The Cost Dilemma

Happy Friday,

When consulting engineers compete on cost, everyone loses. The client loses, the consulting companies lose, and the engineers themselves lose. Most of all, though, the public loses. I’ve said it, you’ve heard it, everyone knows it.

Take water infrastructure, for example. The engineering element is less than 1% of the lifecycle cost of most water projects. The big project costs are financing, construction, equipment, and 50 years of operation and maintenance. Engineering amounts to nothing. But negligible as it is, the engineering has an oversized effect on all the other costs.

When cost is a factor in the selection of engineers, even a so-called minor factor (haha), engineering firms are forced to compromise what they know to be in the best interest of the project/client/public and instead propose something worse. Here’s what actually happens:

Engineering cost equals Hourly Rate x Time, i.e., expertise x effort. So, the only way to reduce the engineering cost is to either cut expertise, effort, or both. Usually both.

Expertise is cut by assigning people with less of it. Effort is cut in a couple of important ways. One is by making optimistic assumptions that shift the cost/risk from the client back to the engineering firm. (If you do this, don’t expect a raise!)

The other, ironically, is by eliminating efforts to reduce the project cost. Things like evaluating cost-saving alternatives, ways to minimize construction risk and cost, and how to reduce the 50-year cost of O&M. Instead, engineers are forced to offer only what the client asked for and eliminate valuable tasks they know to be beneficial.

As a consequence, clients and ratepayers can expect more construction change orders, greater exposure to expensive claims and lawsuits, a higher than necessary construction cost (which increases the cost of project financing), the need for even higher user rates, and ultimately, a community less competitive at attracting new investment.

By cutting the engineering cost, the total project cost and risk grows, crushing any so-called savings many, many, many times over.

So why put engineers into this position? Why do public and private clients incentivize worse engineering and more costly projects? (They didn't use to)

Answer: It’s human nature: 1) it’s not their money, 2) cost is quantifiable and easy to understand, making it a safe and defensible CYA for all approvers, and 3) no one will ever know how much better, cheaper, and problem-free the project could have been. Voila’!

Embarrassed, or perhaps wary of the consequences of what they’re incentivizing, clients always insists that cost won't be the deciding factor in the selection. But once it's in the RFP, the damage is already done, and the engineering approach must change. Proposals cost too much and engineers have been burned too many times to leave it to chance.

Most public works and utility directors do understand this. Their problem is the grandstanding insurance salesman or hairdresser on their Board or Council who doesn't, who insists the agency must “save money” by always choosing the low bidder. Going along with this nonsense becomes the path of least resistance.

So, how does this square with The Engineer’s Creed, you ask? Excellent question.

Ethics and implementable solutions ahead.

Have a great weekend!

Dave

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Written by me, not ChatGPT, with speed assist and blunder avoidance by Grammarly.