Imagine: Your architect has finished the contract documents, and your project has gone out to bid. Then, the worst-case scenario happens–the lowest responsible bid is over your budget. You now face a difficult decision. Either you can find more funding, or your architect can start the value engineering process.
Value engineering (also known as value management) is the act of reexamining drawings, specifications, and product recommendations to find alternative, lower-priced solutions. The goal is to reduce the project’s initial cost without sacrificing quality and functionality.
Value engineering is a normal part of any building project. In our experience, however, successful projects occur when architects find ways to reduce costs throughout the design process, rather than after bidding occurs.
This article will explain value engineering, and how to prevent it from occurring after bidding. By the end of the article, you will be better prepared to manage costs throughout your building project.
What is Value Engineering?
Your architect starts value engineering by analyzing the building’s features, systems, equipment, and materials and researching alternative solutions. They are looking to achieve the desired function at the best possible price.
Although value engineering reduces initial cost, you shouldn’t confuse the process with “cost-cutting.” Your architect should consider the long-term costs of building ownership, as well as the initial construction cost. If you laser-focus on initial costs, you risk increasing the long-term expense of maintenance and material replacement.
The goal is to ensure you get the quality you need within your allotted budget.
Why Does Value Engineering Occur?
Value engineering occurs when your architect identifies a budget issue. This scenario can occur at any stage of the design process.
For example, in Design Development, your architect can find materials and products that give you the best possible value. Depending on the project delivery method, the design team may collaborate with your contractor to get accurate cost estimates.
As mentioned, value engineering sometimes occurs when bids are too high. In general, value engineering after bidding should be the last resort. If value engineering occurs after bidding, it could signify that the architect did not anticipate costs properly during the design process or some other economic factor impacted construction costs.
For example, inflation and supply chain shortages can drive up material costs and create high bids. Policy changes like tariffs can even increase material prices overnight.
In short, your architect should manage costs throughout the design process, but in some cases, value engineering after bidding may be necessary.
Learn more by reading about how to prepare for an uncertain building materials market.
How Can You Avoid Value Engineering After Bidding?
Ideally, your architect will manage costs while designing your project and avoid value engineering after bidding. Your architect has a few tools at their disposal to keep the project within budget.
1. Align Goals and Budget
First, your architect should make sure your goals align with your budget at the project’s onset. If your budget cannot cover your project, you can reduce the scope or remove programming elements.
When removing programming elements, consider each area’s cost per square foot. For example, if your building contains an office and a warehouse, the office will have a higher cost per square foot than the warehouse.
Using an average cost per square foot for the entire building would result in fewer savings if you solely removed warehouse areas. Working with your architect to find the right balance of savings is crucial.
You can also work to find other forms of funding through investors, bonds, loans, or grants. In either case, your architect should point out a potential budget issue early in the design process so you can respond accordingly. We’d also recommend getting a probable opinion of cost from your architect at each phase of the design process.
2. Consider Alternates
Alternates are another way to prevent value engineering after bidding. An “alternate” is a part of the project that is priced separately within the bid. Typically, an alternate is unnecessary for a functional building, though you may desire it.
If bids come in at or below budget, you can determine if you want to include the alternate in the final building. You can also add alternates if your funding increases.
While this is a great way to project your budget, too many alternates can confuse bidders and lead to high bids. In short, use alternates wisely and strategically.
3. Create an Open Dialogue About Costs
Lastly, your architect should work with the design team and their consultants to make wise choices regarding systems, equipment, and materials. Budget management should be baked into every component of the project.
An open dialogue about costs is foundational to success. If you are concerned about material costs, ask your architect to explain their choices and see if there are any alternatives available.
Ready to Learn More?
Value engineering after the project goes out to bid is a less-than-ideal scenario. But some situations, like unexpected material price increases, may make it necessary.
Throughout the design process, your architect should estimate costs, work closely with contractors/estimators, and plan alternates when necessary. Set yourself up for success by openly discussing prices and costs with your architect.
Learn how to further manage the cost of your project by reading our advice for preventing cost overruns. To learn how we work, contact us, and talk with one of our project managers.