Done Right Value Engineering Offers Benefits

Sometimes revered, at times sneered, value engineering (VE) can provide benefits to various projects when done right, according to industry experts.

VE began at General Electric during World War II, according to Quebec-based McGill University. Shortages of skilled labor, raw materials and component parts due to the war forced GE to look for acceptable substitutes. When the substitutions were used, they noticed lower costs and improved products as a result.

According to Mike Doleac, a retired engineer with 40 years of experience, the practice of VE is widespread.

“Value engineering…is not about cost cutting. People say, ‘I do value engineering all the time.’ They don’t. They do cost cutting,” Doleac explained. “Value engineering is a very specific process that we use,” he said, adding that it involves functional analysis and systems techniques that are different than just cost cutting.

According to Randy Lewis, vice president of Loss Prevention and Client Education in the Design Professional Insurance Unit at XL Catlin, value engineering gets a bad rap because “it often means reducing the first costs and not actually bringing greater value to the outcome of the project.”

If used as intended, it can be a useful exercise, said Lewis.

“If the architects, engineers and contractors are making decisions that are motivated and rooted in getting the best outcome for the owner, that can be a real positive step,” explained Lewis.

On the other hand, if the reason for VE is only to reduce initial costs the result, he said, can cascade into problems later.

VE at Work

Doleac explained that every branch of the federal government has VE requirements.

“They have to do a value engineering study for anything that’s federally funded. You look at all the funding agencies that fund infrastructure. They all have rules. If their project is over $20 million, you have to do value engineering, or you don’t get your funding,” Doleac said.

While industries, such as Boeing, use it to reduce the cost and functionality of their manufacturing process, Doleac focuses on the construction industry, where the practice is just as widely used. His work comes in during the engineering design process, when the architect and engineer are about 30 percent complete. Any later in the project and there’s a risk of costs associated with going back to redo things, he said.

Lewis added that VE can be effective at keeping a project on budget, if it is part of the decision-making process early in the project.

During VE, Doleac explores fundamental issues, answering the question of what problem is the project trying to solve.

“What criteria are we trying to meet? Let’s see if we can meet that criteria a different way, in a way that would either cost less or that would take less time or be at less risk,” Doleac explained. “I make sure…they allow me to go back and do that. The tighter they paint the box around what they’ll let you look at, the less results you can get out of it. What I try to do is go back to square one and say, ‘Let’s figure out why we’re here, why are we doing this project. Then we’ll start from there.'”

At that point, Doleac brings in a team to review the project and the issues that could arise from it.

Once the project plans and specs are received, Doleac sends them to a team – usually comprised of various specialty engineers – for review.

“I send them all the background information ahead of time,” explained Doleac. “When we come to the VE study, the first step is information gathering, which is the research they have done plus a presentation from the design engineer and the owner about what the project is all about, why they’re doing it.”

They’ll spend the day together – the project owner, architect and designer along with the VE team.

Doleac explained that each of the VE engineers ask questions about things that they saw in the design, like: Why did you decide this? What’s the criteria for that? Is this in an earthquake zone? What is the soil condition in the area?

“For instance, if it’s a wastewater treatment plant…I’ll bring in a process engineer, a mechanical engineer, probably a structural engineer. If it’s a new project, I’ll bring a geotechnical engineer, if there’s issues and foundation problems,” Doleac explained. “You look at the issues around the project and you bring in the kinds of people that are experts in those areas. They’re not experts in value engineering.”

Doleac will lead the team through the value engineering process, using their expertise to identify alternative ways of achieving the same function that the original designer was going to use. He’ll try to find a more cost effective way of achieving it.

“We usually look at life cycle cost,” said Doleac. “It’s ongoing operations, maintenance repair, replacement over a 20 year period. We look at life cycle cost when we do our evaluations, not just first construction cost.”

The owners sometimes dictate the focus of the value engineering project.

“Sometimes the owners say, ‘I have plenty of money in my checkbook. I don’t care what this costs. I’ve got to deliver this project on a certain date. My big risk is schedule. I want you to use your value engineering techniques to find ways to minimize my schedule risk because every minute I’m not up in operations it’s costing me $100,000 or whatever.’ They say focus on schedule,” Doleac explained.

Another project may focus on reducing or eliminating change orders. The limitations can limit the results, he said.

“It narrows my scope,” explained Doleac. “The narrower you make my scope, the less results you’re going to get out of this. For instance, if someone said, ‘OK, I want you to value engineer a car,’ and you get the whole car to look at. Or someone says, ‘I just want you to value engineer a differential.’ Well, there’s not much you can do there. But if you look at the whole car, there’s a lot of stuff you can find.”

The benefit of VE depends on the scope of the work the problem the project owner is trying to solve, Doleac said.

The value engineering team will review the project quickly as it considers alternatives and price out not only what’s being proposed by the original design engineer, but also price out the alternative and compare the two.

The six-step process takes about five days, he said. At the end, Doleac creates a report that contains a list of recommendations.

The one that offers the best life cycle cost will be presented to the owner, design engineer or architect with 10-15 recommendations on what can be done to enhance the project.

“They can then ask questions. We try to give them food for thought and things that might make the project better. It all happens very quickly. Now, if you’re in the manufacturing business, their VE stuff lasts for months,” said Doleac.

There’s little risk to the value engineering team because the design decision ultimately rests with the owner.

“The design engineer has to take it and put final plans and specs together for bid, and they take responsibility for it when that happens. If they agree and the owner says, ‘I want to change my design to this,’ it’s their design. It is not the value engineering team’s design,” Doleac explained.

Savings can be substantial.

“In my career, on the average, I save $50 for every dollar they spend on VE,” Doleac said. “Usually, if I have five people for a week, it’s $100,000. I’ll save them five million dollars on the average. Sometimes it’s a lot more,” he said.

Doleac explained that on some of the larger projects, like wastewater treatment plants, where costs will run up to $3 billion and the project term will last several years, his team might conduct value engineering on different parts of the project five or six times.

“They’ll spend way over a million dollars on VE, but I’ll save them $30, 40, or 50 million,” Doleac said.

Risks

Last year, XL Catlin outlined emerging trends in design professional liability claims. According to the insurer, “There’s been an increase in claims stemming from projects in which the design and construction were value engineered to bring the program within a budget that was likely too low in the first place.”

The real risk in VE is if project owners attempt to do it themselves, added Doleac.

“That happens all the time. Anybody that has any kind of project, they’re looking at ways to reduce their costs usually. They say they do VE, but…they’re just cost cutting,” he said.

Lewis offered an example where a contractor, under the guise of value engineering, suggested a change in the type of waterproofing membrane to be used in a wall system. The change resulted in an initial savings of $25,000; however, about 18 months after the project was completed a water leak led to a mold problem and three years later the wall system had to be replaced.

It can be difficult to determine the number of claims related to value engineering after a loss has taken place, he said.

Businesses can do themselves a favor and start the process early in the project. Sometimes Doleac has killed projects that weren’t worth doing.

“I go back to square one when I’m doing my research, before we actually start the study so I know what the real basic problem is,” Doleac explained.

He’ll ask them what problem they are trying to solve. Often, he says, they don’t have that well-defined. Doleac offered an example of a project in Canada.

“They hired me to come in and do a value engineering study on a project that was ready to go out to bid. The plans and specs had been done,” he said.

The project sat dormant for two years until it could be funded.

“They’re getting ready to go to construction. It was a highway interchange project by the Ministry of Transportation. I said, ‘OK, what’s the basis for this interchange? Why are we putting an interchange right in the middle of nowhere?’ They said, “Because we’re building the Coquihalla Highway. When we get that done, all these people are going to come. They’re going to need this interchange in order to keep the traffic moving.'”

Doleac had driven to the project on the completed Coquihalla Highway and noticed that no one was using it. He didn’t think the completed freeway justified a $20 25 million interchange. He suggested a stop sign instead, after determining no traffic counts were completed.

“They stopped the project. They went out there. They did two months’ worth of traffic counts. They had 10 to 15 cars a day,” Doleac said. “I said, ‘You’re going to build a $25 million interchange for 15 cars a day? You’ll all lose your job. You’ll get fired if you did that.’ Basically, they hadn’t thought about, ‘Why are we even doing this project?’ It was one that was on the books. They had the plans. They said, ‘It’s time to get it built. Let’s go do it.’ Now when we sat down and looked at it, they couldn’t justify it.”

After a week of VE was completed, the entire project was terminated. They ended up upgrading the intersection and adding a stop sign. Doleac estimated it ended up costing the MOT between $300,000 and $400,000.

Lewis explained that project owners may have no interest in holding down future long-term costs because they don’t anticipate owning the building in the long run.

Another important factor is the person hired to do the VE, said Lewis and Doleac. Both mentioned SAVE International, the Society of American Value Engineers, a licensing body and membership organization. They indicated there is specific education that a business or a construction company should review when considering a value engineer.

According to Doleac, the certification process is onerous.

“I’m a professional engineer,” Doleac said. “Getting my certified CVS [Certified Value Specialist] was harder than getting my PE license. It was more difficult. You have to redo it every four years until you’ve done it four times. Sixteen years of it, then you can get certified for life.”

Lewis offered tips for designers when provided value engineering guidance. He recommended that designers plan for the suggestions and be prepared to investigate whether the suggestions make sense, as well as provide an explanation to the project owner. Owners, too, should be ready and educated that some contractors “will look to suggest the least expensive item upfront so the contractor can make money on a project, particularly if the contractor is selected on a low bid situation.”