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1/814 Cost Engineering Vol. 50/No. 2 FEBRUARY 2008

It has become evident from recent

news articles that inflationarypressures and increased construction

activity are causing many building projectsto come in well over owner's budgets[2,3,4]. This trend has increaseddramatically over the past few years, asmuch of the construction industry hasbeen impacted by an unprecedentedincrease in the cost of construction.

The historical rate of increase inconstruction cost has been under fivepercent per year, as reported by theEngineering News Record [1]. Over thelast few years, the industry has seen asignificant increase from historicalescalation rates, up to 10-15 percent peryear in many regions of the US.

These increases have been caused by avariety of factors, including the following.

Shortage of steel resulting from rapidgrowth in China.

Demand for materials in the USresulting from increased hurricanedamage.

Rising oil prices leading to higher

manufacturing and transportationcost. and,

Rising labor cost because of increasedconstruction activity [2,3,4,5].

To be successful in having over budgetprojects awarded, the building contractorhas had to take a proactive role in workingwith owners and design teams to reduceproject cost to amounts that owners areable to award.

This cost reduction is normallyaccomplished through the followingmethods.

value engineering; scope reduction; and deferral of scope items until a later

date.

Value EngineeringValue engineering (VE) has been

defined as a systematic method to improvethe value of goods and services by using anexamination of function. Value, as defined,

is the ratio of function to cost. Value cantherefore be increased by either improvingthe function or reducing the cost.

It is a primary tenet of valueengineering that quality not be reduced asa consequence of pursuing valueimprovements [1]. VE is a processoriginating at General Electric Company(GE) during World War II. Because of

shortages of skilled labor, raw materials,and component parts, engineers at GElooked for acceptable alternates and oftenfound substitutions that resulted inreduced costs and/or productimprovement.

GE developed a systematic processthat they called value analysis. Over theyears the name gradually changed to VE.The basic steps of VE include thefollowing.

Information gathering: project

requirements defined, functionanalysis.

Alternates: various ways of meeting therequirements and functions.

Evaluation: assessment of alternates onhow well they meet requirements andcosts savings. And,

Presentation: selection of besalternatives to be presented to clientfor decisions.

True VE evaluates life cycle costs such

as initial cost, maintenance cost,operational cost, life span, time value ofmoney, replacement cost, and frequency ofreplacement.

VE can be undertaken at any stage ofthe building design process; however, it ismost effective in the early stages, since it isless costly to make changes to preliminarydocuments [6].

Scope ReductionScope reduction involves identifying

areas of the project scope of work that can

be reduced in quality, quantity, or both in amanner that is acceptable to the owner.

Scope reduction items of work oftenconsist of material or equipmentsubstitutions that lower the cost of theproject, but may not be an equal substitute

An example of quantity scope reductionwould be to reduce the guttering system ona pitched roof from the entire roofperimeter to entrances only. A qualityscope reduction example would be to

CERTIFICATION PAPER

The Contractors Role in BuildingCost Reduction After Design(Bringing a Project Into Budget)

ABSTRACT: Having a building project fully designed, let out for bids, and then discovering thelow bid is over budget, can be an extremely discouraging experience for an owner. It can also becostly for a building contractor to spend the time and effort required to submit a bid and nothave the project awarded because of over budget issues. Many projects have been successfullybrought into budget through negotiations between owners and building contractors after design.The intent of this article is to stimulate contractors, owners, and design teams to work togetherto find acceptable cost saving solutions and alternatives to bring projects into budget.

This paper examines some of the avenues building contractors can use to reduce projectcost. The use of value engineering, scope reduction, and scope deferral are methods that arediscussed. The importance of the building contractor establishing arelationship with owners and design teams based on trust and openness is also discussed.Emphasis is placed on examining the various components and systems within a building projectthrough the work breakdown structure (WBS). Three different types of building projects thatwere successfully brought into budget through this process are also illustrated.

With the continued growth in construction activity and inflationary pressures in mostregions of the country, the incidence of building projects coming in over budget is not expectedto cease. Owners are not limited to abandoning their projects or costly redesigns. In many cases,project cost can be lowered through careful analysis of building components and systems by thebuilding contractor working with the designteam. The increased value that could be gained if this cost review process was performed in theearly stages of the design is recommended for future research.

KEYWORDS: Bids, budget, contractors, cost, design, project, scope, and value engineering

Todd W. Waddle, CCC

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2/8Cost Engineering Vol. 50/No. 2 FEBRUARY 2008

provide vinyl composition floor tiles (VCT)in lieu of ceramic floor tiles.

Scope DeferralScope deferral involves identifying

areas of the project that can be delayed forfuture completion. This also includesconsidering what specific buildingelements that would need to be installed

during the initial construction to facilitatefuture completion. An example of thiswould be installing structural framing forfuture installation of retractable partitions.

Standard ProcessAfter a project has been determined to

be out of budget because of high bids, theproject is normally either cancelled, re-designed and re-bid, or negotiations areheld with the low bidder to reach anacceptable contract amount.

For the building contractor that is

selected for negotiations, this is anopportunity to move toward project awardand to also build a relationship of trust andopenness with the owner and design teamthat could lead to future projects.

First, the building contractor shouldmeet with the owner and design team tofully understand the owners projectrequirements, priorities, life cycleconsiderations, and budget.

Next, the building contractor's role isto use his estimating and construction

expertise to analyze various componentsand systems within the project for alternatesolutions. The contractor should also bringin key subcontractors and suppliers whoare often able to identify alternate materialsand/or systems within their specialties.Each division of work should be examinedand evaluated for VE solutions, scopereduction, and scope deferral. In past years,this process and service was considered partof the building contractors overhead.However, in today's market, somecontractors will negotiate rates and be

reimbursed for the time and effort that theyspend in this process in the event that theproject is not awarded to them. Theseservices are often called pre-constructionservices.

The work breakdown structure (WBS)can be a helpful tool to the buildingcontractor in analyzing the variouscomponents and systems within a buildingproject.

The Tri-Service automated costengineering system WBS is a tree-type

structure of functional systems used toclassify the project on a level-by-level basis[7]. This breakdown structure facilitatesthe evaluation of each system of theproject; from the building foundations tothe completed sitework. The engineeringsystem WBS was chosen over theConstruction Specification Institute (CSI)

WBS since it facilitates the evaluation of

each building system rather than theindividual component breakdown used inthe CSI format.

Questions to Ask and/or Areas toConsider by WBS

This section provides a list of areas forthe building contractor to examine and/orquestions to ask in the WBS system levelformat for cost saving alternatives. Some ofthese changes can be accomplishedwithout major re-design cost andincorporated into the construction

documents in the form of an addendum.Other changes listed would requireextensive re-design and time delays thatwould need to be priced by the designteam.

SUBSTRUCTURE

Have alternate types of foundationsystem been considered? wood piles in lieu of precast; drilled caissons vs. piles; and,

mat foundations in place of piles orcaissons.

Evaluate sand base in place of gravel orstone under slab on grade.

SUPERSTRUCTURE

Have alternate types of buildingstructures been evaluated? structural steel, precast concrete, cast

in place concrete, reinforced masonry,light gauge steel framing or wood

framing systems.

Compare Alternate Stair Systems. steel pan stairs vs. precast concrete or

cast in place concrete.

EXTERIOR CLOSURE

Evaluate exterior wall systems. Light gauge metal framing in lieu of

reinforced concrete masonry units. Can wall widths or gauges be reduced?

Compare sheathing systems. Fiber sheathings in place of cement

boards.

Review alternate wall insulationsystems. Batt insulations, rigid insulation

materials, loose fill block insulation.

Consider alternate exterior wallveneers. Conventional stucco versus exterior

insulation finish system. Brick or precast in lieu of stone. EIFS or poly copings and trims in lieu

of stone.

Evaluate alternate glazing systems. Can exterior glazed areas be reduced? Storefronts in lieu of curtainwalls if

code allows.

Painted aluminum in lieu of stainlesssteel or brass framing.

Is the glass color specified a premiumcolor?

Review exterior entrances. Manual entrance doors in place of

automatic entrances. Automatic entrances in lieu of

revolving doors. Cedar entrance doors rather than

mahogany.

Examine exterior railing systems. aluminum or cable systems in lieu of

glass; standard designs in place of custom

elements; and anodized finish vs. kynar or powder

coat.

ROOFING

Evaluate the specified roofing withalternative materials.

Poured roof insulation vs. cellularinsulation or polyisocyanurate rigidinsulation.

Combined metal decking/insulationsystems in lieu of separate systems.

Interior batt insulation in place of rigidroof insulation.

Built-up roofing vs. single plymembranes.

Fiberglass or concrete tiles in lieu ofclay tiles.

Painted metals in place of copper.

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Can the specified gauge of metalroofing be lowered?

Eliminate or reduce the gutteringsystem?

Can skylights be reduced or styleschanged?

Are standard warranties specified?

INTERIOR CONSTRUCTION

Examine interior wall systems. Can light gauge metal-framed walls be

used in lieu of concrete masonry units? Can wall thicknesses or gauges be

reduced? Are drywall systems being used in lieu

of plaster?Examine interior doors and hardware.

Are the specified doors standard sizesor custom?

Have alternate wood door species beenconsidered?

Have alternate hardware styles ormanufacturers been compared?

Can manual doors be used in lieu ofautomatic?

Are the doors pre-machined forhardware installation?

Compare pre-finishing doors withfinishing on-site.

Review interior specialties. Have alternate types of toilet partitions

been considered? Prefinished metals vs. plastic

laminates. Plastic laminates or solid plastics vs.

woods or stone. Can vinyl corner guards be used rather

than metal? Is standard signage specified or

custom? Metal lockers vs. wood. Have special partitions been

evaluated? Plastic veneers in lieu of wood. Can the sound rating be reduced?

Defer installation? (Install structuralsupports and track for futureinstallation of the partitions).

Has the access flooring system beenevaluated?

Standard floor finishes rather thancustom?

Review finish carpentry and millwork. Consider alternate cabinet

manufacturers and finishes.

Particle board in lieu of plywoodframes.

Maple vs. cherry or mahogany. Manufactured solid surfaces vs. stone. Standard cabinet hardware in lieu of

custom. Consider alternate trim products and

profiles. Pine, fir or plastics vs.premium woods.

INTERIOR FINISHES

Evaluate interior wall finishes. Painted wall finishes in lieu of

wallcovering. Epoxy coatings in place of tile finishes. FRP instead of stainless steel. Are textured drywall systems being

used rather than plaster?

Examine interior floor finishes. Resilient flooring vs. ceramic or wood.

Ceramic flooring in lieu of stone. Tile or stone in place of terrazzo. Thin set method of installation vs.

mud set. Alternate carpet manufacturers. Direct glue-down in lieu of carpet

pads. Rubber or wood base vs. ceramic or

stone base.

Review alternate ceiling finishes. Acoustical ceiling systems vs. drywall. Alternate acoustical ceiling grid

systems. Standard ceiling tiles vs. custom. Fiber ceiling tiles vs. metal. Textured drywall systems rather than

plaster.

CONVEYING SYSTEMS

Review specified elevators andescalators. Have alternate manufacturers been

considered?

Are standard interior elevator cabfinishes specified or custom?

Can standard finishes be used on thedoors/control/lanterns?

Can glass walls be eliminated? Are standard warranties specified?

PLUMBING

Review specified plumbing fixturesand equipment.

Have alternate manufacturers beenconsidered?

Are standard fixtures and equipmentspecified or custom?

Can cold-water pipe insulation bedeleted except where exposed toweather?

Can PVC piping be used in lieu ofcopper or cast iron?

Compare instant vs. circulated hotwater systems.

HVAC

Direct expansion (DX) split-system'svs. chilled water systems.

Air-cooled packaged units vs. watersource heat pumps.

Can increasing the size of equipmentreduce the quantity of equipment?

Local control systems vs. direct digitalcontrols.

Can duct board be used rather thansheet metal duct?

Are standard warranties specified?

FIRE PROTECTION SYSTEMS

Wet systems vs. dry systems. Has plastic pipe been compared to

steel? Can semi-recessed sprinkler heads be

used rather than concealed? Verify fire pump horsepower is not

oversized.

ELECTRIC POWER AND LIGHTING

Review alternate light fixture packages Are the electrical trim and devices

custom or standard? Can metal clad (MC) cable be used in

lieu of conduit and wire whereallowed by code?

Can polyvinyl chloride (PVC) bespecified rather than rigid steel orelectrical metallic tubing where

allowed by code? PVC floor boxes vs. formed stee

boxes. Can air condition pull-out disconnec

switches at air handler unitcompressors, air handler units, andwater heaters be used rather thanheavy duty disconnect switches?.

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ELECTRIC SYSTEMS

Review alternate electrical systemmanufacturers and products. Fire alarm, nurse call, telephone,

sound, clock, television, security,dimmer and other communicationsystems.

Can reducing areas of the building for

emergency power downsize thecapacity of the emergency generator?

Compare cost of diesel engine drivengenerator set vs. natural gas drivenengine generator sets.

EQUIPMENT

Review project equipment for alternatemanufacturers and products. Are standard warranties specified?

FURNISHINGS

Examine specified project furnishingsfor alternate manufacturers andproducts.

SPECIAL CONSTRUCTION

Evaluate swimming pools or other

special construction items formanufacturer and design alternatives.

SELECTIVEBUILDING DEMOLITION

Can existing systems be used ratherthan replaced?

Can areas of hazardous materialremoval be avoided?

SITE PREPARATION

Has a site work analysis beenperformed to balance cuts and fills?

SITE IMPROVEMENTS

Can paved areas be reduced or moreeconomical paving materials used?

Can parking bumpers be used in lieuof curbs and gutters?

Has resurfacing existing parking areasbeen considered rather than newparking construction?

Have alternate types of retaining orenclosure walls been considered?

Have landscaping alternatives orsubstitutions been considered?

Seeding in place of sodding. Reduce or change tree and plan

materials. Use existing trees and other existing

landscaping.

SITECIVIL/MECHANICAL UTILITIES

Have alternate utility piping materialsbeen evaluated?

Table 1 Bank Cost Reduction Example

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Table 2 Bank Cost Reduction Summary

Table 3 Restaurants and Retail Tenant Finish Cost Reduction Example

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Can existing site utilities beabandoned rather than removed?

SITE ELECTRICAL UTILITIES

Have alternate exterior lightingpackages been compared?

Have alternate utility piping materialsbeen evaluated?

CONTRACTOROVERHEAD AND PROFIT

Can phasing be reduced to shorten theproject duration?

Can the start of the project be timed toavoid cost impact of winter conditions?

For high-rise projects; have crane andhoisting options been compared?

Can the contractor's performance andpayment bond be waived if the majorsubcontractors are bonded?

Can the Owner include the BuildersRisk policy?.

Table 4 Restaurant and Retail Cost Reduction Summary

Table 5 Condominium Cost Reduction Example

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EXAMPLE PROJECTS

Bank BuildingThe first example is a 30,000 square

foot bank project that was constructed inthe Florida panhandle in 2001. Theproject consisted of a four-story cast in-place concrete structure; stucco veneer

over light gauge framing and sheathing;clay tile roof shingles; high-end interiorfinishes; and exterior paving. The owneroriginally put the project out to bid and allof the bids came in over budget. The lowbidder was selected for negotiations andasked to work with the design team topresent a list of VE options and other costsaving changes. Table 1 breaks out theitems of cost reduction by WBS that wereaccepted by the owner.

Table 1 shows a total cost reduction of$244,958 or approximately six percent ofthe base bid amount. The costs savingswere achieved through changes in the roofframing, exterior doors and windows,roofing materials, interior doors,specialties, interior finishes, fire protection,mechanical system, paving material andsite lighting package. The percentage ofthe total savings by WBS are broken downin table 2.

Alternate mechanical systemsaccounted for the highest percentage ofthe total savings followed by changes in

interior finishes, exterior closure androofing. These changes were incorporatedinto an addendum and the buildingcontractor was awarded the project.

Based on the relationship thatdeveloped between the building contractorand the owner during the cost reductionprocess and throughout the project, theowner chose to negotiate his next new bankbuilding with this contractor.

Restaurants and Retail Tenant FinishThe second example is 12,350 square

foot of restaurants and retail tenant finishspace that was constructed in the Floridapanhandle in 2003. The projects consistedof interior construction, finishes, andmechanical, electrical and plumbing(MEP) systems in buildings that already

had completed shells. The bids received bythe owners were over budget and rejected.The low bidder was selected fornegotiations and asked to assimilate a list of

VE and other cost saving changes. Table 3breaks out the items of cost reduction byWBS that were accepted by the owners.

As can be seen in table 3, the ownerswere able to reduce the projectconstruction cost by $178,044 orapproximately 14 percent of the base bidamount. The costs savings were achievedthrough changes in the interior doors, trimmaterials, countertop materials, specialties,flooring finishes, wall finishes, ceilingfinishes, mechanical systems, lightingpackages, and general condition savings.The percentage of the total savings byWBS are broken down in table 4.

Alternate mechanical systems andductwork accounted for the highestpercentage of the total savings followed bychanges in interior finishes. These changeswere accepted by the owners, incorporatedinto addendums and the projects awarded

to the building contractor.

Condominium ProjectThe third example is an 80,600 square

foot condominium project that wasconstructed in the Florida panhandle in2004. The project consisted of an 11-storycast-in-place concrete structure; stuccoveneer over light gauge framing andsheathing; standing seam roof, high-endinterior finishes, parking deck andswimming pool. Bids were solicited and

came in over the owner's budget. The lowbidder was selected for negotiations andasked to work with the design team toassimilate a list of VE and other cost savingchanges. Table 5 breaks out the items ofcost reduction by WBS that were acceptedby the owner.

As indicated in table 5, the owner was

able to save $790,184 or approximatelyeight percent of the base bid amount.Considerable savings were achieved inmodifying the stucco specificationsincluding an integral paint finish;changing cabinet manufacturers and styles;changing tile sub-contractors; andincorporating "unseen" electrical changes.The percentages of the total savings byWBS are broken down in table 6.

Alternate interior construction systemsaccounted for the highest percentage ofthe total savings followed by costreductions in electrical, exterior closureand interior finishes. These modificationswere incorporated into an addendum andthe building contractor was awarded theproject.

With the increasing globaldemand for building materialsand continued growth in

construction activity in most regions of thecountry, the occurrence of buildingprojects coming in over budget is not

expected to decline. However, owners arenot limited to abandoning their projects orresigned to costly redesigns and re-bidding.Building contractors working with designteams have avenues to bring a considerableportion of these projects into budget and toaward without major redesign costs andtime delays.

As shown in the above examples,breaking down and analyzing thecomponents of a building project throughthe work breakdown structure can aid in

Table 6 Condominium Cost Reduction Summary

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reduction summaries also reveal that theMEP systems typically offer the greatestopportunity for cost savings due to theirtotal significance to a project.

The MEP systems normally make upbetween 30 to 50 percent of a buildingproject's cost.

The owners of the illustrated projectsaccepted cost reducing changes ranging

from 6 to 14 percent of the original lowbids. These reductions allowed them tomeet their particular budgets and havetheir projects constructed by incorporatingthe changes into addendums. Someprojects may be so far over budget thatsubstantial structural and/or buildingredesigns are unavoidable. However, asdemonstrated in the above examples,building contractors can play a major rolein bringing projects into budgetusingtheir past experience along with theirsubcontractor and supplier networks to

develop cost reduction alternatives thatmay not have been previously consideredby owners and/or design teams.

REFERENCES1. ENR Annual Average Cost Index,

1/1/1981 - 1/1/20062. Hayden, Susan, Director of Public

Affairs Community Colleges FacingIncreasing Construction Costs, FewerBids. (http://www.so.cc.va.us/aboutvccs/news_releases/bids.html)

3. Kucher, Karen. Bids are BustingBudgets. The San Diego UnionTribune, 2/21/2005

4. Langdon, Davis. Construction IndustryMarket Report, Mid Year 2006.

5. Squire, Simon. Get a Handle onEscalating Costs, (June 23, 2006)(http://djc.com/news/co/11176940.html)

6. Value Engineering - Wikipedia, thefree encyclopediahttp://en.wikipedia.org/wiki/

Value_engineering)

7. Work Breakdown Structure - Tri-ServiceAutomated. Cost Engineering System,1992.

ACKNOWLEDGMENTS Delta Construction Management Dave Andrews, L-3 Communication,

Titan Corporation

ABOUT THE AUTHORTodd W. Waddle, CCC, is a senior

cost estimator with L-3 Communication /Titan of Niceville, Fla. He received hisCertified Cost Consultant certification in2007. He can be contacted by sending e-mail to [email protected].

Girls Are Ready for Engineeringif Engineers are Ready to Share

Faced with a profound lack of women engineers, the National EngineersWeek Foundation is calling upon its professional community to discard the mythsof whats holding girls back and focus instead on fighting the problem duringIntroduce a Girl to Engineering Day, slated for Thursday, Feb. 21, part ofEngineers Week 2008, February 17-23. On Feb. 21, and in programs throughout

the year, women engineers and their male counterparts will reach as many as onemillion girls with workshops, tours, on-line discussions, and a host of hands-onactivities that showcase engineering as an important career option for everyone.The Engineers Week coalition comprises more than 75 engineering, profession-al, and technical societies and more than 50 corporations and government agen-cies. Co-chairs of Engineers Week 2008 are the Chinese Institute of Engineers-USA (CIE-USA) and IBM.

Survey Results Listed Online

AACE International Members maywant to check out the wealth of infor-mation that is available at the AACEInternational website at www.aacei.org.Currently listed are results from a 2007

Annual Meeting Survey Summary and

results from a Women in ProjectControls Task Force Survey Results.

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