A few years ago, the owners of a hospital under construction near Denver decided to increase the project's scope and budget during schematic design in order to match the space allotments of nearby competitors whom they had recently benchmarked. Going $2.6 million over budget, they directed the project team to “value engineer” in order to cut costs. Once the dust had settled, the project lost professional landscaping, various water features, an advanced irrigation system, and a proposed labyrinth. They converted an entrance canopy from glass to acrylic and downgraded LEED-certifiable materials, losing all chances of achieving LEED certification.
It was, of course, the classic scenario that has played out on construction projects of all types for decades. Value engineering (VE) of this sort divides the construction team into camps: Architects see it as the ruination of value they've worked hard to create, and contractors see it as a practical check on unnecessary and sometimes unworkable “frills” that earns them enhanced compensation and reputation. Owners, caught in the middle, have resorted to it to save their budgets.
One thing that can be said for modern times is no matter how good or bad the design and construction market has been-and these days it's been terrible-old-school VE cost-cutting appears to be on the way out. Gradually, and with some difficulty, the truly classic definition of VE-maximizing value for the money spent-is making a comeback.
One very basic reason for this is that the demand for scope-reduction VE has diminished dramatically now that multiple bidders for the same project commonly cut prices to earn business. “Value engineering to save costs used to be looked at as a must,” says Freddy Rayes, project director with Heery International, Inc. “Back in 2005-2007, you couldn't get people to bid on a project, they were so busy, and clients had to beg for competitive bids. Now they're getting as many as 30 bids at prices 20-30% below their budgets.”
Steve Howard, senior vice president of Los Angeles-based Cumming Corp., agrees. “There's not been so much a change in attitude about VE as a change in market, from not competitive to very competitive. You're getting many more bids below budget, and contractors have been aggressive in trying to provide more cost-effective options, as opposed to outright VE,” he says.
In short, a competitive market is reducing the need for scope-reduction VE but not, as it turns out, the need for VE to maximize value. That concept is not only alive and well, but it is starting to thrive with modern approaches to design technology and construction process management.
