Value Engineering Doesn’t Happen in a Vacuum

Jul 8, 2019 | Newsletter

The term value engineering (VE) gets thrown around a lot in the construction world, especially during the bid process. Clients forever ask for VE ideas to reduce prices. In some circles, VE has become code for “drop your price”. In my experience, to ask a GC/CM for VE ideas without input from the project team (architects, engineers, designers, ownership) minimizes the true power of a well-planned, successful VE proposition. A truly successful VE exercise requires input as to what the owner can live with and without.

Recently SCI worked with a major provider of senior and assisted living in New England on a full-scale renovation and MEP upgrade at one of their buildings. For the first round of pricing, all three bids from GC’s/CM’s came in over the client’s budget of $9MM. All bids were in the $12MM to 15MM range. We approached the client and offered to work with them and the design team to drive the costs down through VE.

First, we sat with the engineers and looked at the equipment specified for the HVAC, electrical switchgear and the piping for the plumbing. We discussed performance specifications and what the engineer was looking to achieve with the HVAC system. Once we had a clear understanding, we brought in trusted sub-contractors to explore alternative equipment that would meet the same performance specifications.

We then looked at the switchgear with the engineers and our electrical sub. We found that the switchgear had, in fact, been over-engineered. A less expensive option would meet performance objectives while realizing savings.

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We also looked at the piping and found the local governing body would allow for PVC rather than cast iron. In a project of this size, that meant savings on labor.

Still, the job wasn’t done as the price tag was still more than $9MM.

We looked at everything—custom millwork vs stock (the choice in stock millwork today is impressive), tile selections (huge swings), flooring, paint vs VWC, lighting fixtures, plumbing fixtures—everything was in play. Again, let me state, we could not have explored these items without input from the ownership team as to what they would accept.

In a project of this size, tweaks in the products selected can add up to hundreds of thousands of dollars. Yet after all the tweaking the price wasn’t meeting budget. To do that meant scope reduction.

Where could we reduce scope to realize maximum dollar savings with minimal design impact?

No owner is happy about scope reduction but in partnership with the design team, we were able to suggest various reductions the client found they could live with and still achieve the overall intent of the projects.

End result? We were able, together with the client and the design team, to reduce our price by almost 31 percent and get the project approved to move forward. This could not have happened without the collective effort of the project team.

At the ribbon cutting, one of the owners came up to me and said “I would never know from the looks of this that we reduced the cost of the project by almost $4MM. It is beautiful.”

We have many examples of successful VE projects. All have one important similarity—it was a team effort. So, the next time you think about requesting Value Engineering from your GC/CM, consider bringing them on the team and let the team work together to get to the right number. You just might be amazed at what you can realize in savings.

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