Finding Value in Value Engineering
The following material is provided for informational purposes only. Before taking any action that could have legal or other important consequences, speak with a qualified professional who can provide guidance that considers your own unique circumstances.
As a design professional, you’ve probably heard the term “value engineering” (also known as value analysis, value management and value methodology) more and more in business conversations. Perhaps you’ve even been involved in projects that utilize this process and hire a value engineer to lead the charge. Both public and private project owners have been touting “VE” as a method to get more bang from their buck on design and construction projects.
If you haven’t yet been part of a project that utilizes a formal value engineering process, you may not know exactly what it is all about. First, let’s clarify what it is not. It is not purely a cost-cutting exercise to reduce the expenses of the project. True, VE may unveil opportunities to reduce redundancies, eliminate unnecessary elements and find less expensive materials that are adequate to do the job. But it is equally true that value engineering may actually increase project costs in order to increase the value of the project.
Nor is value engineering an intrusive process that brings in a third party who second guesses and overrules the lead designer, dictating project changes. Yes, a trained and certified value engineer is typically brought in to review designs and guide the VE process. But the lead designer is likely an integral part of the VE team that also may include representatives from the contractor, the owner, subconsultants, subcontractors and other parties central to the project. (Some value engineers prefer to use peers of the design team members in order to bring in new ideas, perspectives and design alternatives.) The client retains its authority to approve or reject any project revisions presented by the VE team.
It’s All About Value
The focus of VE is, as the name implies, value. It is a creative, formal, systematic and organized process designed to optimize value and thereby give the project owner a greater return from the dollars it spends on its project. This process of improving the ratio of function to cost was originally developed by Larry Miles, a design engineer with General Electric during World War II. As a basic formula, Miles defined value as:
Value = Function/Cost
- Function is a measure of the specific work or benefit that a building, mechanical system or other element of a project achieves.
- Cost is the life-cycle cost of the structure, system or other elements performing functions of the project.
- Value is a measure of the cost-effectiveness of performing the essential functions necessary to meet the project owner’s needs and expectations.
Over the years, this basic value engineering formula of Dr. Miles has been developed into a formal project management process that can be applied to virtually any design and construction project. Along the way, value engineering has seen many variations in methodologies. But the common goal of any VE process is the same: to analyze the design of a project and find ways to deliver more value to the project owner. This valuation creation may include:
- Achieving all of the primary functions of the project for a lower construction and life-cycle cost, eliminating nonessential elements
- Achieving greater value from the functions of the project for the same cost, or
- Achieving greater value at an additional cost where the total function/cost ratio improves.
A Five Phase Approach
The following five-phase approach has been developed by the Society of American Value Engineers (SAVE International) and today serves as the basic framework for applying VA to projects. Typically, this process takes three to five days as a concentrated, highly structured workshop.
The information phase. The VE team discusses the purpose and background of the project to date, identifying the owner’s primary objectives and definition of value, as well as the key functions to be achieved by the project. The lead designer then presents the design to date, explaining how the design decisions support the functions and provide value to the owner.
The speculation phase. Here, the VE team brainstorms different ways the project design and specifications can be modified to increase owner value. This is a free flow of ideas without judgment as to the validity of the suggestions. These ideas can focus on reducing costs and/or increasing functionality so long as overall value is increased.
The evaluation phase. Each idea developed in the speculation phase is analyzed by the VE team for potential increase in value and the feasibility of achieving that increase. The ideas that are judged to be impractical or infeasible are eliminated. Those that are deemed practical and feasible are retained for further study, sometimes ranked by potential value increase.
The development stage. The ideas that are considered feasible targets for increases in value are developed into workable solutions. These typically take the form of proposed changes to the design as well as any substitutions of materials and mechanical systems. Project cost and time estimates are revised to reflect the changes.
The presentation phase. Here, the VE team compiles a full report of the agreed to changes, including revised designs and specifications. The report focuses on impacts to functions and costs and the expected net increase in value. The owner or its representative makes the final determination as to which proposals will be implemented.
It’s easy to see why value engineering is most effective when a value engineer is brought on early in the initial phases of the design process. Early implementation greatly reduces the need to revise design documents beyond the schematic phase and typically has less impact on budgets and schedules. Still, some owners have implemented VE as late as the construction phase. Here, the contractor is given the primary task of proposing changes and the lead designer is tasked with reviewing the suggestions on the owner’s behalf and determining whether they may have negative impacts on the overall design, functionality and cost of the project. This late stage VE is less than ideal, but not totally unworkable with a knowledgeable and cooperative contractor.
What About Liabilities?
Not surprisingly, questions regarding professional liabilities often arise when value engineering is brought into the picture. Namely, who is responsible for any problems that crop up regarding changes made to the original design? What if the increases in value sought by the VE team don’t materialize? Are designers liable for changes made in the construction phase, such as a value engineer’s recommended substitutions in materials or construction means and methods?
Generally speaking, the answer is “yes,” the lead designer will have some liability for any problems that result from the VE process. This is especially true if the designer is part of the VE team and partook in the process that led to design errors or omissions, reductions in value or added costs.
As with any project, one key to limiting these liabilities is strong contract language that clearly states you are not responsible for decisions and actions of the value engineer, contractor, client and other parties to the project. Work with your legal counsel to include the following protections in your client contract:
- State that all VE services performed on the project are provided at the owner’s expense. This includes the costs associated with hiring the value engineer as well as the additional services, time and costs expended by you and any subconsultants you bring to the project as a result of the VE process.
- Require that the owner provide you with the name and location of the value engineer and a copy of the owner/VE contract and the scope of services for which the VE is being hired to perform.
- Require that any recommended changes to the project provided by the value engineer or another member of the VE team are delivered to you in a timely manner with sufficient time scheduled for your review and response.
- Specify that you are not liable for any delays in project schedules that are partly or wholly the result of the VE process or changes made to project design and construction due to revisions that result.
- Note that you will provide to the owner any objections you may have regarding recommendations made by the value engineer or any member of the VE team. Require that the owner respond to your objections in writing within a reasonable time.
- Demand that should the owner insist on incorporation changes to which you have objected, the owner will, to the fullest extent permitted by law, waive any claims that result from implementing such recommendations and hold you harmless from any resulting damages and costs.
- Express the right to refuse to incorporate recommended changes to your design if you feel such revisions would pose a threat to public health and safety. Note that you will notify the appropriate public agency if such a situation occurs.
So You Want to be a Value Engineer
Value engineering can represent an attractive source of income for designers who would like to serve as value engineers. SAVE International (www.value-eng.org) is the preeminent organization providing the training and certification you will need to provide such services. SAVE provides its members with education and training, publications, promotional tools, networking and recognition. It offers certification as a Certified Value Specialist (CVS), the highest level attainable through the SAVE Certification Program, as well as a Value Methodology Associate (VMA), an entry-level designation for those beginning involvement in value engineering.
With experience, a VMA may advance to CVS certification. The Value Methodology Fundamentals 1 (VMF 1) course covers all of the information required to pass the VMA exam. The Value Methodology Fundamentals 2 (VMF 2) course covers additional information required to pass the CVS exam.
Serving as a value engineer brings its own liability issues. Here are a few contract language suggestions for you and your legal counsel to consider should you serve as a value engineer:
- Include a detailed scope of services that clearly spells out your responsibilities, as well as the responsibilities of the other designers and contractors working on the project.
- Specify that you can rely on the owner, lead designer, contractor and other key project participants to provide complete and accurate information regarding the project.
- Disclaim liability for any errors or omissions is design documents and specifications provided to you by others.
- Similarly, disclaim liability for any errors or omissions made by designers, contractors and others when incorporating your recommended changes on the project.
- Note that you cannot guarantee or warrant that the owner will receive any anticipated long-term cost savings or value improvements based upon your recommendations.
- Seek indemnification for all damages, liabilities or costs allegedly arising from services performed by others.
- Ask for a limitation of liability (LoL) clause that makes your liability commensurate with your specific scope of work and your fees earned as a value engineer.
Is VE Right for You?
Value engineering is proving to be an effective value-building tool for projects large and small. However it requires that participants be flexible and open-minded to new ways of designing and constructing projects. For design professionals, it’s an opportunity to learn about new processes, materials and systems and broaden their skill set. And it applies the combined brainpower, creativity and teamwork of the entire VE team to better meet client expectations and produce highly successful projects.
Can We Be of Assistance?
We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, from construction observation through the development and application of sound human resources management policies and procedures. Please call on us for assistance. We’re a member of the Professional Liability Agents Network (PLAN). We’re here to help.