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Architects and engineers are under pressure to ensure that construction project budgets stretch further than ever before. But substituting less-expensive materials and methods can come with risk.
Published on May 18, 2023
By Gina Santostefano, Senior Claims Specialist
Value engineering—the process of analyzing a project’s features, systems, and equipment to find alternative and lower-priced solutions—is a significant and growing risk factor for design professionals involved in construction projects, and one that needs to be actively managed.
Over the past three years, labor and material shortages affecting the construction industry, coupled with inflation, have caused the price of construction project inputs to increase dramatically. As a result, construction project budgets have often been exhausted at a much quicker rate. Design professionals, such as architects and engineers, are under significant pressure from project owners and developers to ensure that construction project budgets stretch further than ever before. This leads to increased pressure to implement value engineering.
Value engineering promotes substituting less-expensive alternatives for materials and methods, ideally to reduce costs without sacrificing quality and function. When the value engineering process is successful, the entire project team benefits, including owners, contractors, and design professionals. However, value engineering is not easy to execute, as it is difficult to reduce project costs without sacrificing the integrity of the project. As a result, value engineering comes with risks. In fact, a recent survey of over 10,000 construction industry professionals revealed that one of the biggest risks to construction projects is uncontrolled value engineering.1
“Claims are often asserted against design professionals who play no role in the specification or review of the value-engineered substitutions.”
Design professionals often recommend, specify, and review the proposed value-engineered substitutions. In these scenarios, it is not unexpected that claims arising out of value-engineered substitutions might be brought against design professionals. What does come as a surprise is that claims are often asserted against design professionals who play no role in the specification or review of the value-engineered substitutions—sometimes for merely failing to have objected to these proposed substitutions.
The following hypothetical illustrates the point. An owner retained an architect to design and prepare the plans and specifications used to place bids on a building project. All the contractor bids on the project exceeded the funds appropriated by the owner and as a result, the owner retained a construction firm to value-engineer the project. The construction firm recommended a cheaper exterior fire-protective and water-repellent coating than was specified by the architect. The owner implemented the cheaper coating into the architect’s plans and specifications without requesting that the architect review or comment on the proposed substitution. However, the architect was aware of the substitution.
Several months after the project was completed, the owner noticed the coating was chalking, bubbling and peeling. The owner subsequently determined that the coating had failed and needed to be removed and replaced, at a cost of $2 million. The owner alleged that the architect was negligent, in part, for failing to object to the changes recommended by the construction firm. Thus, the owner asserted a claim against the architect for an issue resulting from value engineering, even though the architect did not review, recommend, or incorporate the substitution into its plans or specifications.
“Design professionals can help protect themselves from these types of claims by limiting their liability through contract language.”
This hypothetical illustrates how design professionals can become the target of value engineering-related claims, no matter how big or small a role they play in the decision to implement a value-engineered substitution. The expected increase in the use of value-engineered substitutions, driven by price increases in construction project inputs, may undoubtedly translate into a broader increase in claims against design professionals.
Design professionals can help protect themselves from these types of claims by limiting their liability through contract language. Specifically, design professionals may want to consider including language in the design contract that limits their liability for claims by their clients that arise out of value-engineered substitutions, if the design professional was not afforded an opportunity to 1) review and comment on the proposed substitutions, or 2) expressly object to the proposed substitutions in writing prior to implementation. This type of limitation of liability, while not a guarantee, should help design professionals better navigate the future landscape of claims related to value engineering.
1“Uncontrolled value engineering ‘one of biggest risks’ to built environment,” Construction Management, July 13, 2021, constructionmanagement.co.uk/uncontrolled-value-engineering-one-of-biggest-risks-to-built-environment/. Accessed May 9, 2023.