EWs / NCE for proposed Value Engineering

How should communication of a proposed VE proposal be dealt with?

In the interest of collaborative working we want the Contractor involved as soon as possible in costing the change and understanding the effect on his programme.

The VE would result in a change to the Price, but not an increase as stated in cl16.1 for EWs.

Is VE counted as a Compensation Event for which a Quotation can be requested?

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I am assuming that this VE suggestion comes from the Employer side of the contract.

Under clause 61.2 of the contract, the Project Manager may instruct the Contractor to submit quotations for a proposed instruction.

Under clause 62.1, the contract directs you to have discussions with the Contractor about different ways of dealing with a compensation event which are practicable.

VE will generally be a Compensation Event because it will come about through a change to the Works Information. If it is instructed as change by the Project Manager and neither of the exclusions in 60.1(1) apply then it will be a CE. You then follow the process as described by Jon.

In terms of an Early Warning, my view is that 16.1 states when you MUST give an Early Warning, it does not prohibit you from doing so at other times. So, while there is a procedure for getting to a discussion (as Jon has described) you should not feel inhibited from using the EWN process to get early engagement

If the Contractor comes up with value engineering on a Contractor designed scheme then this is an exception to it being a compensation event. Therefore there would be no adjustment to he total of the Prices as a result. Under option C this would equate to the Parties sharing the cost saving in accordance with the ratio outlined in contract data part 1. Option A would see the Contractor get the full benefit of the saving.

However if it is Employer design and the Contractor proposes a value engineering scheme then this will be assessed as a compensation event - i.e. the Employer gets the full benefit of the saving for both option A and C (and the Contractor loses fee on the work not done)

Not necessarily a positive incentivisation on the Contractor to come up with good ideas for the Employer - but that is how the (unamended) contract is written.

Excelent answers from Jon Rob and Glenn but is is interesting that Value engineering (VE) as defined is "a systematic method to improve the “value” of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost. It is a primary tenet of value engineering that basic functions be preserved and not be reduced as a consequence of pursuing value improvements.

If we take VE as defined then it can be either improving the fucntion or reducing the cost for the same function. So 63.11 is not just about reducing cost! There is no incentivisation for improving functionality for the same price. I guess that will come form other requirements/obligations in the Works Information.