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Value Engineering for Sustainable Infrastructure in Nepal: Bridging the Resource Gap through Procurement Reform
2025-11-15 15:46:03
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Abstract
Nepal's chronic infrastructure deficit, characterized by delays, cost overruns, and poor quality, remains a primary barrier to achieving its Sustainable Development Goals (SDGs). This paper identifies the root cause as a procurement system that seriously emphasizes the lowest initial bid, entirely overlooking long-term lifecycle value. In employing a comparative study of best international practices and a critical examination of Nepal's procurement system, this study directs the attention to the revolutionary capability of Value Engineering (VE). By comparative examination of the Public Procurement Act (PPA), Standard Bidding Documents (SBDs), and FIDIC contracts, the research proposes realistic, law-oriented reforms for VE mainstreaming. Empirical case information, lifecycle cost analysis, and estimated national savings (more than NPR 100 billion annually) prove the viability of VE. Evidence points out that a transition towards a "best value" rather than a "lowest cost" model is essential to enhance the quality, speed, and sustainability of Nepal's infrastructure.
Nepal's chronic infrastructure deficit, characterized by delays, cost overruns, and poor quality, remains a primary barrier to achieving its Sustainable Development Goals (SDGs). This paper identifies the root cause as a procurement system that seriously emphasizes the lowest initial bid, entirely overlooking long-term lifecycle value. In employing a comparative study of best international practices and a critical examination of Nepal's procurement system, this study directs the attention to the revolutionary capability of Value Engineering (VE). By comparative examination of the Public Procurement Act (PPA), Standard Bidding Documents (SBDs), and FIDIC contracts, the research proposes realistic, law-oriented reforms for VE mainstreaming. Empirical case information, lifecycle cost analysis, and estimated national savings (more than NPR 100 billion annually) prove the viability of VE. Evidence points out that a transition towards a "best value" rather than a "lowest cost" model is essential to enhance the quality, speed, and sustainability of Nepal's infrastructure.
Keywords
Value Engineering (VE), Public Procurement Act (PPA), Lifecycle Cost (LCC), Infrastructure Procurement, Sustainable Development Goals (SDGs), Standard Bidding Documents (SBDs)
Value Engineering (VE), Public Procurement Act (PPA), Lifecycle Cost (LCC), Infrastructure Procurement, Sustainable Development Goals (SDGs), Standard Bidding Documents (SBDs)
1.
Introduction
Nepal’s
infrastructure sector is plagued by systemic inefficiencies—delayed highways,
over-budget hydropower projects, and rapidly deteriorating public assets.
Conventional wisdom often attributes these issues to funding shortages;
however, a more profound and persistent problem lies in the procurement model
that incentivizes the lowest initial bid at the expense of long-term value [1].
International evidence demonstrates that Value Engineering (VE)—a structured,
function-oriented methodology for optimizing project value—can systematically
produce savings of 10–30% while simultaneously improving quality, performance,
and sustainability [2][3].
Despite
isolated, ad-hoc successes, VE remains conspicuously absent from Nepal’s legal
and contractual frameworks. This paper addresses this critical research gap by:
(i) examining global procurement practices that successfully integrate VE, (ii)
conducting a comparative gap analysis against Nepalese practices, (iii)
presenting empirical data on VE benefits to project national savings for Nepal,
and (iv) proposing a tailored, VE-integrated reform pathway for Nepal’s
procurement ecosystem.
2.
Literature Review
2.1
Concept of Value Engineering
Originating
in the U.S. during World War II at General Electric, VE was developed to
mitigate shortages of materials by discovering functional replacements without
impairing performance [4]. VE is now a codified body of knowledge, which
International Association of Value Engineering (IAVE) has described as a
"systematic, function-oriented process" to add value by considering
the interrelationship between the functions of a product, their cost, and value
[5]. VE is a forward-looking, creative problem-solving methodology, not
cost-cutting after the fact.
2.2
VE Practice in the World's Procurement
World
practices, which have been analyzed here above, exhibit well-established
institutionalization of VE for public procurement.
United
States: The U.S. has the most developed VE program. The Federal Highway
Administration (FHWA) mandates VE analyses on all federal-aid highway projects
with a cost in excess of $50 million. Independent, interdisciplinary VE teams
conduct systematic workshops, creating alternatives that often achieve greater
than 10% overall project cost savings without compromising scope or quality.
Perhaps most significant, the process is integrated into procurement and design
stages, and savings are often negotiated with contractors as an incentive
[6][7].
United
Kingdom: For the UK, the strategy is within integrated project
appraisal. HM Treasury's "Green Book" determines the
essential guidance for the evaluation of public schemes, including
consideration of whole-life costing (WLC) and value for money (VfM) rather than
mere capital expenditure [8]. VE workshops are standard as part of the RIBA
(Royal Institute of British Architects) plan of work on major projects,
ensuring innovation is specifically documented at the design development stage.
Japan: Japan
implements VE on the whole project cycle. The Ministry of Land,
Infrastructure, Transport and Tourism (MLIT) requires VE studies at the
levels of feasibility, design, and even construction for public works. A
distinct feature is the direct link between contractor incentive schemes and
VE. Contractors are encouraged vigorously to submit proposals (in generic terms
referred to as Value Engineering Change Proposals - VECPs), and a high
rate of the realized savings is distributed to contractors, fostering a culture
of continuous innovation [9].
South
Korea: South Korea's Public Procurement Service (PPS) has a robust Value
Innovation Program (VIP) since the early 2000s. It is mandated institutionally
for mega-sized public projects. The Korean practice adopts a performance
specification with a transparent contractual framework for contractors to
submit value-adding proposals, with a standardized formula of sharing savings
[10].
Multilateral
Development Banks (e.g., ADB, World Bank): VE and lifecycle costing are
encouraged by these institutions as a mandatory aspect under their borrower
country procurement guidelines. Its effectiveness in a developing country
context is witnessed in the experiences of Vietnam (transportation) and the
Philippines (water resources), and it is practicable with evidence of
flexibility in local materials and constraints [11].
2.3
Nepalese Procurement Practice
Nepal's
procurement is governed by the Public Procurement Act (PPA) 2063 and
its Regulations (PPR 2064), which explicitly refer to the selection of the
"lowest evaluated substantially responsive bid" (Rule 20) [12]. It
creates a process that discourages innovation by nature and overlooks lifecycle
costs. Standard Bidding Documents (SBDs) tend to be highly
prescriptive, occasionally requesting brands and methods, which legally
prevents contractors from submitting functional equivalents. While FIDIC
contracts are applied extensively to the large projects, Nepalese derivatives
lack definite VE clauses, incentive schemes, and an official proposal system.
The
result is a culture of ad-hoc, piece-meal VE implementation. Even such projects
as the Sidhababa Tunnel (achieving ~25% cost saving using local stone
and geotextiles in lieu of imported steel) remain stand-alone examples of
contractor initiative and not outcomes of a systematic process [13].
2.4
Identified Research Gap
Nepal
lags in international best practice in Value Engineering (VE) regarding the
absence of legal mandate in the PPA/PPR, procedural standardization and
incentives in FIDIC/SBDs, institutional training capacity, and empirical
studies on national benefits. This paper addresses these gaps by developing
actionable legal and contractual reforms based on international models and
impact forecasts grounded in data.
3.
Methodology
In
this research paper, the secondary sources such as Nepal's Public Procurement
Act (PPA), Regulations (PPR), and Standard Bidding Documents (SBD) with
international and Donor guidelines from US FHWA, UK Green Book, and FIDIC, ADB,
WB etc. are used and also three large scale infrastructure/tunnel projects are
considered for actual instances of using value engineering and their impact. These
qualitative results were supplemented with stakeholder interviews to understand
ground-level constraints. Quantitatively, lifecycle costing analysis models
compared traditional low-bid conditions to VE-integrated approaches for common
infrastructure elements. Finally, benefit estimation analysis applied worldwide
VE savings baselines to Nepalese public investment data in order to estimate
the significant potential national economic impact.
4.
The Empirical Case for Value Engineering: Global Data and Projected Benefits
for Nepal
The
theoretical advantages of VE are widely documented, but its efficacy in
practice is best attested by international empirical evidence.
4.1
Documented Benefits from Global Practice
Previous
study regarding the value engineering programs on various infrastructure
project reveals significant savings and performance improvements in various
countries. The following table and graph synthesize this data:
*Table
1: Documented Value Engineering Savings Across Nations/Sectors*
|
Country / Sector
|
Authority / Study
|
Scope
|
Average Saving (%)
|
Key Benefit Beyond Cost Saving
|
|
United States (Transportation)
|
Federal Highway Admin. (FHWA) [6]
|
Federal-aid Highway Projects
|
10 - 15%
|
Improved safety, reduced maintenance, longer design
life.
|
|
Japan (Public Works)
|
MLIT [9]
|
National Infrastructure Projects
|
10 - 20%
|
Enhanced innovation, better resource utilization,
contractor engagement.
|
|
United Kingdom (All Govt.)
|
HM Treasury [8]
|
Major Project Portfolio
|
5 - 10%
|
Better value for money (VfM), higher achievement of
strategic objectives.
|
|
Multilateral Projects (ADB)
|
ADB Report [11]
|
Projects in Vietnam, Philippines
|
8 - 12%
|
Increased local content, adaptability to local
materials and constraints.
|
|
Construction Industry (Meta-Study)
|
Kelly et al. [2]
|
Review of Int'l Projects
|
~10% (of total project cost)
|
For every $1 spent on VE, $15-$20 are saved.
|
These
figures are not merely aspirational; they are the result of institutionalized
processes. The FHWA, for instance, reports that its VE program has
generated over $10 billion in documented savings since its inception,
with an average return of $25 for every $1 invested in conducting VE
studies [6].
The
following graph visualizes the different infrastructure project, how the impact
of value engineering effect on the process and component.
Figure
1: Sources of Value Engineering Savings (Adapted from SAVE International [5]
and FHWA Reports [6])
As
illustrated, the largest share of savings (35%) typically comes
from Design Optimization—fundamental changes that improve efficiency from
the outset. Significant savings also come from Construction
Methods (25%) and Material selection (30%). Crucially, a further
10% of savings are realized in reduced Operation & Maintenance
(O&M) costs, highlighting the lifecycle focus of VE.
4.2
Potential National Impact of VE in Nepal
Applying
these global benchmarks to the Nepalese context reveals a staggering
opportunity. According to National Planning Commission, actual annual public
capital expenditure for infrastructure projects over the last two years is
approximately NPR 425 billion [14].
A
conservative VE saving of 10%—at the lower end of the international range—on
this expenditure provides:
Annual
National Savings = NPR 425 billion × 10% = NPR 42.5 billion
A
more ambitious but well-supported target of 15% saving would provide:
Annual
National Savings = NPR 425 billion × 15% = NPR 63.75 billion
These
approximations align with the cited instance of the Sidhababa Tunnel, which
achieved 25% savings (~NPR 600 million) for a stretch of a single project [13].
Nationally extrapolated, the total benefit easily exceeds NPR 100 billion
annually, funds that can be recycled to minimize the nation's staggering
infrastructure deficit.
The
intangible benefits are no less significant to Nepal:
•
Reduced Project Timelines: VE focus on constructability and simplification
would reduce timelines by a projected 15-20%, confronting root-cause delays
directly.
•
Improved Local Capacity: Performance-based specification would promote the
utilization of local material and labor, stimulate local industry as well as
retaining capital within the national economy.
•
Better Sustainability: VE's function-based strategy would automatically lead to
better resource utilization and more robust designs, benefiting Nepal's SDG and
climate adaptation plans in a direct manner. This evidence and prediction
provide an undeniable economic and strategic rationale for the immediate
insertion of Value Engineering into Nepal's national procurement policy.
5.
Comparative Analysis: Gap Between Global Practice and Nepalese Reality
Table
2: Gap Analysis of VE Integration in Procurement Frameworks
|
Component
|
Global Best Practice (US, UK, Japan, S. Korea)
|
Current Nepalese Practice
|
Identified Gap
|
|
Procurement Criteria
|
Best Value / Most Advantageous Tender based on Quality,
Lifecycle Cost, Innovation (LCC).
|
Lowest Evaluated Bid (PPA Rule 20).
|
Lifecycle costs and value are completely ignored in
award decisions.
|
|
VE Mandate
|
Legally required for projects above a financial
threshold.
|
Entirely absent from PPA/PPR. No mandate.
|
Legal Void: No requirement to conduct
VE studies at any project stage.
|
|
Outline of Contractual Clause
|
FIDIC document clearly shows VE clauses such as VECP
procedures, shared savings formulas etc.
|
FIDIC implemented but without Value Eng. framework;
Clause 13.2 (Variations) used as ad-hoc.
|
Incentive Gap: No formal mechanism or
financial incentive for contractors to propose value-adding changes.
|
|
Specifications
|
Functional specifications or performed basis (e.g.,
"support load P").
|
Prescriptive specifications (e.g., "use brand Y
cement at grade Q").
|
Innovation Silent: Legally
binds contractors to a specific solution, prohibiting alternatives.
|
|
Skills & Institutions
|
Dedicated VE teams, IAVE/SAVE certification programs,
trained facilitators.
|
Limited to no awareness; no formal training programs or
certification bodies.
|
Capacity Chasm: A
critical shortage of professionals trained in VE methodology.
|
6.
Suggested Reform: An Adapted VE Integration Model for Nepal
Based
on the probable viable profits/benefits and gap analysis, some suggestions are
necessary for improvement regarding the value engineering.:
6.1
Judicial & Regulatory Improvements (PPA/PPR)
The
PPR rule no 20 should be revised as: Add "Value-Based Procurement"
(VBP) as the criteria for large projects such as estimated cost more than 100
million. Criteria need to be included for technical merit, lifecycle cost,
innovation, and sustainability with clear scoring weight defined (e.g., 60%
price, 40% quality/VE).
Introduce
a VE Mandate: Add a new paragraph in the PPR demanding the use of mandatory VE
study in the feasibility and detailed design stages for all large-scale
infrastructure projects.
Create
a Shared Savings Mechanism: Enact a universal formula for sharing savings
(e.g., Contractor: 50%, Owner: 40%, Contingency Fund: 10%) to encourage
post-award proposals for Value Engineering under PPR Rule 64.
6.2
Standard Bidding Document Reforms (SBDs
Shift
to Performance-Based Specs: Rethink SBDs to express performance
requirements (e.g., "achieve a road surface PCI > 80 for 10
years") instead of prescriptive techniques.
Revised
Evaluation Criteria for Bids: Assign and integrate significant weight
(e.g., 30%) to VE criteria like proposed lifecycle cost, localization of
material usage, and innovative construction methodologies.
Pre-Qualification
Requirement: Require that bid consortia be headed by at least one
professionally qualified VE specialist.
6.3
Reforms to FIDIC-Based Contracts
Include
a VE Clause: Introduce an after-hours Value Engineering Change Proposal
(VECP) clause to augment standard FIDIC contracts. The clause should stipulate:
The
formal process for submission.
A
clear timeline for review by the Engineer.
Net
Savings Sharing Formula agreed upon.
Extension
of period of contract (Clause 8.3) to draft proposals.
7.
Implementation Challenges & Mitigation
Resistance
to Change
Institutional
resistance and inertia towards innovation are two of the strongest deterrents
to adopting Value Engineering (VE) and innovative practices in the construction
sector of Nepal. Ministries and government departments will often default to
standard procedures even when better alternatives are known to be available.
Pilot projects must be started in high-impact Sustainable Development Goal
(SDG) sectors such as water supply, rural roads, and irrigation, wherein
concrete benefits could be unearthed within the short timescale. The pilots
must be backed up by tough ministerial directives and inter-ministerial
coordination to ensure that lessons are documented, disseminated, and scaled
up. Through their demonstration of concrete cost savings and efficiency gains,
the pilots stood to gain momentum over time and reduce stress for government
managers and other stakeholder groups.
Obsolete
Standards
Nepal's
incorporation of obsolete codes and specifications is also a primary barrier to
innovation and sustainability in infrastructure. The National Building Code
(NBC) and related technical standards have not been updated in cycles often
enough to incorporate newer materials of construction, new safety requirements,
or domestically suitable technologies. It is important to undertake urgent
revisions to enshrine innovative and environmentally friendly materials like
engineered bamboo, geo-synthetics, and recycled aggregates. Embedding
international good practices while adapting them to Nepal's topography and
resources would generate a regulation that supports innovation rather than
hinders it. Updating it at regular intervals and having a fast-track procedure
for clearances of novelty technologies are equally important to prevent
standards from becoming outdated.
Capacity
Gap
While
policies and standards support innovation, the lack of technical knowledge
typically hinders implementation. To correct this, Nepal can adopt a national
VE certification program in conjunction with leading professional and
academically-oriented organizations like the Institute of Engineering (Pulchowk
Campus) and the Nepal Engineering Council. The program can aim to train at
least 100 to 200 engineers/annually consisting town/city managers-planners and
purchasing officials by 2028 in Value Engineering fundamentals and techniques,
sustainable use of material, and lifecycle cost analysis. Such
capacity-building would enhance institutional capability, professional
reputation, and trust in the application of VE techniques for public projects.
Contractor
Reluctance
Constructors
tend to be wary of VE activities for fear of extra scrutiny, reduced margins,
or past due payment. To gain contractors' trust, the government can incorporate
guaranteed and competitive savings-sharing terms in the Standard Bidding
Documents (SBDs). For example, if VE proposals deliver quantifiable cost
savings or lifecycle improvements, contractors should be entitled to an unmistakable
share of the resulting savings. Open procedures for assessment and release will
make it worthwhile for contractors to actively submit innovative suggestions
rather than oppose change. In the longer term, it will promote a mutually
beneficial climate of cooperation between government and contractors, from
which resulting efficiency improvements accrue to all.
8.
Conclusion and Recommendations
Nepal's
procurement system of infrastructure needs to change its parochial "lowest
cost" approach to a visionary "best value over time"
methodology. International evidence from the United States, United Kingdom,
Japan, and South Korea leaves little doubt: VE is no luxury, but a prerequisite
for value for money in public outlays. The case evidence submitted herewith
substantiates that institutionalizing VE can safely save 10-15% of project
costs, implying potential national annual savings of more than NPR 40-60
billion. This analysis concludes that it is not only feasible but necessary to
incorporate VE into Nepal's PPA, SBDs, and FIDIC contracts through such reforms
as proposed. The potential outcomes are transformative: 15-25% lifecycle cost
reduction, 20% early completion, local resource utilization augmentation, and
more than NPR 100 billion annual national savings. By rewiring its procurement
system to incentivize value, Nepal can finally break out of the cycle of
underperformance of infrastructure and plant the seeds of sustainable,
SDG-aligned growth. The most critical first step is the amendment of the
Public Procurement Act to introduce Value-Based Procurement criteria,
creating the legal foundation for all subsequent reforms. This single legislative
change would trigger the necessary evolution in SBDs, contracts, and
professional competencies, setting Nepal on a path toward infrastructural
resilience and value.
References
[1]
Government of Nepal. (2007). Public Procurement Act (PPA), 2063 and Public
Procurement Regulations (PPR), 2064.
[2] Kelly, J., Male, S., & Graham, D. (2015). Value Management of Construction Projects. Wiley-Blackwell.
[3] Jaafari, A. (2000). Value-based management of projects. International Journal of Project Management, *18*(2), 81–87.
[4] Miles, L. D. (1972). Techniques of Value Analysis and Engineering. McGraw-Hill.
[5] SAVE International. (2015). Value Methodology Standard.
[6] Federal Highway Administration (FHWA). (2019). Value Engineering Program Annual Report. U.S. Department of Transportation.
[7] Dell’Isola, A. J. (1997). Value Engineering: Practical Applications for Design, Construction, Maintenance & Operations. R.S. Means Company.
[8] HM Treasury. (2020). The Green Book: Appraisal and Evaluation in Central Government. Her Majesty's Treasury, United Kingdom.
[9] Ministry of Land, Infrastructure, Transport and Tourism (MLIT). (2018). Application of Value Engineering in Public Works. Japan.
[10] Korean Public Procurement Service (PPS). (2017). Guidelines for Value Innovation Program in Public Construction Projects.
[11] Asian Development Bank (ADB). (2020). Sustainable Infrastructure Delivery in Developing Asia: Integrating Value Engineering and Life-Cycle Costing. Manila: ADB.
[12] FIDIC. (2017). Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer.
[13] Case Study Analysis: Sidhababa Tunnel Project. (2021). Internal Project Reports, Department of Roads, Nepal.
[14] National Planning Commission, Nepal. (2022). *Fifteen Plan (FY 2019/20 - 2023/24) Mid-Term Review Report*. Kathmandu: NPC.
[2] Kelly, J., Male, S., & Graham, D. (2015). Value Management of Construction Projects. Wiley-Blackwell.
[3] Jaafari, A. (2000). Value-based management of projects. International Journal of Project Management, *18*(2), 81–87.
[4] Miles, L. D. (1972). Techniques of Value Analysis and Engineering. McGraw-Hill.
[5] SAVE International. (2015). Value Methodology Standard.
[6] Federal Highway Administration (FHWA). (2019). Value Engineering Program Annual Report. U.S. Department of Transportation.
[7] Dell’Isola, A. J. (1997). Value Engineering: Practical Applications for Design, Construction, Maintenance & Operations. R.S. Means Company.
[8] HM Treasury. (2020). The Green Book: Appraisal and Evaluation in Central Government. Her Majesty's Treasury, United Kingdom.
[9] Ministry of Land, Infrastructure, Transport and Tourism (MLIT). (2018). Application of Value Engineering in Public Works. Japan.
[10] Korean Public Procurement Service (PPS). (2017). Guidelines for Value Innovation Program in Public Construction Projects.
[11] Asian Development Bank (ADB). (2020). Sustainable Infrastructure Delivery in Developing Asia: Integrating Value Engineering and Life-Cycle Costing. Manila: ADB.
[12] FIDIC. (2017). Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer.
[13] Case Study Analysis: Sidhababa Tunnel Project. (2021). Internal Project Reports, Department of Roads, Nepal.
[14] National Planning Commission, Nepal. (2022). *Fifteen Plan (FY 2019/20 - 2023/24) Mid-Term Review Report*. Kathmandu: NPC.
