How Value Engineering Flooring Can Reduce Commercial Construction Costs
Posted On September 13, 2016
It is estimated that only 20% of commercial building projects finish on time and within budget. This might seem like an unavoidable happening but if you consider the estimated $2 billion difference in project budget vs actual spend in 2016, it is a big deal. Can you hear those property owners seething? The many reasons for this problem including the following.
Lack of collaboration between the property owner, general contractor, engineers, design team and trade contractors during pre-construction.
Initial estimates are created internally by the property owner or the selected architect and neither party has any risks associated with estimate creation, unlike the general contractors bidding the work.
The project begins without the design being fully completed. This leads to expensive change orders and an upset owner.
Contractors who “overpromise and underdeliver.” Owners are understandably price sensitive and this often results in selecting the lowest bidder. Owners who understand that low bidders are usually low for a reason will save themselves a few sleepless nights. The old adage remains true, companies can’t be the best at product, service, and price.
Interim milestones are not created. This means the only substantial dates associated with the project are the commencement and completion date.
Both the general contractor and property owner wants the flow of money coming their way. This creates tension. The owner wants the budget hit and the GC wants to protect the profit margin when unexpected events occur. This sounds like everyday commerce between a buyer and seller but the stakes are very high in this transaction. It’s old fashioned human nature that inhibits the needed collaboration in which a commercial project thrives. This is precisely the thing that moves both parties further from their goals. The best projects must have There has to be trust and this is another reason that negotiated work is becoming more prevalent.
With the complexity of these projects there is a need for the highest level of communication including the following;
Aligned goals created at the beginning.
Status visibility for all parties.
Creativity to solve unforeseen problems.
Rewards for high achievers.
Communicating like this is extremely difficult for any group of people and when you consider the scale of some of these commercial building projects the challenge is daunting. The best opportunity to achieve communication with that exhibits these characteristics comes with the adoption of Lean Construction. The goal of Lean Construction is to increase the efficiency of construction processes while minimizing overall costs and maximizing value, all with a focus on the customer's needs.
This type of construction management calls for all parties (see number 1 above) to be involved from the early stages of the project. It is easy to conceptualize the advantages to having everyone involved from the beginning - Can you imagine a quarterback coming in during the 3rd quarter and not knowing the playbook well? However, the inherent challenges that accompany change and the level of scope for most of these projects keep the masses adhering to the status quo.
Ideally large commercial building projects should embrace communication like a well-run public company. However, these projects are often approached with self-serving agendas that compete against one another. Only the best-of-breed companies in each category have these communication capabilities. To do this well is an enormous challenge. If one considers that these large projects include 10,000+ people it is safe to assume that owners will continue to struggle to reach their desired budgets. One way that owners reach their goals is by employing value engineering.
What is Value Engineering?
Value engineering, as it relates to flooring, is a process where the specified products chosen by the architect or designer are examined to ensure that there is maximized value. This is done by exploring additional product options that may provide greater value. Value engineering can occur during pre-construction, but more commonly it is introduced to commercial projects because budgets are being exceeded, product specifications are lacking, the look desired by the owner isn’t being achieved or time frames aren’t being met. As the projects nears an end, solutions are presented to the property owner.
Flooring products are a great option for value engineering because they represent a significant portion of the total budget (5% on average) and installation occurs during the end of the project. When done well, value engineering offers property owners a great opportunity to find savings that may have wiggled loose during the project’s initial stages. These savings may come in the form of price or time to the job site. If done extraordinarily well, owners may get a more preferred product, on time, and for less. That's real value.
How Value Engineering Works
When the call to value engineer is made by the architect, the task to find new options is in the hands of the general contractor or the flooring contractor on the job. Often the goals around the value engineering process include the following:
Similar looking product
Availability relevant to the installation dates
Functionality similar to or better than the original spec
Price lower than original spec
These goals will work to reveal the value of the original product specification and give the owner visibility of options that may be a better fit based on their needs.
The process of achieving these goals and successfully value engineering flooring products can be cumbersome. Product suppliers have limited product offerings and are often disinterested in value engineering, as it gets in the way of their everyday work. Typical suppliers have a disincentive to perform value engineering services because they have a transactional business model that is not focused primarily on the trade professional market. Also, ready-to-ship inventory, in large amounts, is a major challenge in our current world. To be sure, this is not an easy thing to do - well.
The Value Engineering Process
Here are the major steps involved in value engineering a flooring product for a commercial building.
Suppliers Notified - The contractors involved in the project contacts suppliers letting them know that the project requires value engineering within their product category. This is usually the most frustrating part for the contractors attempting to “VE” a job. In the mind of the contractor, they are offering an opportunity to the supplier that involves large quantities - “This could be a huge sale!” says the contractor.
The supplier, however, has a very different perspective.. They make their decisions about their level of effort to provide options for the contractor based on the square footage of the job, the relationship with the contractor involved, their access to similar looking products, and timeframe for fulfillment. If those things are aligned, then effort will be given but if not the supplier sees this as futile work that often provides zero return - a chasing after the wind.
Suppliers come in many forms. They may be a distributor, retailer, manufacturer, or industry broker. The best suppliers for providing value engineering services for flooring products possess a combination of a few things. They have access to many products, a deep understanding of product design and specifications, have strong industry relationships, can manage a project over a long period of time, and prioritize providing a high level of customer service - simply put, they hustle. This hustle factor is very important when providing potential solutions. Remember, flooring is just part of a very large project and general contractors running the project are working tirelessly every day to do one thing, simplify the complex. So the faster a flooring supplier can provide options, the easier this task becomes to the general contractor.
Usually it is the general contractor who notifies the commercial flooring contractor for value engineering needs. It is critical that the commercial flooring contractor understands the precise needs of the value engineering project. Generic descriptions of why something is being value engineered isn’t going to help any party involved in this process. Descriptions such as “the material needs to be delivered quickly” or “the original price is too high” will not be helpful. This is where good communication must be practiced. It is the responsibility of the general contractor and commercial flooring contractor to make sure that directions around value engineering are crystal clear. The flooring contractor or supplier should have concrete details such as “the owner wants to pay $2.25 per sf and have it on the job site in 30 days” and if there aren’t details like this, there is little hope in finding the proper solution in a timely manner. Clear expectations out of the gate is the most effective way to ensure the value engineering process is given the best opportunity to succeed.
Search Begins - When direction is given to the commercial flooring contractor or flooring supplier, the task to find an acceptable alternate begins by understanding the original product chosen.
What is the look?
What are the product specifications that must match?
Is there anything unique about the original product that will limit the ability to find a suitable option?
These questions must be asked by those searching for product options. Once the original product and application details are understood, the task at hand is for the commercial flooring contractor or flooring supplier to search through a portfolio of products.
It is also important to be aware of minimum required specifications. For example, the PEI may not be as important to the architect as the MOHS rating or how much of a factor LEED credits are to the job. This type of communication gives everyone involved visibility, allows the owner and/or architect to make better decisions, and may open up more product options for an experienced supplier.
It is the responsibility of the commercial flooring contractor to notify the general contractor immediately with the challenges and present potential solutions. For example, the commercial flooring contractor may communicate “the original material is made in a 16x24 size and most products come in a 12x24 size, is that okay?” The challenge that most folks run into with this step is limitations in product options.
Samples Submission & Architectural Approval - Product options come in the form of samples and these samples, along with specification sheets that provide product details, need to get in the hands of the architect. The final call for approval of a value engineered flooring option will come from the architect. These folks have already gone through the due diligence of selecting a product and it’s very important to know what is on the line for them. They chose the original product because it may possess a look that gives them an individual attachment to the designed space and because they feel confident in the ability of the product to perform well. Both of those things have now been taken away.
The process of value engineering is something an architect can stomach as long as those two criteria can be met, a second time. They don’t want to reinvest time they have already spent going through an internal product library. They want options put in front of them. And the best architects won’t approve a value engineered option, even if the owner is pressing for project savings, unless they feel 100% confident in the new product. Architects have a lot on the line with a commercial building project and making it easy for them is a crucial part of the value engineering process.
Order Fulfillment - Finally, the approved product needs to get delivered to the job site. This task probably seems relatively easy but often presents a variety of challenges. First, most value engineering scenarios involve large volumes of material and the suppliers are relying on the factories to have inventory in large volume. However, the flooring industry, like other industries, is seeing the demand for greater variety in product offerings. This is beneficial for the consumer, but it puts a strain on factories that must adjust quickly to these demands. Most factories don’t keep large volumes of individual SKUs. Instead, they keep smaller amounts of a variety of SKUs and utilize predictive analytics to provide insight into future production needs.
Here's the kicker: Predictive analytics do not predict a large commercial project when value engineering is involved. This means that in order for a job to be fulfilled on time, the flooring supplier must protect inventory and communicate regularly with the general contractor to know when the material should be released for delivery. The last thing the general contractor wants to hear when the project is behind schedule and over budget is that their cost-effective-value-engineered product is in a container on a boat from Italy and will take 8 weeks to arrive.
The second challenge to fulfillment is that general contractors often wait too late to purchase materials. The general contractor is responsible for all aspects of construction and to be fair to them, they aren’t asking their superintendents everyday if the project is ready for flooring installation. It is the responsibility of the commercial flooring contractor to continuously analyze the project status while understanding the time for flooring product delivery to the job site.
The commercial flooring contractor is doing their job if these two aspects are communicated proactively to the general contractor on a regular basis, especially as the project closes in on flooring installation.
In an ideal world, all of these factors are anticipated and planned for during the pre-construction phase. But the reality is that we don’t live in an ideal world and project management inevitably involves challenges in the supply chain that impact both time and budget. With a proactive approach (and the right partner!), value engineering can provide solutions to financial, logistical and time frame issues. When effectively applied, these solutions can result in “win-win” relationships with all parties involved in the project.
Want To Learn More About Value Engineering?
South Cypress specializes in value engineering solutions. We know your time is limited and it is our goal to have VE options for you in 24 hours. Want to see how we have helped other companies? Check out our Value Engineering page to learn more about how we have helped other companies and how we can help you on your next project.