Value engineering is the "bouquet" name given to the cost-cutting measures negotiated at commercial projects post tender. But a bouquet of roses, it is not - at least not for insulating contractors often asked (ordered?) to delete some of the specified insulation to meet tighter construction budgets.
Throughout Canada value engineering is a reality. In Ontario it happens a lot, according to Joe Fabing, president of Toronto-based Custom Insulation Systems, a company that specializes in the thermal insulation of pipe, ducts and equipment for industrial and commercial markets. About 75% of all the commercial and institutional contracts Fabing bids on are value engineered post tender.
It is a problem in other provinces as well. In one cost-cutting case in B.C., an $85,000 contract to insulate mechanical ductwork at a community college in B.C. was cancelled. "The average payback for one-inch duct insulation is two years so the tenant will be paying about $42,500.00 in extra heating costs each year for the life of the building," says Chris Ishkanian, president of the Thermal Insulation Association of Canada.
Insulated heating pipe is amortized in even less time - often within the first year of installation, says Ishkanian. That quick payback applies to insulation applied to two-inch copper domestic water lines and two-inch heating lines typically seen in today's commercial buildings.

 
Ishkanian adds the cost reduction never correlates to the insulation reduction. For example, if a contractor is asked to cut costs by reducing insulation, say by 50 percent, than the efficiency of the mechanical system is reduced by half but the cost of installation is not cut in half.
With all the savings in energy costs resulting from mechanical insulation, why are owners so quick to cut it out of their budgets? Ignorance, perhaps. Often, though, building owners don't have a vested interest unless they will be occupying or managing the building once it is completed, points out Fabing.
He says what is driving value engineering is unrealistic budgeting at a project's conception. "If, say, a smaller office building is budgeted at $100 million and the tendering process brings it in at $150 million, well, guess what? They have to ‘value engineer' it to bring the costs down. We [insulating contractors] are always the first victim because insulation isn't critical to the process. If insulation was a life safety issue it would be perceived differently."
Andre Pachon, president of Kelowna-based C & G Insulation Limited, says in his region of work most often value engineering crops up in big residential developments - multi-unit condo complexes in particular. "The developers aren't the end users of the building so it's no big deal for them to reduce or eliminate insulation. What happens is the mechanical contractors are asked by the generals or the owners to trim costs and it is passed down to us."
Pachon, who is also president of the B.C. Insulation Contractors Association (BCICA), says the problem occurs on about 30% of his jobs in the Okanagan Valley and the B.C. Interior. To meet budgets, pipe insulation on heating systems often is the first to go. A half-inch is typically removed from a 1.5-inch wrap, he says. "We also bid on some jobs where they delete the insulation on the heating systems all together."
It is short-sighted thinking. "If they want to save money on their project they should add more insulation, not take it away."
Brad Haysom, president of Burnaby's Tight 5 Insulation Ltd., says when a mechanical contractor comes to him to cut costs it usually means a reduction in the insulation thickness or the canvas finish typically wrapped over fiberglass insulation in mechanical or boiler rooms. "I wouldn't call it a common practice [15-20% of Tight 5's work involves cost cutting] but it happens more than it should."
Properly done, a two-inch or bigger domestic hot water line is wrapped with 1.5-inches of insulation; one-inch insulation is typically required for standard domestic hot and cold water lines and 1.5 inches on heating pipes.
One of the first casualties of value engineering is the protective insulation finish - made of anything from PVC, canvas, aluminum or even stainless steel, says Fabing. "The perception is that finishes are strictly aesthetic."
That couldn't be further from the truth. Fabing's company is currently contracted to install finish at a major job in Windsor. It is money the owner shouldn't have had to spend if the finish wasn't value engineered out of the original contract at post tender when the building was constructed 10 years ago. A protective finish can double the lifespan of the insulation, he estimates.
Typically insulation contractors like Tight 5 and Custom Insulation price jobs for mechanical contractors that entail pipe insulation applied to heating, plumbing, chiller water or refrigeration lines. Pricing jobs for sheet metal contractors involves costing thermal insulation around ductwork.
Ishkanian says even though some provinces and cities have building codes that specify insulation requirements, those codes aren't always followed. Take the City of Vancouver, for example, where the ASHRAE 90.1 standard has been adopted. "Cutting insulation thickness still happens quite often even though it violates the city building code."

ASHRAE 90.1 specifies the minimum insulation standards for chilled water, heating, steam and other mechanical insulation needs. "Every specifier [in Ontario] bases their specifications on the standards but when value engineering happens the standards are thrown out the window. Between the engineer and the owner, they decide that less stringent specifications are suitable," says Fabing.
Ishkanian says not only is it a poor business practice, but cutting insulation also contributes to increased greenhouse gas emissions. "At a time when the world is looking to reduce emissions our construction process allows for the reduction of insulation at the expense of the environment."
In an example whereby a typical pipe
insulation job that has the thickness reduced from 1.5-inches down to one-inch, the
one-time upfront cost savings may be 15% of the insulation contract
value, but the increase in energy costs and greenhouse gas emissions
increase by 33 percent for the life of the building.
Fifteen percent of
the value of the insulation contract would be about 1/10th of one
percent of the total value of the building. This insignificant,
one-time cost saving isn't justified when you compare the added
operating costs to the life cycle of the building and the environmental
impact of increasing greenhouse gas emissions.
"With a little foresight,
if the opposite action were to take place and the insulation thickness
was increased, we can show that the economic payback is still less than
one year, but the operating costs of the building are reduced even further
and greenhouse gas emissions are reduced proportionately," says Ishkanian. "Our trade is
already on site doing the work; why not let us do the work in a way that
produces the best economic and environmental return on investment?"