Lack of Value Engineering Studies of ARRA Projects an Issue, DOT Inspector General Report States

AASHTO Journal, 30 November 2012

The Federal Highway Administration could have used additional oversight for several American Recovery and Reinvestment Act projects, according to a U.S. Department of Transportation Inspector General report released Nov. 14.

The audit that produced the report, “FHWA Has Opportunities to Improve Oversight of ARRA High Dollar Projects and the Federal-Aid Highway Program,” found that Value Engineering (VE)┬ástudies were not done on 10 projects in seven states and the District of Columbia (or just under a third of the total projects examined for this audit).

“FHWA did not always ensure states complied with the requirement to perform VE studies during a project’s planning or design phase,” the report states. “By not ensuring states conducted all required VE studies, FHWA lost opportunities to maximize ARRA investments.”

According to FHWA’s web site, value engineering is a systematic process of review and analysis of a project, during the concept and design phases, by a multi-discipline team of persons not involved in the project. VE studies are used to review whether a project plan actually accomplishes it goal at the lowest possible cost. Also, reviews also try to improve the value and quality of the project and reduce the time it takes to complete the project.

DOT’s Inspector General estimates that FHWA missed opportunities to maximize those ARRA investments by approximately $82 million, stating that those studies “could yield a significant future savings for the Federal-aid highway program.” In total, about 13,000 projects received $27.5 billion in committed ARRA funding. FHWA, in its response to the audit, strongly disagreed with the OIG estimate, claiming it had included projects in its review that did not require VE studies.

“By including projects that did not actually require a VE analysis in the statistical calculation, the projection of estimated savings cited in the OIG draft report is therefore flawed,” FHWA’s response said. “We have made significant improvements in the VE program over the years working with state departments of transportation, the OIG, and other entities, and FHWA is fully committed to continuing to provide strong oversight of state DOTs’ VE programs, which have resulted in annual cost savings of $1.7 billion on average from fiscal years 2002 through 2011.”

In completing the report, OIG made various recommendations:

  • Verify that required VE studies were conducted for all ARRA projects that were not identified in the report, or identify reasons for not conducting them;
  • Identify steps needed to increase states’ awareness of and compliance with FHWA’s new rule covering VE legislative changes and revised guidance (which are contained in FHWA’s May 25, 2010 memo “Updated FHWA Value Engineering Policy”);
  • Verify that division offices review each state’s procedures for estimating costs, including procedures to conduct periodic reviews and to address significant changes in market conditions; and
  • Develop and implement a plan to make sure controls are in place to effectively manage any remaining ARRA funds.

FHWA concurred with those four recommendations, though the final one only in part. While FHWA is still managing unexpended ARRA funds, more than 93 percent of ARRA funds have been used.

“In light of this, combined with our current arsenal of tracking and monitoring tools in place, we do not consider it useful at this juncture to develop and implement any new plans for further controls relating to the use of Recovery Act funds,” FHWA states in its response to that recommendation.

FHWA also said that it is currently working with AASHTO on the publication of an update to AASHTO’s “Practical Guide to Estimating.” The updated guide is expected to be published in early 2013.

The full 24-page report is available at bit.ly/DOTOIGARRA.

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