savings 

Section 303(b)(f)(1) of Public Law 104-59, the National Highway System 

Designation Act of 1995, provides, “The Secretary shall establish a program to 

require States to carry out a value engineering analysis for all projects on the 

National Highway System with an estimated total cost of $25,000,000 or more.” 

The 23 CFR 627.1(a) codified this provision requiring “the application of value 

engineering to all Federal-aid highway projects on the National Highway System 

with an estimated cost of $25 million or more.” Neither Federal law nor 

regulations allow exceptions to these requirements. However, we found that value 

engineering analyses are not being conducted in accordance with Federal 

regulation and FHWA policy, Federal-aid funds are being expended on projects 

with unrealized cost savings, and states are missing opportunities for substantial 

savings. 

While Some States Performed Required Value Engineering Analyses for 

Projects Over $25 Million, Others Did Not

Our fieldwork concentrated on highway projects covering the period from 

FY 2001 through FY 2004. Based on our analysis, using the 5-percent national 

average, we estimated that the 10 states visited could have saved an additional 

$117 million ($29 million annually) and reprogrammed these savings to other 

qualifying Federal-aid projects by performing additional value engineering 

studies. 

As shown in Table 2 on the following page, the extent to which the 10 states in our 

audit performed their required value engineering studies varied. To their credit, 

from FY 2001 through FY 2004, 3 of the 10 states (Massachusetts, Washington, 

and Wisconsin) performed all required value engineering studies. 

However, we found that the remaining seven states we visited (California, 

Connecticut, Michigan, New Jersey, North Carolina, Texas, and the District of 

Columbia) did not perform many required value engineering studies. Of the 

289 NHS projects in these seven states, 39 projects (or 13 percent) with a total cost 

of $2.0 billion did not undergo the required value engineering studies, resulting in 

lost opportunities to reprogram an estimated $98.4 million. Because it did not 

effectively track the status of state value engineering efforts, FHWA was unaware 

that most of the required studies were not performed. 

We also identified nine Federal-aid projects (five in Texas, three in North 

Carolina, and one in the District of Columbia), each with estimated costs 
Findings 

2

exceeding $25 million, that were not on the NHS and did not have value 

engineering studies performed. With a total estimated cost of $379 million for 

these nine Federal-aid projects, each of them could have been identified as having 

a high potential for cost savings. Although value engineering studies were not 

required for these non-NHS projects, we estimated that the three states lost the 

opportunity to save an additional $19 million of the $379 million combined cost 

by not performing value engineering studies on the nine projects. 

Table 2. Value Engineering Studies Not Performed 

(FY 2001—FY 2004)

NHS Projects Above the $25 Million 

Threshold 

Non-NHS Projects With a 

High Potential for Cost 

Savings 

States Visited 

Number 

of NHS 

Projects 

Number of 

NHS 

Projects 

Without 

Required 

Study 

Estimated 

Savings Lost 

by Not 

Performing 

the Study 

($ millions) *

Number of 

Non-NHS 

Projects 

Without 

Study 

Estimated 

Savings Lost 

by Not 

Performing 

the Study 

($ in millions)

California 102 11 $26.5 N/A 

Connecticut 10 2 $3.3 N/A

District of 

Columbia 1 1 $1.4 1 $1.7 

Massachusetts 6 All required studies performed.

Michigan 18 1 $1.6 N/A

New Jersey 11 1 $1.8 N/A

North Carolina 34 7 $27.6 3 $6.0 

Texas 113 16 $36.2 5 $11.3 

Washington 10 All required studies performed. 

Wisconsin 9 All required studies performed.

Total 314 39 $98.4 9 $19.0 

Source: FHWA generated list of Financial Management Information System projects estimated to cost $25 million 

or more. 

* See Scope and Methodology section of Exhibit A for information on how the estimates were 

calculated. 

The use of value engineering programs varied widely across the states we 

reviewed, as indicated in the examples below. 

• Texas DOT. Texas performed no value engineering studies on 16 applicable 

NHS projects collectively valued at $724 million. Using the 5-percent 

national average, we estimated potential lost savings of $36.2 million (a 

Federal share of approximately $29 million). The Texas Central DOT Office 

delegated responsibility for performing the value engineering studies to the 
Findings 

3

25 districts throughout the state, but did not follow up to ensure the districts 

performed the required studies. 

• California DOT. California performed no value engineering studies for 11 

applicable NHS projects, collectively valued at $529 million. Using the 

5-percent national average, we estimated potential lost savings of 

$26.5 million (a Federal share of approximately $21.2 million). California’s 

central DOT office delegated responsibility for performing value engineering 

studies to its 12 districts located throughout the state, but did not follow-up to 

ensure that districts performed the required studies. 

• North Carolina DOT. North Carolina did not perform required value 

engineering studies on seven projects, collectively valued at $551 million. 

Using the 5-percent national average, we estimated that North Carolina lost 

potential savings of $27.6 million (a Federal share of approximately 

$22 million). NCDOT explained that, for five of these seven projects, valued 

at $435 million, value engineering was not required because the projects 

were awarded through the design-build process. However, FHWA’s value 

engineering coordinator acknowledged that design-build projects are not 

exempt from undergoing value engineering studies. 

NCDOT established a Value Engineering Advisory Panel in March 1995 that 

planned to meet quarterly to review rejected recommendations. The 

Advisory Panel had the authority to concur with the rejection, approve the 

recommendation, or require modifications to the recommendation before 

approval. However, despite some interest among NCDOT personnel, the 

Advisory Panel has never met, and therefore has not provided the oversight it 

was established to perform. 

States Are Not Implementing Many Value Engineering 

Recommendations, Missing Further Opportunities to Achieve 

Significant Savings 

The 1995 Act and 23 CFR Section 627.1 emphasize the benefits of value 

engineering “for reducing the total cost of the project and providing a project of 

equal or better quality.” Public Law 104-59 and SAVE provide specific 

requirements for conducting value engineering studies and for ensuring that 

approved recommendations are incorporated into design plans. 

Few States Achieved Established Industry Benchmarks 

The TRB’s synthesis, Value Engineering Applications in Transportation,11

developed two metrics that can be compared to state DOT performance of value 

 

11 “Value Engineering Applications in Transportation,” NCHRP Synthesis 352, prepared by David C. Wilson, PE, 

CVS, Vice President NCE Limited, 2005. 
Findings 

4

engineering studies—percentage of savings of total project costs and percentage of 

the number of approved recommendations (see Table 3 below.) The synthesis 

allowed us to compare the states’ performance against the two established industry 

benchmarks. 

Of the 10 states we visited, 1 state (New Jersey) achieved project cost savings 

exceeding the 10-percent industry benchmark and 3 states (New Jersey, Texas, 

and Washington State) achieved the industry benchmark of approving 60 percent 

or more of their recommendations. Nationally, for the period FY 2001 through 

FY 2004, only 12 states achieved the industry benchmark by approving at least 

60 percent of the value engineering recommendations. More states might have 

been able to achieve the industry benchmark, but states face unique challenges that 

private sector entities do not, such as the need to consider context sensitive

solutions,12 which may preclude approval of some cost savings recommendations. 

Table 3. Comparison of Industry Benchmarks to Federal-Aid 

Value Engineering Performance 

(FY 2001-FY 2004) 

Value Engineering Program Metric 

Industry 

Benchmark 

(Percent) 

Federal-Aid VE 

Performance 

(Percent) 

Project Savings 

(value of approved recommendations/estimated 

capital cost of projects studied) 

10 5 

Acceptance of Value Engineering 

Proposals 

(number of approved recommendations) 

60 to 80 44.4 

Source: TRB’s “Value Engineering Applications in Transportation,” NCHRP Synthesis 352, December 2005, except 

the 44.4 percent, which was calculated by the OIG statistician. 

Using FHWA data, we found that from FY 2001 through FY 2004, 28 states did 

not approve the national Federal-aid performance average of 44.4 percent of 

proposed value engineering recommendations. Had each of those states approved 

additional recommendations to achieve the 44.4 percent rate, and if each of the 

additional recommendations yielded the national average of $1.18 million in 

savings per approved recommendation, an additional $789 million could have 

been saved and reprogrammed to other qualifying Federal-aid projects. 

Of the 10 states we visited, 5 (Connecticut, North Carolina, California, Michigan, 

and Wisconsin), collectively approved 23 percent of the proposed 

recommendations, as contrasted with the national approval average of 44.4 percent 

for Federal-aid highway projects. We estimated that had those five states achieved 

 

12 Context sensitive solutions is a collaborative, interdisciplinary approach that requires all stakeholders to develop a 

transportation facility that fits its physical setting and preserves scenic, aesthetic, historic and environmental 

resources, while maintaining safety and mobility. For example, some value engineering recommendations may not 

be approved if they negatively impact historic or environmental resources at the project site.
Findings 

5

the national average of 44.4 percent, an additional $381 million (a combined 

Federal share of approximately $305 million) could have been reprogrammed to 

other qualifying Federal-aid projects. 

From FY 2001 through FY 2004, 23 other states that we did not visit did not 

achieve the 44.4 percent national average. We estimated that if those 23 states had 

achieved the national average, an additional $408 million (a combined Federal 

share of approximately $326 million) could have been reprogrammed to other 

qualifying Federal-aid projects. 

Management at state departments of transportation and FHWA attributed the low 

acceptance rate to: 

• the failure of state senior transportation managers to send a strong enough 

message to department staff on the benefits of value engineering, 

• states’ perception that value engineering causes unneeded project delays, 

and 

• studies being performed too late in the design process to approve and 

subsequently implement recommendations. 

To determine how effectively states were assessing value engineering 

recommendations, we evaluated the reasons for the rejection of value engineering 

recommendations in Connecticut, Michigan, and North Carolina. These three 

states had the lowest recommendation approval rates of the 10 states visited. For 

example, during the 4-year period of FY 2001 through FY 2004, Connecticut and 

North Carolina collectively approved only $3.1 million of a combined total of 

$508 million of the proposed recommendations. Of the 10 states visited, with the 

exception of the Massachusetts and Connecticut FHWA Division Offices, we 

found no documentation showing that the FHWA Division Offices took exception 

to or challenged the states’ explanations and decisions for rejecting the 

recommendations, as appropriate. That is, independent FHWA review would 

provide added assurance that states were prudent in rejecting recommendations. 

As demonstrated in the following examples, additional independent review is 

warranted: 

• North Carolina rejected all but $3 million of $203 million in recommended 

value engineering savings. Additionally, at our request, the Army Corps of 

Engineers (the Corps) reviewed and analyzed North Carolina’s value 

engineering program, including four value engineering studies. The Corps 

determined that documentation of engineering effort varied from report to 
Findings 

6

report and the project designer’s review and determinations sometimes 

lacked content and quality. 

Though the VE recommendations were forwarded to the design teams for 

acceptance or rejection, there was no coordination after that point. The 

Corps found that NCDOT did not include support for cost estimates, 

including evaluating life-cycle cost alternatives. However, following our 

November 2004 visit, North Carolina improved its value engineering 

process and reported accepting 73 percent of value engineering 

recommendations in FY 2005. 

• Connecticut rejected all but $80,000 of $305 million in recommended value 

engineering savings. For FY 2005, Connecticut reported no value 

engineering activity at all. 

The Connecticut DOT value engineering studies did not always have 

complete or consistent documentation supporting recommendations for 

changes or reasons for rejecting suggested changes. The value engineering 

study of the Moses Wheeler Bridge illustrates two different ways in which 

the lack of complete documentation limited acceptance of value 

engineering recommendations. For example, the study included a 

recommendation to use reinforced earth embankments in lieu of structural 

piers, for a savings of $10.6 million. However, because the 

recommendation was not supported by a detailed cost estimate with a lifecycle cost analysis, Connecticut DOT rejected the recommendation, citing 

unrealistic cost savings. As part of the same study, Connecticut DOT 

rejected three recommendations relating to modification of the bridge, with 

estimated savings of $9.9 million. Although Connecticut DOT cited the 

reduction in vertical bridge clearances and the need for design exceptions as 

reasons to not implement the recommendations, we questioned the 

explanation, in part because it was incomplete. Further, we noted that the 

state had previously granted a design exception for vertical clearance in a 

similar situation. 

FHWA Can Strengthen Its Oversight of State VE Programs 

Analysis of FHWA Oversight Indicates Need for Increased Participation 

In interviews with personnel from the states and FHWA Division Offices, we 

found that the level of compliance with the Policy Guide varied from state to state. 

Most Division Offices reported that they participated in value engineering studies, 

but our audit showed that some offices demonstrated very little impact from their 

efforts. Further, FHWA Division Office personnel indicated that their 

participation in state value engineering programs was limited because: (1) state 
Findings 

7

value engineering was viewed as a mature program not requiring oversight; 

(2) limited FHWA resources required engineers to be assigned to other priorities, 

such as reviewing project proposals and monitoring construction projects; (3) state 

and FHWA management placed low emphasis on the value engineering program; 

(4) FHWA value engineering coordinators served as resources for information, but 

not as participants in state studies; and (5) one Division Office was not provided 

sufficient lead time to attend value engineering meetings or to participate in 

studies. 

In addition to the Division Offices’ reported limitations, we identified four 

additional factors that we believe hindered FHWA Division Office oversight of 

value engineering in the states within their regions. 

• Division Offices did not ensure that states performed all required value 

engineering studies. For example, the Connecticut and Texas Division 

Offices granted waivers from the statutory requirement to perform value 

engineering studies, stating that the projects were already underway and that 

a similar project, such as resurfacing, had previously undergone a value 

engineering study. FHWA incorrectly considered the new projects 

extensions of the ongoing projects, even though the new projects were 

initiated under new project agreements. Notably, FHWA policy does not 

waive the requirement for states to perform value engineering studies. If 

FHWA wants to consider approving waivers for routine tasks, such as 

repaving projects, a change will be required to Federal Regulations and 

FHWA’s policy. 

• FHWA value engineering coordinators reported their tenures to be too short 

and too multi-functional. During the 2 to 3 years that value engineering 

coordinators typically spend in their role, they may also be assigned other 

significant responsibilities. They interface with the state DOT and FHWA 

Headquarters by actively participating in value engineering studies and 

reconciling the studies performed with studies the states were reporting in 

their annual summary reports to FHWA Headquarters. Because the 

coordinators’ tenures are temporary, they do not have time to acquire 

sufficient knowledge and training to perform their oversight functions. 

Coordinators were required to interface with the state DOT and FHWA 

Headquarters by actively participating in value engineering studies, and 

reconciling the studies performed with studies the states were reporting in 

their annual summary reports to FHWA Headquarters. Our work and the 

Corps’ review corroborated the coordinators’ claim, as neither found 

evidence that the coordinators were sufficiently involved to provide adequate 

guidance and oversight. 
Findings 

8

• FHWA discontinued its performance measures for value engineering, which 

hindered its ability to determine the program’s effectiveness, reveal problem 

areas, and implement improvements. After FY 2001, FHWA dropped from 

its performance plan the only value engineering performance goal of 

increasing the use of value engineering to achieve greater cost savings. As a 

result, only 2 of the 10 Division Offices we visited had value engineering 

performance goals in effect at the time of our visit. To their credit, in 

response to FHWA’s discontinuing their sole performance measure, the 

North Carolina and Texas Division Offices developed their own performance 

goals and measures. Of note, FHWA initiated a task force to improve the 

value engineering process and establish new value engineering performance 

measures. 

Army Corps of Engineers’ Review was Consistent With Our Analysis 

The Corps assessed FHWA’s oversight over the state value engineering process in 

two states, North Carolina and Michigan, and identified weaknesses in the FHWA 

policy. Specifically, the Corps concluded that FHWA policy: 

• does not require complete documentation of work performed in all phases of 

the value engineering study in the final value engineering study report. 

Industry standard is to create a thoroughly documented report to demonstrate 

that all value engineering study elements are covered and proper 

methodology is followed. 

• implies that early timing of a value engineering study in a project is optional. 

In contrast, the policy should require that value engineering studies be 

conducted between the 10 percent and 35 percent design completion stages, 

unless dictated otherwise by extenuating circumstances. 

• does not state that management needs to assure that value engineering 

proposals are given serious consideration by the design team and 

incorporated into designs as needed. 

• does not specify any necessary credentials for the value engineering study 

team leader, and implies that the value engineering training for that position 

is optional. 

FHWA Has Not Assessed the Effectiveness of State Value Engineering 

Program 

Until the May 19, 2006 FIRE Program directive, FHWA did not have a system in 

place to recognize the grants management oversight weaknesses we identified in 

this report. In each of our annual Management Challenges Reports from 2003 

through 2006, we pointed to the need for FHWA to make improvements in the 
Findings 

9

area of grants management. Additionally, the Highway Trust Fund financial 

statement reports for 2004 and 2005 identified a material weakness in FHWA’s 

grants management. As required in OMB Circular No. A-123, “Management’s 

Responsibility for Internal Control,” agency managers should use audit results, 

such as those detailed in this report, in annual assessments of agency internal 

controls. The focus of internal control in the value engineering program is on the 

effectiveness and efficiency of operations and compliance with the regulation to 

complete required value engineering studies. 

FHWA is in the process of implementing two processes to improve oversight of 

grants management. In the FIRE Program, FHWA conducts annual assessments 

of state management of Federal-aid funds. FHWA is also initiating a corporate 

risk assessment process that will assess risk in all major aspects of the Federal-aid 

program. As stated, value engineering is a key component of state management of 

Federal funds because it provides states the opportunity to improve operations and 

project quality and to reduce project costs by streamlining operations and 

implementing cost saving recommendations. However, under the current policy, 

FHWA is not required to assess value engineering in FIRE reviews or in the risk 

assessments of states’ Federal-aid programs. FHWA should consider including in 

the annual report to the Secretary, required by OMB Circular No. A-123, the 

issues identified in this report. 

FHWA Needs To Disseminate States’ Best Practices for Value 

Engineering 

We found that FHWA does not have any mechanism in place to identify best 

practices related to value engineering or a means to recommend any best practices 

to states. We used four key indicators13 and the corresponding metric to measure 

the effectiveness of value engineering programs in the 10 states we visited. Our 

assessment of 10 value engineering programs identified the following best 

practices: 

• Washington State included top-level management and outside stakeholders 

in the value engineering process to consider all views. 

• New Jersey hosted annual training by the National Highway Institute for 

value engineering teams. In fostering the multi-disciplinary approach 

promoted by SAVE, New Jersey offered this training to engineers and nonengineers, which included conducting a value engineering study on an 

actual highway project. 

 

13 The four key indicators were: (1) completion of required studies—fulfilling a statutory requirement, (2) percentage 

of approved recommendations—exceeding the national average, (3) return on investment of the cost spent to perform 

value engineering studies—exceeding the national average, and (4) percentage of project savings—exceeding the 

national average. 
Findings 

10

• Massachusetts required written justification for value engineering 

recommendations that were not approved and for challenges to rejections of 

value engineering recommendations. 

By using best practices associated with performing VE studies, New Jersey 

achieved nearly 13.5 percent project cost savings, whereby the industry 

benchmark is 10 percent for savings as a percentage of total project costs. 

Massachusetts came close to achieving the benchmark, realizing more than 

9 percent in savings as a percentage of total project costs. Similarly, using best 

practices associated with implementing recommendations, Washington State 

approved 83 percent of recommendations and produced an annual return on 

investment averaging $523 in cost savings for every $1 spent on value engineering 

studies from FY 2001 through FY 2004. In contrast, nationally, states approved 

44.4 percent of recommendations and realized an annual return on investment 

averaging $128 for every $1 spent. The best practices that these states 

implemented enhanced their respective value engineering programs and merit 

wider dissemination to other states for adoption, where practicable. 

As shown in Table 4, states using best practices ranked higher overall in these 

indicators than states that had not adopted best practices. In the 10 states visited, 

Washington State ranked best in three of the four indicators. Other states using 

best practices and exceeding the national average in three of the four indicators 

were Massachusetts and New Jersey. 

Table 4. Comparison of States’ Performance in Key Indicators of 

Value Engineering Effectiveness

 Key Performance Indicators 

 States listed from highest to lowest 

Percentage of 

Required Studies 

Performed b

Percentage of 

Approved 

Recommendationsb

Return on 

Investmentb

Percentage of 

Project Savingsb 

Massachusettsa Washington Washington New Jersey 

Washingtona New Jersey Massachusetts Massachusetts 

Wisconsina Texas Texas California 

Michigan Massachusetts New Jersey Texas

New Jersey Wisconsin California Washington 

California California Wisconsin Wisconsin 

Texas Michigan North Carolina Michigan 

Connecticut Connecticut Michigan North Carolina 

North Carolina North Carolina Connecticut Connecticut 

More 

Effective 

Less 

Effective 

District of 

Columbia 

District of 

Columbia 

District of 

Columbia 

District of 

Columbia 

Source: FHWA Annual Value Engineering Summary Reports, FY 2001 through FY 2004 and OIG site visits. 

a These 3 states completed all required studies and are listed alphabetically. b

 Bolded states indicate that they met statutory requirements or exceeded national averages.
Recommendations 

11

States with the OIG-identified best practices tended to be more effective in the 

metrics cited. Unlike Washington State, Massachusetts, and New Jersey, the 

District of Columbia DOT does not have an active value engineering program and 

as of November 2004, it had not performed any value engineering studies, 

although one of its Federal highway projects required a value engineering study. 

We recognize that additional best practices are being used in the states we did not 

visit, and recommend that FHWA identify best practices among all the Division 

Offices and issue the results to all Division Offices and state departments of 

transportation. 

RECOMMENDATIONS 

We recommend that FHWA: 

1. Revise its value engineering policy to: 

a. Require complete documentation of all value engineering study phases in 

the final value engineering report. 

b. Require that value engineering studies be conducted between the concept 

phase and 35 percent completion stage of the project design. 

c. Include management review guidelines to ensure that all value engineering 

recommendations are considered by the design team and incorporated into 

designs, as appropriate, and require responsible state management, (for 

example, the chief engineer) to sign off on the rejection of value 

engineering recommendations that contain substantial cost savings. 

d. Require full support of cost estimates including evaluation of different 

scenarios that offer the lowest life-cycle cost alternative. 

e. Require Division Office engineers to either monitor or participate in all 

state value engineering studies including Federal-aid projects, and ensure 

that all required studies are performed. 

2. Develop performance goals for measuring the effectiveness of state value 

engineering programs and for evaluating Division Office personnel in fulfilling 

the FHWA and OMB requirements for value engineering programs. 

3. Incorporate value engineering into either the FIRE reviews or the corporate 

risk assessment process to determine whether all required studies are 

performed and to assess the states’ consideration of recommendations with 

identified cost savings. Ensure that FHWA’s annual assurance statements that 

each Federal-aid Division Office is required to perform in support of FHWA's 
Recommendations 

12

annual certification of internal and financial controls to support the financial 

statements, as required by the Federal Managers’ Financial Integrity Act, are 

based on the results of the FIRE reviews and the corporate risk assessments. 

4. Disseminate to the states known best practices for value engineering, 

including: 

• Performance metrics, 

• Annual value engineering training by the National Highway Institute or 

other vendors with similar expertise, and 

• Inclusion of states’ senior management and outside stakeholders in the 

value engineering process. 
Management Comments and Office of Inspector General Response 

13

MANAGEMENT COMMENTS AND OFFICE OF INSPECTOR 

GENERAL RESPONSE 

On January 31, 2007, we provided FHWA a draft copy of this report. On 

March 2, 2007, FHWA provided us its formal response, which is included in its 

entirety in the Appendix. In its response, FHWA fully concurred with all of our 

recommendations and provided planned corrective actions that will begin as early 

as March 2007, which, collectively, meet the intent of all of our recommendations. 

We commend FHWA for initiating prompt actions. However, the 

recommendations will be considered unresolved until FHWA provides target dates 

for completed corrective actions. 

Recommendation 1. FHWA concurred with the recommendation to revise its 

value engineering policy. Recognizing that additional proactive guidance and 

oversight measures are needed in support of advancing current value engineering 

practices of state and local agencies, in addition to revising Federal regulations, 

FHWA plans to initiate the development of technical guidance and production of 

outreach material in April 2007. 

These revisions will be incorporated, as appropriate, into all future activities of 

FHWA’s value engineering program. Also in April 2007, FHWA plans to initiate 

the process to (1) modify the value engineering provisions contained in 23 CFR, 

part 627 and (2) initiate the development of technical guidance and outreach 

material. 

OIG Response. FHWA’s planned actions meet the intent of our recommendation. 

Recommendation 2. FHWA concurred with the recommendation to develop 

performance goals for measuring the effectiveness of state value engineering 

programs and goals for Division Office personnel in fulfilling the FHWA and 

OMB requirements for value engineering programs. In May 2007, FHWA plans 

to convene a working group to evaluate and establish performance goals and 

measures to assess FHWA’s value engineering program. 

This group would also be tasked to work with industry representatives to identify 

changes in the report that annually assesses and reports on the progress of value 

engineering programs of state departments of transportation and their completed 

studies. This effort will focus on identifying changes that will be used in the data 

collection and reporting conducted in FY 2007 on the progress that state 

departments of transportation value engineering programs have achieved. 

OIG Response. FHWA’s planned actions meet the intent of our recommendation. 
Management Comments and Office of Inspector General Response 

14

Recommendation 3. FHWA concurred with the recommendation to incorporate 

an assessment of state value engineering programs into its corporate risk 

assessment to support the risk management assessments that are completed for 

FY 2008, as well as to ensure that FHWA’s annual assurance statements that each 

Federal-aid Division Office is required to perform, are based on the results of the 

FIRE reviews and the corporate risk assessments. FHWA plans to incorporate 

value engineering into FHWA’s corporate risk assessment process to support the 

risk management assessments to be completed for 2008. 

OIG Response: FHWA’s planned actions meet the intent of our recommendation. 

Recommendation 4. FHWA concurred with the recommendation to disseminate 

to the states known best practices for value engineering. Starting in March 2007, 

FHWA plans to develop value engineering technical guidance, best practices, and 

outreach materials. 

OIG Response. FHWA’s planned actions meet the intent of our recommendation. 
Exhibit A. Objectives, Scope, and Methodology 

15

EXHIBIT A. OBJECTIVES, SCOPE, AND METHODOLOGY 

Our objectives were to determine whether FHWA’s oversight is adequate to 

ensure that: (1) value engineering studies are performed on all Federal-aid NHS 

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. 

To accomplish our objectives, we met with the FHWA value engineering 

coordinator in Washington, D.C., to assess the role of FHWA Headquarters in the 

FHWA Value Engineering Program, and we administered to all 52 Division 

Offices (50 states, the District of Columbia, and Puerto Rico) a questionnaire on 

the role of the FHWA Division Offices in the value engineering programs and 

analyzed the results. Additionally, to better understand why states were not 

approving significant value engineering recommendations, we evaluated the 

reasons for their rejection in 3 of the 10 states we visited (North Carolina, 

Michigan, and Connecticut). 

We discussed questionnaire responses with FHWA Division personnel and the 

roles and responsibilities in the value engineering process with FHWA Division 

and state personnel (for example, Washington State DOT), including initiatives for 

approving all recommendations that can be implemented. We also analyzed data 

that FHWA collects from states or Division Offices to compile its Annual Federalaid Value Engineering Summary Reports. 

To corroborate the questionnaire responses and assess value engineering 

performance, we selected for review 10 states and their respective Division 

Offices because they: (1) did not report any value engineering studies during 

FY 2002 (District of Columbia and Massachusetts), (2) approved a low percentage 

of their value engineering recommendations from FY 2001 through FY 2004 

(North Carolina, Connecticut, Michigan, and Wisconsin), (3) approved a high 

percentage of their value engineering recommendations from FY 2001 through 

FY 2004 (New Jersey and Washington State), or (4) received large amounts of 

Federal-aid dollars (California and Texas). 

At the OIG’s request, FHWA provided OIG with Fiscal Management Information 

System (FMIS) computer runs that listed all Federal-aid projects underway 

between FY 2001 through FY 2004 that had estimated costs of $25 million or 

more. These lists included NHS and non-NHS projects. When we visited the 

10 states, we had state DOT personnel identify which Federal-aid projects were 

NHS and which were non-NHS. From the FMIS lists, state DOT personnel 

identified 323 Federal-aid projects in the 10 states from FY 2001 through 
Exhibit A. Objectives, Scope, and Methodology 

16

FY 2004, estimated to cost $25 million or more. Of these 323 projects, 314 were 

identified as NHS projects. We worked with state DOT personnel to determine 

whether required value engineering studies were performed on each of the 

314 projects. In addition, nine Federal-aid projects with estimated costs greater 

than $25 million were identified that were not on the NHS and that had not 

undergone a value engineering study. We then asked why the projects had not 

undergone a value engineering study. Because of the high-dollar amount of the 

nine projects, we believe they would have had a high potential for cost savings. 

Consequently, we judgmentally determined to expand our audit universe by 

including in our review the nine non-NHS Federal-aid projects. 

Finally, to better understand why states were not approving significant value 

engineering recommendations, we evaluated the reasons for their rejection in three 

of the states visited with the lowest recommendation approval rates (North 

Carolina, Michigan, and Connecticut). Specifically, we assessed the merit and 

supporting documentation of the proposed recommendations and judged the 

technical sufficiency of the states’ rationale for not approving the 

recommendations. 

We analyzed responses to the questionnaire from the Division Offices and 

interviewed Division Office and state department of transportation personnel to 

assess their respective roles and responsibilities. We also determined whether 

states performed all required value engineering studies by reconciling FHWA’s 

FY 2001 through FY 2004 FMIS and cost data to state records, and determined 

whether states reported the correct number of value engineering studies and 

recommendations. We conducted separate interviews with state department of 

transportation and FHWA Division Office personnel to evaluate their respective 

processes and responsibilities for their value engineering programs. At the end of 

each site visit, we discussed our preliminary results with the responsible state and 

FHWA Division Office personnel. 

We also reviewed FHWA and state value engineering policy and procedures to 

determine whether FHWA Divisions participated in and oversaw the states’ value 

engineering programs. We reviewed the content of the states’ value engineering 

studies and recommendations, and obtained any written justification for the states 

not approving value engineering recommendations covering the period from 

FY 2001 through FY 2004. We assessed the adequacy of FHWA’s policy and 

procedures and included such tests as were considered necessary to provide a 

reasonable assurance of detecting abuse or illegal acts. 

To estimate the potential lost savings that resulted from state departments of 

transportation not performing required value engineering studies or from studies 

that did not achieve the national average of recommendations accepted, we used 

the OIG calculated percentages that are comparable to national averages published 
Exhibit A. Objectives, Scope, and Methodology 

17

in the TRB Synthesis 352, Value Engineering Applications in Transportation. We 

independently calculated the percentage savings using data from the state 

departments of transportation for FY 2001 through FY 2004—our calculations 

were consistent with the TRB’s percentages. The TRB study included figures on 

historical Federal-aid value engineering performance and industry benchmarks. 

We used the cited metrics in our report of project savings14 (5 percent) and the 

acceptance rate of value engineering recommendations (44.4 percent)15 as a 

baseline for evaluating the projects we reviewed for this audit. For projects on 

which no value engineering study was performed, but should have been, we used 

the 5-percent project savings metric to estimate how much the state could have 

saved, had the study been conducted. Similarly, for projects on which a value 

engineering study was performed, we used the OIG-calculated 44.4-percent rate of 

value engineering recommendation approval metric to compare and estimate the 

additional potential savings. The OIG Statistician also computed the national 

average savings of $1.18 million per approved recommendation. 

To present a conservative estimate of savings lost by not implementing 

recommendations, we used the OIG-calculated 44.4 percent average, instead of the 

higher industry benchmarks of from 60 percent to 80 percent cited in the TRB 

study. For states that approved less than 44.4 percent, we computed the number of 

recommendations that should have been approved to achieve the 44.4 percent. We 

credited the states for the number they did approve by subtracting them from the 

number they should have approved (based on 44.4 percent). The remainder, 

which was the number lost, was multiplied by $1.18 million (the national average 

savings per approved recommendation) to arrive at the estimated lost savings for 

each state. 

The scope of our audit included reviewing the FHWA value engineering policy, 

regulations and legislation and FHWA’s value engineering activity during the 

period FY 2001 through FY 2004, for all 52 Division Offices. With respect to the 

10 states visited, the scope further included reviewing FMIS reports and Federalaid NHS projects active during the period FY 2001 through FY 2004, with 

estimated costs exceeding $25 million; the states’ value engineering standard 

procedures and policies; and FHWA’s oversight of the states’ value engineering 

programs. 

Under the direction of the OIG Engineer Advisor, we engaged the assistance of the 

Corps to review and assess the appropriateness and adequacy of North Carolina 

and Michigan’s value engineering programs, processes, and studies and their 

 

14 The project savings metric is based on the value of the approved value engineering recommendations divided by the 

estimated capital cost of the project. 15 The acceptance rate of value engineering recommendations metric is based on the number of recommendations 

approved for implementation divided by the total number of recommendations put forward by the value engineering 

study. 
Exhibit A. Objectives, Scope, and Methodology 

18

compliance with FHWA policy. These states were selected because they had 

approved a low percentage of recommendations. Under this scope, the Corps: 

• reviewed the FHWA value engineering policy; 

• reviewed the state value engineering standard procedures and policy; 

• reviewed four North Carolina and seven Michigan value engineering 

studies to evaluate the: 

o application of FHWA policy, 

o application of standard value engineering principles and procedures, 

o justifications for acceptance or rejection of value engineering 

recommendations, and 

o timeliness of the studies; and 

• reviewed FHWA oversight of the state value engineering programs. 

Our audit work included contacts with FHWA Headquarters, FHWA Division 

Offices and state departments of transportation, the American Association of State 

Highway and Transportation Officials, and the Corps. 

We conducted this performance audit from October 2004 through March 2007, in 

accordance with Generally Accepted Government Auditing Standards prescribed 

by the Comptroller General of the United States, with one exception, standard 

7.57, Data Gathered by Management. We did not independently verify the 

reliability of the data reported in FHWA’s Annual Federal-aid Value Engineering 

Summary Reports, which formed the basis for our estimates of potential savings. 

However, the data are used by FHWA to report to the Secretary and OMB and 

used in research performed by the TRB. The data are the only nationwide data 

available that contains the value and number of reported and accepted value 

engineering recommendations. 

Our audit findings are based on evidence we gathered during our fieldwork in the 

states and FHWA Division Offices, as well as work conducted by the Corps. We 

used the data in FHWA’s Annual Federal-aid Value Engineering Summary 

Reports to quantify the estimated monetary impact of our findings.

Preliminary analysis of the data that states submitted to FHWA (and reported in 

FHWA’s Annual Federal-aid Value Engineering Summary Reports) disclosed 

reporting inconsistencies among the states that affected the precision of our 

estimates of potential savings. It was not practicable for us to quantify the effect 

of these issues on our estimate; however, we performed alternative procedures to 

determine the usefulness of our estimates in illustrating the potential monetary 

benefits of the increased use of value engineering studies and the increased 

implementation of value engineering recommendations. For example, we 
Exhibit A. Objectives, Scope, and Methodology 

19

compared our 4-year results to the results reported by TRB and found them to be 

comparable. 
Exhibit B. Activities Contacted or Visited 

20

EXHIBIT B. ACTIVITIES CONTACTED OR VISITED 

American Association of State Highway Transportation Officials 

Office 

Washington, DC 

American Association of State Highway Transportation Officials 

Value Engineering Conference 

San Antonio, Texas 

Federal Highway Administration 

Washington, DC 

Federal Highway Administration Division and State 

Transportation Department Offices 

California 

Connecticut 

District of Columbia 

Massachusetts 

Michigan 

New Jersey 

North Carolina 

Texas 

Washington State 

Wisconsin 

U.S. Army Corps of Engineers 
Exhibit C. Major Contributors to This Report 

21

EXHIBIT C. MAJOR CONTRIBUTORS TO THIS REPORT 

The following individuals contributed to this report. 

Name Title 

Michael Ralph Program Director 

Patrick Conley Senior Auditor 

Frank Schutz Senior Auditor 

Tyler Apffel Senior Auditor 

Rodolfo Pérez Engineer Advisor 

Aron Wedekind Engineer 

Petra Swartzlander Statistician 

Harriet Lambert Writer-Editor 
U.S. Deportment 

of Transportation 

Federal Highway 

Administration 

Memorandum 

Subject: INFORMATION: Federal Highway Administration (FHWA) 

Response to Office of Inspector General (OIG) Draft Audit 

~e~irt, "Value ~n~ineerin~ in the~ederal- id Highway Program" 

From: J. Richard Capka 

Administrator 

To: Calvin L. Scovel I11 

Date March 2, 2007 

Reply to 

Attn. of: HIPA- 1 

Inspector General (JA-40) 

Thank you for the opportunity to review and comment on the OIG Draft Report, "Value 

Engineering in the Federal-Aid Highway Program." We concur with the recommendations and 

plan to implement them as described herein. FHWA is committed to continue promoting the 

importance of and need to improve value engineering practices nationally. We will continue to 

collaborate and partner with industry to advance our collective practices to ensure value 

engineering is being applied to improve the quality, cost-effectiveness, and productivity 

associated with developing improvement projects on the surface transportation. 

Following are our comments and planned actions on the specific audit report recommendations. 

Recommendation 1: "Revise its value engineering policy to: 

a. Require complete documentation of all value engineering study phases in the final value 

engineering report. 

b. Require that value engineering studies be conducted between the concept phase and 35 

percent completion stage of the project design, recommending that conducting studies early 

in the process is preferable. 

c. Include management review guidelines to ensure that all value engineering recommendations 

are considered by the design team and incorporated into designs, as appropriate; and require 

responsible state management, (e.g., the chief engineer) to sign off on the rejection of value 

engineering recommendations that contain substantial cost savings. 

d. Require fully supported cost estimates and the evaluation life cycle cost alternatives. 

e. Require Division Office engineers to either monitor or participate in all state value engineering 

studies involving Federal-aid projects, and ensure that all required studies are performed." 

MQYfHG THE 

AMERICAN 

ECONOMY 

APPENDIX: Management Comments
Response: We concur with these recommendations. These comments will be incorporated as 

appropriate into all future activities of the FHWA's Value Engineering program. The FHWA 

recognizes that additional proactive guidance and oversight measures are needed in support of 

advancing current value engineering practices of State and local agencies. These value 

engineering activities will include revising Federal regulations, updating FHWA policy, 

developing technical guidance, updating training materials, and producing outreach material. 

Accordingly, we will initiate the process in April of 2007 to modify the value engineering 

provisions contained in the Code of Federal Regulations (23 C.F.R. Part 627) to reflect the changes 

in Federal law reflecting the congressional intent and policy direction provided in the Safe, 

Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), 

P.L. 109-59. Upon issuance of this final rule, we will also complete an update of FHWA's value 

engineering policy contained in FHWA's Federal-Aid Policy Guide to reflect these changes in 

Federal law and regulations. Outreach will be conducted through our Division Offices to their 

State partners. The outreach includes raising their awareness and assisting with implementing 

these changes into current practices of State and local agencies. 

The FHWA recognizes the need to develop value engineering technical guidance and outreach 

material. Accordingly, we will initiate the development of technical guidance and outreach 

materials in April 2007. We will work with industry in developing and promoting these 

resources to advance value engineering practices nationwide. These products will focus on 

integrating and supporting value engineering within each agency, along with advancing the 

application of value engineering on individual surface transportation improvement projects. 

Specifically, these activities will include previously identified revisions to 23 C.F.R. Part 627, 

updating FHWA's policy, and developing technical guidance and outreach material to: 

l(a). Clarify the information to be contained in the final report documenting the results of value 

engineering studies. While FHWA's Federal-Aid Policy Guide requires complete 

documentation of all value engineering study phases in the final value engineering report, 

we will explore clarifying what additional information should be included in this report. 

l(b). Clarify opportunities of when value engineering studies should be performed in the process 

of planning and developing surface transportation improvement projects. 

l(c). Provide a framework State and local agencies could use to improve how they consider and 

approve value engineering recommendations. The FHWA's Federal-Aid Policy Guide 

identifies only the need for management guidelines and reviews to be performed to ensure 

value engineering recommendations are incorporated into the development of projects. 

l(d). Encourage the use of life-cycle costs to improve the cost estimating that is performed on 

value engineering studies. 

l(e). Enhance FHWA's stewardship and oversight of State DOTS value engineering programs 

and ensure VE studies are performed on required improvement projects. 

APPENDIX: Management Comments
Recommendation 2: "Develop performance goals for measuring the effectiveness of state value 

engineering programs and goals for Division Office personnel in hlfilling the FHWA and OMB 

requirements for value engineering programs." 

Response: We concur with this recommendation. FHWA will convene a working group in May 

2007 consisting of representatives from the FHWA Division Offices, Resource Center, and the 

Office of Program Administration, to evaluate and establish performance goals and measures to 

assess FHWA's Value Engineering Program. This group will also be tasked to work with 

industry representatives to identify changes in the report that annually assesses and reports on the 

progress of State DOT'S value engineering programs and their completed studies. This effort 

will focus on identifying changes that will be used in the data collection and reporting that will 

be conducted in FY 2007 on the progress achieved by State DOTS value engineering programs. 

Recommendation 3: "Incorporate value engineering into either the FIRE reviews or the 

corporate risk assessment process to determine whether all required studies are performed and to 

assess the states' consideration of recommendations with identified cost savings. Ensure that 

FHWA's annual assurance statements, required by FMFIA and the Office of Management and 

Budget Circular A-123 are based on the results of the FIRE reviews and the corporate risk 

assessments." 

Response: We concur with this recommendation. Value engineering will be incorporated into 

FHWA's corporate risk assessment process to support the risk management assessments that are 

completed for 2008. The FHWA does not consider the Financial Integrity Review and 

Evaluation (FIRE) Program process to be suitable for monitoring, reporting, or assessing value 

engineering practices. This is based on the limited ability for a State DOT or FHWA's financial 

accounting system to track or identify changes in a projects construction cost estimate that may 

result from implementing value engineering study recommendations. 

Recommendation 4: "Disseminate to the states known best practices for value engineering, 

including: 

a. Performance Metrics, 

b. Annual value engineering training by the National Highway Institute, or other vendors with 

similar expertise, and 

c. Inclusion of states' senior management and outside stakeholders in the value engineering 

process." 

Response: We concur with these recommendations. FHWA recognizes the need to develop and 

distribute value engineering technical guidance, best practices, and outreach material. As 

previously identified, we will initiate the development of these resources in March 2007. These 

resources will include a focus on the need for and importance of performance metrics, available 

training resources, inclusion of agency management and stakeholders in sustaining a successhl 

value engineering program, and in conducting specific value engineering studies. 

APPENDIX: Management Comments
In closing, we would like to emphasize that FHWA's role is to provide general program 

stewardship and oversight of State DOT's value engineering programs and specific studies. Our 

role is not to carry out, participate in, require the use of, or approve recommendations identified 

in every value engineering study. Rather, it is our stewardship and oversight of State DOT's 

value engineering policies, program, procedures, and approach where we continuously 

encourage improvements, which is consistent with the direction of FHWA Federal-aid highway 

program oversight responsibilities set by Congress in current legislation, balanced against our 

available resources. 

The efforts of the OIG auditors to further improve the value engineering programs and practices 

of public agencies nationally are greatly appreciated. If you have any questions or comments 

regarding this response, please contact Mr. Jon Obenberger at (202) 366-2221. 

APPENDIX: Management Comments