COUNTY OF ALBEMARLE
Discussion of the use of value engineering in future CIP projects
Tucker, Foley, Davis, Shadman
LEGAL REVIEW: Yes
January 3, 2006
ACTION: X INFORMATION:
The construction industry has been experiencing unprecedented escalation in building costs for the past 24 months. Construction costs have increased as much as 30% +/- during this time, depending on what source of information is referenced. The County’s most recent experience with this cost escalation was with the Northern Fire Rescue Station recently reviewed with the Board.
At the November 1, 2006 Board of Supervisor’s meeting, the Board instructed staff to conduct a value engineering process on the fire station with the contracted architect and low bidder in an attempt to reduce the project cost. This was in addition to the value engineering effort completed by staff at the 90% design stage when it became apparent that the project was going to exceed estimates. These two efforts combined have netted a savings of approximately $400,000.
As a part of the discussion in November, the Board also asked staff to investigate the possibility of including value engineering into the project management process for all future CIP projects as a matter of practice.
County Mission: “To enhance the well-being and quality of life for all citizens through the provision of the highest level of public service consistent with the prudent use of public funds.”
Value Engineering was first developed approximately 60 years ago. It was originally utilized during World War II by General Electric in an effort to produce war items at a cheaper cost and with different material during a time when raw materials were scarce. Throughout the decades and into the 1990’s value engineering has been evolving to meet the needs of designers, producers, and customers. For the past fifteen years or so, value engineering (sometimes referred to as value management) has become an integrated part of project management. In 1993, the Society of American Value Engineering (SAVE) developed a certification program for value engineering professionals and the practice has since become a highly regarded engineering discipline.
Staff has conducted research on the practicality of applying value engineering to County projects. Besides extensive on-line research and contacting other localities, engineering firms that include value engineering in their scope of expertise were consulted. Through review of this information, staff believes that value engineering should become a component of the ongoing project management process in one form or another, depending on the scope and size of the project.
Contracted value engineering is typically conducted on the more expensive and complex projects such as new schools, hospitals, municipal buildings, and the like. However, staff believes it can also be applied to projects in the
+/- $5.0 million range that the County is regularly involved. Typically, the cost of value engineering is negotiated with an engineering firm and is based on the complexity of the project. Realized savings are normally in the 4% to 6% range of project costs. Therefore, on a $5,000,000 project, a realistic savings may be in the range of $200,000 to $300,000. The cost for value engineering for such a project could be expected to be in the range of $15,000 to $20,000. An expectation of saving approximately $20.00 for each dollar spent on value engineering is an acceptable rule of thumb. While value engineering does have a place in the ongoing project management system of the County, not all projects would benefit by contracting for this service in all circumstances. Staff would have to weigh the costs and benefit of contracting for services on small, less complex projects.
It was mentioned throughout the research that the best value for the customer was achieved by involving the value engineering firm early in the design process. Having them work with the design architect (A/E) results in issues being discussed early and avoids requiring re-design work, costing both time and money. In today’s engineering market, A/E firms are receptive and experienced in working with value engineering firms for the benefit of the customer. If value engineering is to be an integral part of the project management process, staff believes a firm would need to be under contract at the same time as the primary A/E so they can become involved at the schematic design phase.
While the most common perception of value engineering is bottom line cost savings, that is not its only function. Value engineering firms are dedicated to bringing a balance between project cost and quality, depending on the needs of the customer. This balance would include, as an example, consideration of “green” building design principles as a part of the process of seeking the best value.
Finally, a question may be asked as to why County staff engineers could not be used to conduct value engineering efforts on larger projects to avoid value engineering costs. While the County certainly has talented and well educated engineers on staff, value engineering is a multi-disciplined process. Value engineering firms utilize a full realm of expertise to conduct this work, including civil, structural, mechanical, electrical, and environmental engineers plus the support staff to research methodologies, materials, and various product availability in the market place. They are also prepared to work full time on the process without interruption. In-house value engineering has been and will continue to be utilized on smaller projects constructed by the County.
Expected budget savings as a result of value engineering typically fall in the range of 4 to 6 percent of the project cost.
Staff recommends that the Board approve the use of value engineering as an established component of the construction process for all County local government projects. Value engineering will be achieved through a combination of contracted and in-house services, depending on the complexity and cost of the project, and will begin during the design process.
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