How to value engineer and reduce construction costs on your development project (Pt 2)

PART 2 OF 4: THE FUNDAMENTALS OF VALUE ENGINEERING YOUR PROJECT’S FABRIC.

In our previous blog, we outlined the fundamentals of good value engineering.
In this blog we’ll be discussing:

• What Value Engineering a fabric specification means
• When you should VE your development’s fabric spec
• How to VE your development’s fabric spec

But first, a recap of the 3Fs of Value engineering.

Good VE focuses on the 3Fs:

• Fabric: This is the shell and core of the building. Everything from the superstructure to the façade, windows, landscaping and foundations can be redesigned or respecified to reduce prelim costs, construction costs and programme length. The ideal time to consider these specifications is before planning. This prevents you from securing consent for a scheme you simply can’t afford to build.
• Finishes: This is self-explanatory. It’s the finishes of the scheme. It’s your floors, ceilings, and worktops. The ideal time to consider these specifications is just before/after planning submission. Your last chance is before tender. Read about how to VE your project finishes, here.
• Fixtures: This refers to items such as lights, door handles and taps. We also include appliances such as washing machines and key mechanical, electrical and plumbing( MEP) such as Mechanical Ventilation and Heat Recovery units (MVHR). It’s best to consider MEP fixtures before planning submission because they will form part of your sustainability strategy. All other fixtures should be considered before tender but can be adjusted onsite. Read about how to VE your project fixtures, here.

WHEN SHOULD I VALUE ENGINEER THE PROJECT’S FABRIC?

As we outlined in the intro, the best time to VE your development’s fabric spec is just before you submit planning.

This is the ideal time because the whole team understands the direction of travel and it’s your last opportunity to avoid committing to a scheme you can’t afford. Even if you think you can afford it, it’s best to try and give yourself some space to manoeuvre later.

The best way to do this is to commission a Stage 2 cost plan from a Quantity Surveyor (QS).
Doing this has four distinct benefits;

• You gain an idea of how far away you are from your initial appraisal.
• You force your design team to decide what the fabric is actually made of.
• You create a document that can be developed gradually as the project progresses as opposed to creating a very large, very detailed, slowly created document that shows the project stopped being viable several months and several iterations ago.
• You get a definitive idea of how big your project is in terms of measured area. You should already know this but if you don’t, a stage 2 cost plan is a great way to nail this down. As with the construction cost you will need to feed this into your live development appraisal and compare it to your assumed sizes and values. At this stage, your project should be slightly larger than required. This is important because as the design of the building becomes more developed it’s not unusual for internal spaces to reduce due unforeseen structural elements.

The last chance you have to VE your property development’s fabric spec is during the tender process.
There are a few ways you can do this.

• If you’re unsure about an aspect of your building fabric like the structural frame. You can ask your tenderers to propose a cheaper alternative that they can build and that they think will work with the scheme. This is an effective strategy because you quickly learn whether what has been drawn can be delivered in a more cost-effective way.
• Once tenders are returned you have the option of comparing and interrogating each one. If the returns are not in the same format, you have to go through the painful process of standardising the information and comparing the returns. This can become quite painful and expensive and may end up feeling like comparing apples and oranges. If you use a procurement platform like C-Link, the platform will automatically standardise your tender format and stack rank all of your tender returns. It can order the returns using price, and proposed programme length. Being able to compare what the market believes is achievable provides clarity on which parts of your project are too expensive and need to be value engineered.
• The very last opportunity you have is before you sign the building contract. Every building contract should have a Contract Sum Analysis (CSA) or a Schedule of Works (SoW) / Bill of Quantities (BoQ). This document will be what your chosen contractor or sub-contractors will be working to. Agreeing this and any subsequent penalties are essential to achieving your commercial aims.

HOW TO VALUE ENGINEER YOUR PROJECT’S FABRIC

Fabric specification is the easiest way to reduce constructions cost and the easiest way to accidentally increase them.

You should be considering building fabric (construction method, height, foundations etc) before you even place an offer on a site. Your assumed construction method has a significant impact on your projected development costs. Check out our construction cost calculator to see just how much.

A simple trick is to assume that you’ll be adopting a slightly more expensive construction method than you’d expect. If you did this, or something like this you will have some headroom to play with.

If you didn’t, read on.

VE TIP1: Have a Structural Engineer and Quantity Surveyor on standby from the beginning.
A costly mistake that many SME developers make during the planning phase is to employ the smallest team possible (to save on professional fees). This often results in the exclusion of the structural engineer and the creation of planning drawings with black walls full of ‘stuff’.

If you’ve done this it’s not too late.

For a relatively small fee, a structural engineer can review your planning drawings before submission and provide high-level advice. They’ll look at designs and details that they think will cause you/them problems later. They will even recommend the most cost-effective construction method with caveats pertaining to soil conditions, site constraints etc.

You should then seek a second opinion from a quantity surveyor (ideally a construction QS). They will be able to verify or dispute the structural engineer’s suggestions and offer guidance on programme impacts, supply chain pressures they’re seeing on their other projects (labour and materials) and most crucially how contractors are costing different construction methods.

VE TIP 2: Make your pitched roofs (secretly) flat
Historically speaking the most cost-effective construction method for houses involved; load-bearing masonry walls made of brick and block construction, on strip foundations with a suspended beam and block ground floor, and timber joist intermediate floors with a flat roof.

Not many LPAs will approve homes with flat roofs.

However, there is a cost-effective compromise. A hybrid roof.

A hybrid roof is sloped at the edges of the property like a traditional pitch roof but behind the ridge line the roof becomes a flat timber structure (with falls and a membrane finish). This method reduces costs, construction time, creates value-adding room in the roof and a flat surface to place solar panels and skylights.

Just pay special attention to your drainage design.

VE TIP 3: Remove as little soil as possible
If your site is not level there’s a decent chance you will need to remove a lot of soil.

You need to resist this.

Try and minimise how much soil you move off site. The best way to do this is to designate parts of your site which will be ‘built up’ in some way.

The most natural location is anywhere that requires ‘back filling’, for example an area that is sloped and needs to be levelled.

The next best place is within the site landscape. Possibly along a boundary to provide natural screening.

VE TIP 4: Soft landscaping costs less and adds more value than hard landscaping 
There are two big reasons why maximising soft landscaping and planting makes commercial sense.

The first is that soft landscaping costs less to construct than hard. Our market data currently shows that soft landscaping (materials and labour) costs 50% less than hard landscaping.

The second is that the pandemic and the subsequent lockdown have made buyers and tenants more sensitive to green space and nature. As a result properties with beautiful lush gardens are worth more than ever. 32% more Brits think gardens are important. 70% are prepared to pay more for them and in some markets, it boosts the value of the home by 250%.

But what does this mean in practice?

To take advantage of this trend and to reduce costs we recommend hiring a garden designer (you can employ one for as little as £1500) to create a design that balances low maintenance, very little hard landscaping, and lush evergreen planting.

A good designer will be able to respond to this brief and add 10X more value than their fee.

VE TIP 5: Concrete bricks are cheaper than clay and can look just as good 
The majority of housing projects in the UK are externally finished with brick, render or both.

While it’s true that rendering onto concrete block is the most cost-effective. Render needs to be carefully detailed to avoid rapid weathering. This is important if you are leasing your homes or want to build a reputation for good build quality.

Concrete bricks are the perfect compromise.

They can be up to 20% cheaper than clay bricks, they’re stronger and are often more sustainable because they’re made from recycled materials.
Every project is unique but we believe the optimum solution is to utilise more expensive brick in high-profile areas. Front elevations, public corners, garage piers etc. While using concrete bricks in less conspicuous locations such as on the sides of buildings, on short walls and external floor areas.

To avoid clashing your Architect should check that the brick selections are complimentary and acceptable to the council. You must also check that your specified foundations can take the extra weight of the concrete bricks.

WHERE CAN I READ MORE DETAILED PRACTICAL ADVICE ON VALUE ENGINEERING?

Our team is made up of seasoned construction and property professionals so we know how hard it is becoming to manage projects successfully.

That’s why we have created a blog series that focuses on value engineering, cost reduction and provides proven practical advice.

Click here to learn how to value engineer your project’s fabric.
Click here to learn how to value engineer your project’s finishes.
Click here to learn how to value engineer your project’s fixtures.

And click here to learn more about C-Link or just say hello.

Photo by C Dustin on Unsplash

About Martin Prince-Parrott

Martin is an ESG Real Estate Developer and former Award-Winning Architect. He’s spent the last decade designing and developing a billion-pounds worth of mixed-use institutional-scale real estate. He’s worked with and for market-leading companies such as Gensler, Microsoft, Barratt Homes, Legal & General and Barclays Bank.