In Search of a Win-Win: The Value Engineering Process

Streamline-blog-Value-Engineering-Win-Win-300x150 interior design resource libraryBy Peter Carey for OfficeInsight

When most design professionals hear the term value engineering, they tend to get a dreaded sinking feeling deep in the pit of their stomach. To many of these people, this process, which is also called VE, often comes in the form of re-selecting a material that was specified for a project that is most likely already under construction and has a hard delivery date to the client. No wonder that sinking feeling happens – both the design firm and the contractor are not only behind one 8 ball, they are really behind three 8 balls: preserving the look and design intent of the project, keeping construction costs to a minimum, and delivering the entire package on time. In this all-too-often situation, the odds of VE being a win-win for all involved are next to none. When seen over all phases of a construction project, VE rarely, if ever, saves a project any money, which was the goal of introducing the process in the first place. From the architect’s perspective, VE has little to do with preserving the value of their design; it is mostly about cutting construction costs. From the contractor’s perspective, it is another change order, an increase of services to their contractually agreed fee with the client.

How did we get here? What are the factors involved? Is there any way to avoid this situation? As it stands today, the value engineering process is not written into a standard contract between an architect and an owner. At the onset of each project, architects contractually agree to design to certain cost parameters, but most of the time those numbers are not clearly defined. In the last few years, the drive to obtain material and labor pricing for each project is happening earlier and earlier, with all players involved striving to get an accurate number as soon as possible, even if the project is two or three years away from completed construction. This is almost like getting pricing for a car three years before it is built; a lot can happen in that time, from changes in technology to cultural shifts, material costs and even international trade negotiations.

However, constructing a building or interiors project is not mass production like making a car. Designing each building, or even each floor within a building, can almost be seen as designing a unique one-off prototype. There may be similarities between some of them, but each one has it’s own set of design challenges and opportunities, and customization along the way is mandatory. Assigning a fixed cost to virtually any aspect of a construction project defines it in such a way that to undo it would usually set off a cascading series of events requiring the entire project be re-evaluated for price. Many years ago, I worked for Butler Rogers Baskett, a design firm that specified interior glass wall partitions for many of their law firm clients. This was a high priced component in every job. We never asked manufacturers for their wall system price per linear foot, knowing full well that the site conditions would dictate the price, and that the closer we got to a finished plan was the closer we got to a real price. In that instance, the wall system budget was usually taken out of the FF&E budget for the project and treated differently so it could managed more efficiently.

From the manufacturing perspective, it is interesting to note that certain segments, like the carpet industry, have become vertically integrated over time in order to meet client pricing requirements. For example, even though inflation has risen at a steady rate over the past few decades, most of the carpet industry continues to offer ten- or fifteen-dollar-a-yard tenant improvement carpet. Their manufacturing costs have risen just like everyone else’s, but the construction of the carpet has been adjusted to fit the pricing demands.

Just as contractors make money from change orders, architects are entitled to charge additional fees for services like value engineering. Many owners do not realize the high price they pay to save money on construction costs. We must, however, predict pricing for a project at some point, but that is handled differently for construction projects across the world. In Asia, for example, many local design firms compete for projects by presenting the owner with a finished set of plans. That’s right, they design the project before they even have the job. There, the client chooses the project they want from the designs, not from the designers. Hong Kong-based international design firm M Moser Associates is known for leveraging their affordable Asian workforce to compete on fully-designed speculative design projects across the US and Europe. Here in America, most design firms sell their design talent and past experiences to potential clients, offering a tailor-made solution for each project, a far different value proposition. For larger construction projects, an owner representative may be involved to oversee the process and attempt to control costs or implement value engineering, but they do not work for free, and their value is seen differently from all project stakeholders.

When American architects work abroad, they typically deliver a set of documents that illustrates their design intent for the project, leaving it to the local architect, wherever they may be, to match the finishes locally and perform construction administration. In Asia and elsewhere, design firms many times have the dual role of being the designer and the builder, and have the ability to hone and recycle their construction process and designs from job to job, which inherently cuts costs. Centuries ago, the term Master Builder was given to a person or group who had the ability to expertly comprehend an architect’s plans and skillfully weave together the many materials which make up a building or interior. These builders, after years of on the job experience, eventually graduated to become architects.

The reality of the bottom line will never change, but how we get there has the possibility to change quite a bit. Processes like Integrated Project Delivery (IPD) or Design–build seek to integrate the master builder ethos back into the contemporary construction process, with mixed success. Computer drafting programs like Revit have the possibility of writing product specifications as the designers draw the project, which not only provides an accurate picture of how much material is needed, each finish material, like flooring or wall cladding, can be easily swapped out for price comparison if needed. To me, Revit’s most powerful tool is their energy-modeling feature for an entire building or just for one floor of a building, which can accurately predict correct HVAC system requirements. HVAC is often is a prime target for value engineering in many construction projects, as it is not a visual component to the project. It is, however, essential for occupant comfort and much more expensive to change after the client moves in to the space.

These days, avoiding value engineering is like avoiding the flu; one way or another, you are going to get touched by it. One popular way design firms’ approach the process is to anticipate the client’s reaction by offering three different tiers of material pricing and/or quality to each project palette. In the long run, that ends up being three times the work for the designer, but by front loading the design process, it still makes the inevitable value engineering process easier because they have more affordable materials in their back pocket.

It’s no surprise that everyone is averse to risk when large sums of money are on the line, but balancing good design with anticipating real-time pricing and availability, along with an intelligent, thoughtful response, is part and parcel of being a successful architect or interior designer today. Engineering in the value, that is, finding an equivalent material solution with a similar performance, needs to be factored in the VE process more than just finding a cheaper alternative that somewhat resembles the original design intent.

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