Value Engineering on Design Build Projects

Transcription

1 Value Engineering on Design Build Projects AUTHORS KATHERINE F. BETHANY, CVS Value Engineering Manager United States Department of State Overseas Buildings Operations Kathy Bethany is the Department of State s Overseas Buildings Operations (OBO) Value Engineering (VE) manager, a position she has held since late She is responsible for ensuring effective implementation of all aspects of the VE program. Her duties include creating and implementing VE policy, management of VE studies, tracking of VE trends, and reporting on VE status. Ms Bethany earned a Bachelor of Science degree in civil engineering from Old Dominion University in 1981 and a Master of Business Administration from the University of New Mexico in Kathy is active in SAVE International, and currently holds the position of Vice President Membership on SAVE s Board of Directors. DEBORAH L. KAPLAN, AVS Project Management Services, Inc. Deborah Kaplan is the Vice President of Marketing and Value Engineering at PMSI, a position she has held for the past ten years. She is responsible for managing PMSI s VE contracts with the Department of State s Overseas Buildings Operations (OBO) and the US Army Corps of Engineers. Her duties include assisting OBO s VE manager, facilitating and assembling teams, and producing reports. Ms. Kaplan earned a Bachelor of Science degree in psychology from Frostburg State University. She currently holds the position of Secretary on SAVE International s board of directors of the National Capital Chapter. 1

2 ABSTRACT Many in the construction industry question the wisdom of performing Value Engineering (VE) on Design Build (D/B) projects. A typical D/B project has an accelerated schedule, tight funding, and complex issues that typically do not have the flexibility as perhaps a Design/Bid/Build (D/B/B) project. This paper presents a case study from the US Department of State, Overseas Buildings Operations (OBO) documenting that VE is as successful on D/B projects, even after the award of the D/B contract. The paper reviews the results of VE efforts on 41 D/B projects in four years and highlights the success of VE on D/B projects compared to standard D/B/B projects. The paper also discusses lessons learned from performing VE on D/B projects, as well as what works and what doesn t. Some of the key points this paper makes are: VE works on D/B construction projects, even after the award of the contract. More care is needed in planning a VE study on D/B projects, as the results of the study are more difficult to implement. Limited participation on the VE study by an independent team with a fresh perspective brings the best results. On D/B contracts before contract award, OBO has documented an average $90 return on investment (ROI) for every $1 spent on VE studies. After award of D/B contracts, OBO has documented an average $39 ROI for every $1 spent on VE studies. OVERVIEW OF OVERSEAS BUILDINGS OPERATIONS The US State Department, Overseas Buildings Operations (OBO) mission is to provide safe, secure, and functional facilities for the conduct of U.S. diplomacy and the promotion of U.S. interests worldwide. A $1.5 billion annual program includes the planning, design, construction, operation and maintenance of all U.S. government facilities overseas. More than 15,000 properties comprise 46.6 million square meters of OBO acreage in 176 countries and 260 cities worldwide. 2

3 OBO s current Capital & Major Construction program consists of the following: 150 New Embassy & Consular Compounds; Capital Cost $17.5 Billion; Funded over 14 Years 66 Rehabilitation Projects Underway ($436 Million)OVERVIEW OF OBO VE PROGRAM From the beginning of the OBO VE program in 1987 through last year, 2003, OBO performed 122 VE studies that saved $214M. The $214M includes both initial cost savings and Operations and Maintenance (O&M) savings. When comparing the results of these studies to the estimated cost of construction for the projects studies, VE saved 5.5% of these construction costs. The Return on Investment (ROI) of the program (e.g. savings compared to the cost of the VE program) is $32 for each $1 spent. While these figures are impressive, it should be noted that 79 of these studies occurred in the last five years. Five years ago, in 1999, OBO moved to make the VE program much more robust, by making VE program management a full time position. At that time, the VE policy was also updated. OBO requires VE studies on all projects with a construction cost of over $1 million. For projects totaling over $20 million, two studies are performed, the first in planning and the second during design. Generally independent teams perform the studies. This ensures a peer review of the project, while maintaining quality and lowering life cycle costs. VE continues to be a powerful tool for solving OBO s most complex facility issues in terms of cost, quality and performance of a project. VE studies are performed on all type of projects, from simple perimeter security upgrades (e.g. a new wall), to complex stand alone multifunctional compounds, and from renovations of existing to brand new major facilities. We have performed special VE studies such as one study this year on a generic specification, which reduced the 248-page document to about 150 pages. VE studies are performed regardless of the type of project execution conventional design/bid/build, fast track design/build, and even build to lease. The balance of this paper will concentrate on the results of VE studies on design/build (D/B) projects and a comparison of D/B to conventional design/bid/build (D/B/B) projects. VE ON DESIGN/BUILD PROJECTS Performing VE on D/B projects is challenging. Many in the D/B industry claim that VE is inherent in the D/B process. D/B does offer advantages, in schedule earlier delivery of projects - and in cost - less overhead costs due to the reduced schedule and, in some cases, 3

4 cheaper first costs. However, as this paper will show, performing VE on D/B projects, even after the award of the contract, yields results comparable to VE on D/B/B projects. COMPARING RESULTS OF D/B TO D/B/B VE STUDIES Figure 1 shows the breakdown by project execution type of the 79 VE studies performed at OBO in the last five years. These studies have accepted savings of $174M, $112M of which were D/B projects and $62M if which were D/B/B projects. OBO is using D/B on a majority of its projects, so the higher percentage of D/B to D/B/B is not unexpected. OBO performs both planning and design VE studies. Planning VE studies on D/B projects occur before the award of the D/B contractor. Design VE studies mostly occur at the 35% design submission, and, in the case of D/B projects, the design VE study is after award of the D/B contract. D/B 52% OBO VE Studies 1999 to 2003 Project Execution Types Other 9% D/B/B 39% Figure 1 Type of OBO VE Study Figure 2 shows a comparison of the results as measured in Return on Investment (ROI) of using VE on D/B versus D/B/B as it relates to when in the project phase the VE OBO VE Return on Investment Summary Includes all D/B and D/B/B projects from 1999 to 2003 study was performed. ROI is calculated as the accepted savings for every dollar spent on the VE program. $ $90.00 $80.00 $70.00 $89.16 D/B D/B/B While the ROI is greater on $60.00 $70.05 D/B/B projects during the $50.00 $62.92 design phase, it is still $40.00 significant. $30.00 $40.44 ROI for each $ spent on VE $20.00 $10.00 $0.00 $2.38 $19.98 Planning Design Development Construction Documentation # of Studies Figure 2 Comparison of ROI on D/B vs. D/B/B Studies 4

5 Another comparison shows the results as a % of accepted savings and as a % of accepted VE recommendations. Figure 3 summarizes these results at planning and design. Both percentage measurements are derived from comparing accepted recommendations to the VE team proposed recommendations. Comparison of D/B verses D/B/B Note in Figure 3 that nearly 100% of the recommendations D/B Ideas D/B D/B/B Ideas D/B/B proposed by VE 120% during the D/B 100% planning phase were accepted compared to 40% of D/B/B 80% 60% recommendations 40% during the planning phase. One 20% interesting anomaly 0% is that the D/B/B Planning Design projects actually had Planning Design better results during # of Studies D/B 10 D/B/B 9 D/B 31 D/B/B 22 the design phases. (But as D/B/B is not the subject of this Figure 3 Comparison of on D/B vs. D/B/B Studies paper, we ll wait to explore the reasons for this statistic later.) % Accepted It should be noted that during design of both D/B and D/B/B projects, the percentage of accepted savings and recommendations was very similar. One final comparison of results does reveal a significant difference, as shown in Figure 4. OBO D/B Projects 1999 to 2003 Accepted Consists of OBO D/B/B Projects 1999 to 2003 Accepted Consists of Initial 77% O&M 23% Initial 89% O&M 11% Figure 4 Comparing Accepted Sources 5

6 Additional summary tables are attached at the end of this paper. These summaries further break down the results into other subsets, such as capital (e.g. new buildings) to renovation projects and full design versus Standard Embassy Design. OPTIMUM TIMING OF D/B VE STUDY OBO s statistical results show the best return from VE efforts occurs before the award of the D/B contract. Therefore ideally, VE studies for D/B projects should be planning VE studies and they should be performed on bridging design documents such as the request for proposal (RFP)/Scope of Work (SOW), or even the actual D/B proposal received from the D/B contractor. However, there are many reasons the VE study will not be performed at these ideal times. These are: Not enough time from the completion of the D/B RFP/SOW to issuance for a VE study; No bridging documents prepared; Lack of design definition or details; Need to make immediate award of the D/B contract (funding expiration) so no time to VE the proposals; Lack of detail in the D/B proposals. CHALLENGES FACING VE AFTER AWARD OF D/B Even when the studies are performed at planning, OBO s statistics point out that there are still opportunities to improve the projects after the award with another VE study. Performing a VE study on a D/B project after award of the D/B contract presents some unique challenges. Specifically: Since the D/B contract is a fixed price, there is very little incentive for the D/B contractor to implement any changes. (Unless they are going to save the contractor initial cost savings.) Implementing VE recommendations requires negotiations with the D/B contractor; therefore the actual savings will not be as great as if it were D/B/B. Given the fast-track nature of D/B sometimes the project is too far along to implement the savings (as they have started construction). D/B contractors will say Oh, I was going to make that change anyway, as it wasn t in the scope. Therefore, there are no initial savings to the owner. 6

7 OBO GUIDELINES FOR VE STUDIES ON D/B PROJECTS To counter these challenges, OBO has developed specific guidelines for VE studies on D/B projects. These are: While the D/B contractor is required to present the project during the informationgathering phase of the VE study to the VE team, it is excluded from the balance of the VE study. This is to avoid giving advance knowledge of OBO s position before negotiating any contract changes as a result of the VE study. The VE study is held at the same time as the in-house design review of the submission. The results of the VE study are consolidated with the in-house comments back to the D/B team. The VE team is independent of both the OBO and D/B project teams. They perform an independent peer review of the project. OBO maintains a database of all VE recommendations (Accepted and Rejected). This database is reviewed yearly to determine if future D/B solicitations can be improved. So even if the recommendation can t be implemented on the specific project because of timing, if warranted, the specs for the next round of solicitations can be changed. If specific types of projects, e.g., SED D/B projects, do not obtain minimal ROI or accepted VE recommendations during the course of a year s data, then that will be used as a basis for waiving future projects of the same type from performing the VE study in future years. As an example, small perimeter security upgrades projects (less than $5M in construction costs) do not require a VE study, as they do not obtain the minimal benefits of the effort. CONCLUSION As frustrating as it can be for a D/B team to succumb to the VE process on a fast-track project, ROIs of $90 to 1 and $39 to 1 on D/B contracts before and after contract award, respectively, are proof that VE on D/B projects can alleviate funding woes while meeting the requirements of VE on federal projects. Although financial savings are not the only goal of VE, they are a performance measure that can conveniently highlight the success of VE on projects that may or may not be over budget. Two other standard performance indicators, % of VE recommendations implemented and % of project costs saved also show decisively that VE studies on D/B make sense. Further, performing VE during the D/B planning or design review process helps improve future projects, in that recommendations are reviewed for inclusion in future standard procurement documents. 7