Table Of ContentValue management incentive programme
Value management
incentive programme
Nigel A. Standing
PublishedbyThomasTelfordPublishing,ThomasTelfordLtd,1HeronQuay,London
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First published 2001
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ISBN: 0 7277 30304
# Nigel A. Standing and Thomas Telford Limited 2001
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Produced by Gray Publishing, Tunbridge Wells, Kent
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Contents
List of tables and figures ix
Acknowledgements xi
Abbreviations and definitions xiii
1. Introduction 1
2. The project value chain 2
2.1 Introduction 2
2.2 Basis of the project value chain 2
2.3 The project value system 2
2.4 The project value chain (strategic phase) 3
2.5 The client value system (strategic) 5
2.6 The decision to construct 9
2.7 The multi-value system (tactical phase) 9
2.8 The characteristics of the client organization 14
2.9 Designer characteristics 17
2.10 The project value chain and the value incentive clause 17
2.11 Summary 20
3. Procurement and contractor-led value engineering 21
3.1 Introduction 21
3.2 Value engineering by the contractor within traditional
procurement 22
3.3 Value engineering by the contractor within design and
construct procurement 24
3.4 Value engineering by the contractor within management
contracting 26
3.5 Value engineering by the contractor within construction
management 26
3.6 Value engineering by the contractor within PFI 27
3.7 Value engineering by the contractor within partnering 28
3.8 Other procurement forms 29
3.9 Procurement and the project value chain 34
3.10 Summary 38
4. Contractor involvement in value engineering 39
4.1 Introduction 39
4.2 The current industry position 39
v
Contents
4.3 Contractor’s involvement in client’s value
management/engineering workshops 41
4.4 Contractor pre-contract performance in client’s value
management/engineering workshops 41
4.5 Client value management/engineering workshops
(change circumstances) 42
4.6 The promotion of contractor-led value engineering 43
4.7 Contractor-led value engineering – the current situation 43
4.8 The client’s right 44
4.9 Contractor-led value engineering at the
pre-contract stage 44
4.10 Barriers to contractor-led value engineering – the client 45
4.11 Barriers to contractor-led value engineering – the
consultant/designer 46
4.12 Barriers to contractor-led value engineering – access to
information 46
4.13 Contractor-led value engineering workshop 47
4.14 Summary 49
5. Existing value incentive programmes 51
5.1 Introduction 51
5.2 The development of value engineering change
proposals in the USA 51
5.3 US government value engineering requirement 52
5.4 The use of value engineering incentive clauses in the USA 52
5.5 USA methodology for value engineering incentive clauses 53
5.6 Federal Acquisition Regulations (FARs) 54
5.7 Statement of work 55
5.8 Submitting the value engineering change proposal 56
5.9 Other contract considerations of a value engineering
change proposal 57
5.10 Evaluation of value engineering change proposal 57
5.11 Summary of the US value engineering incentive
programme 58
5.12 The Australian value management incentive
programme (VMIP) 59
5.13 Value management change proposal 60
5.14 The preparation of a value management change proposal 61
5.15 Submission of the value management change proposal 62
5.16 The rejection of the value management change proposal 62
5.17 Intellectual rights 63
5.18 Summary of the Australian value management incentive
programme 63
6. Value management and value engineering incentive clauses 64
6.1 Introduction 64
6.2 The change in risk for the contractor 65
6.3 The use of intellectual capital 66
6.4 Value management incentive programme 67
6.5 The requirements of a value management
incentive clause 69
6.6 The types of value incentive clause 69
6.7 Value incentive clause at post-contract 70
vi
Contents
6.8 Management and co-ordination of VECPs in
a reactive clause 76
6.9 Value incentive clause at pre-contract 79
6.10 Incentive sharing of value engineering proposals
(contractor’s view) 80
6.11 The cost saving evaluation of a value engineering proposal 82
6.12 Design liability for the value engineering proposals 83
6.13 Client benefits of a value incentive programme 83
6.14 The contractor benefits of a value incentive programme 85
6.15 Management and co-ordination of VECPs 86
6.16 Roles and responsibilities in the management
and co-ordination of a VECP 87
6.17 Value opportunities register 90
6.18 The submission of the value engineering report 92
6.19 Summary 93
7. Contractor’s value engineering policy 94
7.1 Introduction 94
7.2 Contractor’s policy on value management/value
engineering 94
7.3 Value engineering policy within contracting organizations 95
7.4 Value engineering policy – management style 96
7.5 Value engineering policy – the effectiveness of a
contractor’s organization 96
7.6 Value engineering policy – organizational planning 98
7.7 Summary 99
References 100
Appendix 101
USA DoD Form A1 Value engineering change proposal action and processing 102
USA DoD Form A2 Value engineering change proposal form 103
Value engineering incentive clause (contractor–client) (Based on USA
Department of Defense Contracts) 111
Form 3 Value opportunities register 113
Form 4 Value opportunity notice 114
Form 5 Value engineering proposal idea development 115
VMIP within modified NEC-2 Edition November 1995 flowchart 116
VMIP within modified chart 53 NEC-2 Edition November 1995 flowchart 117
Procurement and selection of a contractor or other service provider 118
Index 125
vii
List of tables and figures
Tables
3.1 Client-led design – value management and value engineering
of the client’s design 24
3.2 Contractor-led design – value management and value
engineering of the contractor’s design 24
4.1 A comparison of the contractor’s value engineering study
plan/job plan on three different projects 50
5.1 Value engineering requirement matrix 55
5.2 Contractor’s share of the nett acquisition savings 55
Figures
2.1 The project value chain 4
2.2 The project value chain (strategic phase) 5
2.3 The client’s value system (strategic phase) 6
2.4 Characteristics of the strategic and tactical phases 8
2.5 The project value chain (tactical phase) 10
2.6 The client’s position in the time, cost and quality triangle 11
2.7 Project value chain (operational phase) 15
2.8 The value management process re-aligning the project and
associated project value chain 16
2.9 The injection of intellectual capital at each value management/
value engineering intervention 18
2.10 The alignment between the project value chain and the
value management incentive programme 19
3.1 A partnering selection and target cost-setting procedure 30
3.2 Integrated partnering and value management process for a
client at an early stage of a project 31
3.3 A comparison of the procurement systems relative to the
project value chain 36
3.4 A schematic comparing the cost and expenditure during
phases of a construction project 37
6.1 The management of risk by value engineering 66
6.2 Details of a reactive value incentive clause 71
6.3 Schematic of value project management 72
6.4 Details of a pre-planned value incentive clause 73
6.5 Value management incentive programme implemented
during construction within traditional procurement 74
ix
List of tables and figures
6.6 Value management incentive programme implemented after
award construction within traditional procurement 75
6.7 Value management incentive programme implemented after
planning within turnkey procurement 76
6.8 Value management incentive programme implemented within
a PFI scheme 77
6.9 Methodology for using a value management incentive
programme at the pre-contract stage 81
6.10 The management and co-ordination of a value engineering
change proposal 86
6.11 A generic structure for the management and
co-ordination of a value engineering change proposal 88
6.12 The management of value opportunities 91
7.1 A model of motivation change within an organization in the
development of a value management/engineering policy 97
x
Acknowledgements
The author would like to thank the following people for their help and assistance in
producing this book. I am grateful to my wife Pabittra and daughters Ariane, Camilla
and Liana for bearing with me throughout the period of writing this book. I am also
indebted to Professor S. Male for the support and guidance he has given me. I would
also like to thank Charles Penny of Balfour Beatty Limited.
The book is based on research undertaken by the author at the University of Leeds.
N. A. Standing
xi
Abbreviations and definitions
Abbreviations
CAD Computer aided drafting
CAPEX Capital Expenditure
CBPP Construction Best Practice Programme
CIRA Construction Industry Research Association
CII Construction Industry Institute
DoD Department of Defence
EU European Union
FAR Federal acquisition regulation
FPLS Fixed price lump sum
KPI Key performance indicators
M4i Movement for Innovation
MIL-STD Military Standard
OPEX Operating Expenditure
PFI Private Finance Initiative
RIBA Royal Institute of Building Architects
SOW Statement of Work
TQM Total quality management
VECP Value engineering change proposal
VEI Value engineering incentive
VEIC Value engineering incentive clause
VEPRC Value engineering programme requirement clause
VESA Value engineering supplemental agreement
VEVO Value engineering variation order
VMIP Value management incentive programme
xiii
