Christian Hale of high-end residential and commercial specialist contractor Hale.uk wonders whether collaboration can stop the spread of value engineering in the industry.
You’re eagerly awaiting the tender prices. Everyone’s buzzing with the anticipation of bringing the dream to life. But the tender price has come in staggeringly over budget. Instead of signing contracts and breaking ground, it’s breaking the bank and everyone’s reaching for the calculator!
It’s a scenario that’s becoming all too familiar. So, as we’re all competing with rising costs and a shifting market, it’s time to ask ourselves: are we stuck on a hamster wheel of last-minute cost-cutting, or is there a better way forward?
Last year, in our company alone, clients abandoned 20% of planned projects or put them on hold following tender submission. We received post tender value engineering requests requiring 25% or more in cost savings. And lost another 20% of estimated works through cost savings, which is considerably higher than any other year.
Don’t get us wrong, it’s a tough market and cost saving exercises aren’t new. But this difference is exceptional! We pride ourselves on maximising value, but finding a 25-30% saving at the build stage essentially means going back to the drawing board. Changing scope, design details, specifications and pricing documents, and potentially going back to planning, all leads to significant delays.
Budget v Time Conundrum
We receive tender requests two to five years after the initial design concepts. While it’s important for designers to take clients on a creative journey, it’s equally important that clients’ budget expectations follow this journey too. A quantity surveyor is pivotal to this.
It’s frustrating for everyone involved when projects are derailed because of budgets. Not understanding costs until after the tender stage can have hugely detrimental effects on everyone involved.
The cost saving process sucks up significant resource and time (three months plus in our experience) from everyone involved: design teams to sub-contractors.
- Design team, QS and contractors go through the project plans together and create a ‘shopping list’ of potential ways to save money. Practical versus aesthetic, with compromises along the way – fewer windows, smaller basement, etc
- Contractors provide indicative savings
- Client team agrees the ‘reduced’ shopping list in principle
- Design team updates the tender pack (including all drawings and specialist subcontractor information)
- Contractors produce new formal pricing
- Client agrees; contracts are signed
This is time which clients aren’t usually willing to pay for (and potential savings sometimes get swallowed up during lengthy planning approval). The result? The client gets far less than they wanted, for the same price.
Preventing Budget Problems in the First Place
It’s vital to engage specialist suppliers and cost consultants to produce cost plans early on and for them to be regularly updated. Clients may question this and push to issue a tender, but there’s little value issuing tenders which they subsequently don’t have the financial appetite for.
Ways to prevent financial surprises and maintain your client’s vision:
- Collaboration
Collaboration between architects, designers and quantity surveyors helps address the budget challenge and improve client expectations. Developing robust cost plans with a QS or cost consultant early on is essential. They can more accurately account for potential market changes, saving time for everyone.
- Regular Reviews
Regular reviews with all parties help everyone understand the project’s financial implications and reduces the chances of lengthy and cost saving exercises later.
- A Pared-Down Tender Process
We advocate a stripped-back tender process; costing to a plastered shell with mechanical and electrical (M&E) provision. This saves a lot of time as finishes and furniture, fixtures and equipment (FF&E) budgets are relatively easy to define but time consuming to detail and accurately price for tenders. Depending on the costs of the tendered shell and M&E, client teams can then fine-tune budgets accordingly and flex more to the volatile prices and trends of FF&E.
- Awareness and Education
To produce the best customer experience and design brilliance (the true essence of value engineering), design teams must understand the cost implications of their decisions more deeply. By fostering this awareness, designers can be more pragmatic about budgets. And through collaboration, identify opportunities to optimise value without compromising the design intent.
In conclusion, my goal, (as yours is I’m sure) is realising the client’s dream of an outstanding project in the most positive way, within their financial parameters. That goal is achievable by better understanding costs, engaging cost consultants early and pricing diligently.
As experienced fine builders, Hale understands the importance of protecting the client’s overall vision while making informed value recommendations. So, we urge you to consider these suggestions to avoid those late-stage financial surprises.