Cost Saving and Value Engineering – the Impact

7 February, 2019

The concept of value engineering in relation to construction and manufacturing was first developed in the USA during the Second World War, when products and materials were scarce but manufacturing and construction were operating at maximum capacity.

Fast forward to the present day and the motivator for value engineering has moved more towards one of low price at any cost, rather than the need to source alternative products out of necessity. In reality, cost saving and value engineering exercises represent a real challenge for many contractors, and potentially illustrate a lack of awareness from clients and their advisers as to the real costs of construction.

As reported in our industry report, Constructing the Future, respondents to our industry survey estimated that 72% percent of projects they have been involved with in the last 12 months to Oct 2018 had required a cost saving and/or value engineering exercise before Contract Award.

These results reflect the growing complexity of the construction industry and the need for experienced contractors to be involved as early as possible during the design stage of a project.  These experienced contractors and their supply chain are able to provide expert advice on programme, logistics, buildability, and construction costs before designs have been fully developed.  This enables their comments and input to be incorporated into the design of the scheme before it is too late.  This view of a changing model was reflected in recent comments from the chief executive of BAM Construct as he discussed the move to an ‘integrator’ role for contractors.

Where engagement with contractors is deferred until time of tender, it is more likely that a cost saving exercise will be required before contract award, resulting in late design changes being required, delays to project commencement and contractors’ margins being squeezed further.

It is our opinion that if developers and their advisers take a more collaborative approach earlier in the process, project delivery will be more streamlined with a more realistic cost profiling from the outset.

For more insight and opinion on the construction industry in the UK, read the full Soben report, Constructing the Future, here.