What's the value of value engineering? Part 1 of 2

In some recent posts on the basics of bidding and negotiation (here and here), I mentioned "value engineering", or VE as it's often called. The topic of value engineering requires a post of its own, due to its inflammatory but necessary nature. The point of VE is get a project within budget, but in recent years it has become a battleground between architects and contractors.

The very phrase "value engineering" conjures up ideas of looking for good ways to save money on any project in an almost scientific fashion. After all, if electrical engineers design good, efficient electrical systems and mechanical engineers design good, efficient airflow and piping systems, wouldn't, um, "value engineers" design systems that really deliver value? Hypothetically, that's the point of value engineering: what can we do (or what product can we use) that costs less but delivers the same effect as the original design? Good VE is not terribly painful to the architect and virtually unnoticeable to the client and the project team. Often, the architect will lean first on the MEP engineers for ways to reduce costs--can we take out a few VAV boxes (that control airflow and temperature to various zones or rooms) or even change manufacturers of the more utilitarian fixtures? Then the architect starts looking at the architectural scope, at which point finishes are usually the first thing to get cut--can we find a similar-looking flooring material, or plastic laminate and solid surface material on the casework, or a different decorative light fixture that costs less than the original? Sometimes, if the cuts need to be deeper, substitutions have to be made; for example, if all the countertops were to be solid surface, then maybe only the countertops with sinks in them get to be solid surface and the rest get to be plastic laminate. Perhaps the really nice porcelain floor tile that was to be in the entryway and the entire lobby gets reduced to just tile in the entryway and carpet in the lobby.

Sometimes, the contractor can help with VE by providing suggestions, either in terms of products or processes. The contractor might be able to find a product that the architect hasn't heard of before, but it will do exactly what the originally-specified product does but for less. Contractors can find cost savings with processes and timelines. If specifying a certain brand of insulated glass in the storefront windows will get the building dried in faster because it can be delivered sooner than any other, it shorten the length of construction and be a cost savings. (Remember, time is money on a job site!) During bidding, contractors (and/or subcontractors) may substitute other materials for those specified in an effort to help the job save money. When this happens, though, it may mean that the bids aren't equal, because one tile subcontractor is bidding the exotic limestone floor tile you originally specified, another one may be using the substitution of Dal-Tile or American Olean limestone-looking porcelain floor tile in their price. (Because of this, architects and/or GCs may make the rule during bidding that "No Substitutions Will Be Allowed in Initial Pricing.")

The hardest kind of VE to engage in is reduction of project or program scope. When a project is way over budget and no real cost reduction can be made through the aforementioned solutions, the project team (with and under direction from the owner) may reduce the size of the project itself or not build it in its entirety just yet. For example, the 30,000-square foot resort and spa may be reduced to 20,000sf so that the project can still happen and keep all of its high-end finishes, fixtures, and accoutrements. Alternatively, the resort and spa may go ahead and build all 30,000sf, but perhaps they will "shell" part of the building (just put in concrete floors, bare unfinished drywall, stub up utilities, and cap or only provide basic ductwork into the space) for future buildout. Perhaps the resort and spa is 30,000sf spread over three buildings, and they will instead only build two of the buildings for now and decide to build the third building in the future.

In the next post, we'll talk about when good VE goes bad, and we'll discuss the VE decisions from an actual recent project. In the meantime, if you have a topic you'd like to see discussed or a question you'd like to have answered, let me know in the comments or drop me a line via my email address in the sidebar. Thanks!