Value destruction or value for money

Tim Cummins, Chair of the International Association for Commercial & Contract Management (IACCM), notes that the strong connections between methods deployed in engineering and those in contracting highlight ‘value for money’ questions.

The ideas behind value engineering are not new. In fact, they go back to the 1940s, when the construction industry in particular was seeking new and more scientific ways to guide its purchasing decisions. It would not be unreasonable to assume that the methodology and its use would have matured by now. But you would be wrong; it has actually gone backwards.

In its latest edition, Architectural Products (a US industry publication) states the following:

“Today, value engineering in construction has fallen far from its origins, with products being chosen and changed out simply because they are cheaper, many times sacrificing performance and longevity. This new process is no longer about creating actual value. Acknowledging that budget is always a concern, there must still be a better way.”

Is modern procurement practise ‘dumbing down’ decisions?

One conclusion clearly could be that the procurement practises of recent years (driven by an obsession with short-term financial results) are at fault. ‘Value’ has often been overtaken by ‘price’. Measurements are based on input costs, not outputs or outcomes over time.

It is clear that there is some validity to this view. In spite of (or arguably in some cases because of) the massive investments in technology, corporations seem to lack the ability and incentives to operate on objective judgments of value. And, as incidents such as the Grenfell fire and the Morandi bridge collapse illustrate, that can prove extremely costly in terms of lives, reputation and money.

But is it that simple?

The article specifically calls out decisions made on the basis that an item or resource is cheaper. Certainly there are many occasions where such decisions are wrong. But we must also remember that, since the 1940s, the social ethos has changed.

We live in a world where everyone wants perfect, everyone wants new, everything is disposable. So why buy things that last 20 years when the building may undergo fundamental alterations or change of purpose every 5 or 10 years? Seen in that light, it could be argued that ‘value’ and a short lifespan are synonymous.

A great comeback?

Today, at least in principle, we are seeing a massive shift in those social values. The concepts behind sustainability demand a rethink of the measurements and behaviours that underlie the disposable culture. So will value engineering experience a rebirth?

I like to think the answer is yes - and indeed it lies at the heart of work IACCM has been undertaking to redefine principles for contract governance and performance management. Those principles draw on another concept from the world of engineering - that is, uncertainty analysis.

As part of its research, IACCM has recognised the need to build strong connections between the methods deployed in engineering and those in contracting. Together, they can provide users (whether in Procurement, Project or Contract Management) with powerful tools to better segment their commercial decisions and supply relationships. The result, we believe, will be delivery of true value, both to business and to society.

This article was originally published as two separate articles in the Commitment Matters blog, 19 September 2019 – https:// blog.iaccm.com/commitment-matters-timcummins-blog.