How to value engineer and reduce construction costs on your development project (Pt 1)

PART 1 OF 4: THE FUNDAMENTALS OF COST REDUCTION THROUGH VALUE ENGINEERING.

Property development is hard. Managing a property development project during an inflationary recession is even harder.

The cost of capital and debt has skyrocketed, tender returns are becoming harder and harder to absorb, exit values are under pressure and the planning departments are still working through their covid backlogs.

It’s really tough.

In situations like this, the only way to preserve project viability is to decisively reduce project costs whilst maintaining quality.

In short, Value Engineering or VE.

ISN’T VALUE ENGINEERING JUST COST-CUTTING?

There is a time and place for regular cost cutting but, No.

VE differs from normal cost-reduction because it relies on creatively replacing specifications and details with more cost-effective solutions, while preserving value and functionality. The emphasis on quality becomes more important as we enter a buyer’s market and it becomes harder to justify top-quartile exit values.

WHEN SHOULD I START VALUE ENGINEERING?

Experienced developers are always value engineering, always looking for a way to get more ‘bang for their buck’. If you’re less experienced the best times to start value engineering (VE) are:

• Before planning is submitted or just after.
• Just after your tenders have been returned but before you select a winner.
• Whilst on site is very risky but this is your last opportunity. (This is much easier if you use a product like C-Link to manage your work packages.)

WHAT SHOULD I VALUE ENGINEER?

Good VE generally 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. Your last opportunity is before tender submission. Read about how to VE your project fabric, here.
• 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.

WHO SHOULD LEAD THE VALUE ENGINEERING PROCESS?

Most textbooks will suggest that the VE process should be led by the Project Manager, Quantity Surveyor or Employers Agent. This is mostly correct.

In practice, Architects are disproportionately important to the VE process because they direct and coordinate the majority of specification decisions.

A good Architect with the support of the Project Manager / Quantity Surveyor will be able to adjust and reshape the scheme to meet new cost parameters.

Their ability to do this well is greatly improved if, as the client, you have been clear with them on what your construction budget is and what you want to achieve in terms of finish.

If you’re unclear with your Architect and design team from the beginning, you will create many expensive and stressful problems later. A good Architect always appreciates clarity.

In our experience specification decisions also tend to benefit from the advice of a good local estate agent. They can help you and your design team understand what is important to potential buyers and what isn’t.

They’ll often offer this advice for free with the understanding that you will sell the scheme through them. So pick carefully.

The best way to know if they’re the right agent to speak to is to review their sold properties. If they’re in the same area and of similar quality, they should be well-placed to advise.

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 ThisisEngineering RAEng on Unsplash

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.