Value Engineering or Contingency??

Inflation, fuel prices, material escalation, and material shortages are pushing construction prices to record highs. Already tight project budgets are being value engineered, tabled in hopes that pricing will come back to earth in the future, or just abandoned. Like everything else these days, the typical value engineering process is not as effective as it once was. When project pricing comes in over budget, we have historically provided a list of suggested alternate materials, methods, and/or systems to help bring the cost back closer to budget if needed. 

Currently, inflation is working against project teams trying to value engineer projects. On several recent projects, material escalation has negated any value engineering efforts. Meaning…during the time it takes to price VE alternates, and get the accepted changes into the design documents, the pricing of the other trades and materials has increased an equal or larger amount of the costs saved from the approved value engineering items. We are finding the new VE process needs to be started before the design is complete. At the current rate of 1-1.5% inflation per month, project costs can be up 2-3% in the 2-month period it takes to get value engineering items priced and incorporated in the drawings. 

To combat this struggle, we are working with our clients and design teams to suggest value engineering ideas during the preconstruction process and incorporate them into the plans as the design documents are being developed as a “contingency plan” to help if the current market pricing comes in over budget. We are working to provide cost-saving options to our clients that are approved as possible changes and incorporated into the design documents as alternates. The VE pricing options are provided with the overall project cost as possible alternates. This allows project teams to make timely decisions based on current costs and select the approved value engineering alternates and avoid the lengthy design process that is typically needed to incorporate the approved changes into the construction drawings. This is just another example of how we are adapting to accommodate the effect of escalation and inflation in our industry.    

Pete Zimmerman

Vice President of Estimating

The Douglas Company


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