In commercial construction, the term “value engineering” is just a fancy way of saying “cost-cutting.”
But no matter what you call it, it might mean you’re losing a sale.
Architects, owners, and contractors are all looking for ways to lower their costs. If you’re not careful, you could get value engineered out of the project.
Let’s look at why that happens and three things you can do to keep the sale.
Why You’re Losing Sales to Value Engineering
As a building material company, you can invest a lot of time and effort into being specified by an architect. It could take months before you secure the specifications, and then you might still have to wait years before the actual order is placed.
You can lose the sale at any point during that time. But you’re most vulnerable to being value engineered out of the project when the initial estimates come back to the architect and owner. This first round of estimates is almost always significantly over budget, so everyone involved will start looking for ways to reduce costs.
The owner may decide to give up something they really wanted for the building, like a unique feature or decide to downsize the building.
The architect will start by thinking about which elements of the building are most important to them. These tend to be features that are more aesthetically interesting, rather than performance-based. In other words, they’re the features you see, not the ones you use.
In the architect’s opinion, these aesthetic products are the ones that make the building unique and something they can be proud of. They’ll want to hang on to them and will look for other products that can be replaced with lower-cost alternatives.
Of course, some of these lower-cost alternatives will increase the operating and maintenance costs of the building. But these increased costs probably won’t be noticed for a few years, so the architect can often get away with specifying the cheaper products.
The general and subcontractors care more about getting the project done on time and on budget than the aesthetic or performance features that are important to the owner.
Some contractors also have a big financial incentive to replace your product with a lower-cost alternative. They may be able to use the cheaper product but still charge the amount that was quoted based on your product. Then, they pocket the difference and add it to their profits.
They might also be encouraged to, and rewarded for, finding lower-cost alternatives. They may even have an arrangement with the owner to split the savings when they switch to cheaper products.
This is also a time when competitors who were not specified will work to take the sale away from you. Some companies specialize in this approach. They’ll let you put in all the investment to gain the original spec and then they’ll jump in to take it from you.
Trying to get specs while keeping your competitors from stealing them is like playing offense and defense and the same time. The problem is, most people aren’t good at both.
If you’re good at gaining specs, you’re probably not that great at defending them. And if you struggle with gaining specs (or your competitor is the standard spec), then you might have learned how to flip the sale during the value engineering phase.
How Not to Lose a Sale to Value Engineering
It seems like everyone involved in the construction project (and even the competitors waiting on the sidelines) is looking for ways to cut your product out.
With all this adversity, you can’t just get the spec and then sit around waiting for the clients to place the order. To keep the sale, you’ll need to be more proactive.
Here are three things you can do to survive the value engineering phase of the project.
1. Pay Attention
Getting the specification can feel like you’re walking toward home base. Many companies figure it’s a done deal, so they just concentrate on the next sale.
That’s a mistake. Until the products have been ordered and shipped, nothing’s a done deal.
You need to pay attention. Whether it’s the salesperson or some in-house sales support people, someone needs to keep monitoring the progress of the project or you’ll be at risk of losing it.
2. Don’t Make Yourself an Easy Target
There are a few places where architects and contractors will look to first when they’re trying to cut costs, places where they easily find savings with minimal pushback or resistance.
You don’t want your product to be the first thing they set their sights on. You want someone else’s product to be the easy target.
It’s like the story about the bear chasing down a group of guys. The ones who will make it out alive don’t have to be the fastest – they just can’t be the slowest.
If you keep finding yourself value engineered out of a project, start asking architects and contractors what the easiest places to save money are. Share that information with other architects and contractors to keep them focused on other types of products.
3. Show the Cost of Change
Architects and contractors don’t just look at the price of a product. They also consider several other important issues, like:
a. Will they get any resistance from the owner for changing to a different product?
b. If the architect recommends a change, will the contractor push back?
c. If the contractor and his subcontractors are used to a certain product, they’ll view any change as increasing both costs and risk.
d. If the lower-cost product is in any way harder to get, this will also be seen as an added cost.
e. If the subcontractors are not used to installing the product, there will be the added cost for training. There could also be added costs to correct installation errors.
f. If the contractor has not used a company before, they might worry about the potential added costs of dealing with them. They don’t know, for example, the company’s lead times, how reliable their ship dates are, whether they can get their questions answered and, most importantly, how easy it will be to get problems solved.
If you have the specification, all of these can work in your favor.
If you can stress the cost of change and remind contractors and architects that they’re taking on additional risks by switching to another product, you have a better chance of holding on to the sale – even if your competitor’s product has a lower price.
You Can’t Win Every Sale, But You Can Side with the Winners
Value engineering or cost-cutting isn’t going away. But not everyone uses the same strategy to keep expenses low.
Some contractors play it smart and choose to save money by reducing waste and inefficiency instead of just finding the product with the lowest cost.
But there will always be some who want only the lowest-cost product. They’re usually easy to identify, too. Just pay attention to the things they care about (if they sound cheap, they probably are cheap).
Stop wasting your time on these contractors. Focus on the ones who take a more sophisticated approach to value engineering. When the economy takes its next downturn, the low-cost contractors will be the first ones out of business. When that happens, you better hope you sided with the winners, not the losers.
Subscribe To My Newsletter
If you like what I say, sign up for my newsletter here and get my weekly newsletter every Sunday night.