Guidelines for Successful ITS Procurement T3 Session, March 15, 2006 Hosted by Mac Lister FHWA Presented by Phil Tarnoff University of Maryland

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Guidelines for SuccessfulITS ProcurementT3
Session, March 15, 2006Hosted by Mac
ListerFHWAPresented byPhil TarnoffUniversity
of Maryland
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The Problem

• Success rate for intelligent transportation
  systems life cycle is very low
• Problems can be traced to
• Incorrect contracting approach
• Inexperience of the agency
• Failure to follow appropriate procedures
• Inadequate commitment of project management and
  systems engineering resources

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Systems Acquisitions
Late
Okay
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Cancelled
53
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Source Patterns of Software Systems Failure and
Successes, Jones, Capers, 1996
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Success is Influenced by the Purchaser

• Purchasers experience has greater impact on
  project success than any other factor
• Success rate has increases by more than 25 for
  purchasers with prior experience
• ITS implementation must be led by experienced
  staff

Source Patterns of Software Systems Failure
and Successes, Jones, Capers, 1996
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The Contracting Model
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The Contracting Model

• Defines the entire contracting form and process
• Includes four dimensions
• Work Allocation Responsibilities
• Method of Award Contractor selection
• Contract Form How is work organized
• Contract Type Methods of reimbursement
• Terms and conditions apply to all dimensions

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The Contracting Model
Procurement
Contract Form
Work Allocation
Method of Award
Contract Type
Low Bid Contractor Systems Manager Systems
Integrator DB(OM) Commodity (COTS) Consultant
Services Outsource Contractor Other Services
Low Bid Negotiated Sole Source
Phased Task Order Purchase Order
Fixed Price Cost Reimbursable Incentive Time and
Materials
Terms and Conditions (payment, cancellation,
disputes, etc.)
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Use of the Contracting Model

• Identifies dimensions to be included in selection
  process
• Procurement guidelines define the process for
  choosing appropriate option for each dimension
• Process is simplified by assembling combinations
  of options procurement packages
• Project may include multiple contracts and
  procurement packages

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System Procurement Packages (1 of 2)

• Commodity Supplier
• Low-bid selection of prequalified packages
• Fixed price contract
• Applicable only for unmodified off-the-shelf
  software and hardware
• Low-Bid Contractor with Design Consultant (for
  100 design)
• Low-bid selection
• Fixed price contract
• Can use incentives
• Can use phased contracts
• Useful if the predominant software is
  off-the-shelf

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System Procurement Packages (2 of 2)

• Systems Manager
• Negotiated procurement
• Fixed price, cost plus or time material
  contracts
• Can use incentives
• Can use either phased or task-order contracts
• Separate low-bid procurements required for
  construction and equipment
• Design-Build Contractor with Design Consultant
  (for 30 design)
• Best value selection
• Fixed price. Cost plus or TM may be acceptable
• Can use incentives
• Can use phased contracts

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Other Procurement Packages

• Consultant
• Negotiated
• Fixed price, cost plus or time material
  contracts
• Can use incentives
• Can use either phased or task-order contracts
• Outsourcing either an activity (such as
  maintenance) or an entire function (such as
  traveler information)
• Low-bid selection may be based on rates
• Fixed price or time material contracts
• Can use incentives

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Contracting Considerations
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Selecting the Best Procurement Approach
Characteristics
Contracting Solutions
Organizational Level

• Experience
• Resources
• Personnel

System Development Process
System Development Process
Procurement Package
Terms and Conditions
Project Category

• New or replace.
• Size complex.
• Uniqueness

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Defining Organizational Level
Characteristic Immature Organization Mature Organization
Personnel Experience Part time, personnel have no prior experience Full time responsibility of experienced personnel
Organizational Experience Never done it before Experienced with 1 or more complex projects
Organizational Structure ITS responsibilities undefined Single organizational unit responsible for all ITS
Resources No defined ITS budget ITS budget for systems and personnel
Management Support Modest mid-level support Considered a priority by senior management
Expectations Not defined Included in agencys planning process
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Defining Project Complexity
Characteristic Simple Project Very Complex Project
Newness Off-the-shelf solutions Invention(s) needed
Scope Single function Multi-function system
Interfaces None Both internal external
Maturity Many similar systems Never been done
Stability Requirements well defined Not sure what is needed
Institutional Being developed for single agency Many agencies involved
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The Outputs

• Systems development process
• Waterfall
• Evolutionary
• Spiral
• The procurement package
• Lists of terms and conditions

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The Development Processes are Based on the
Systems Engineering Life Cycle
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Systems Development Processes

• Waterfall A linear process for well-defined
  programs including all the activities of the V
  diagram
• Evolutionary Development of a project in a
  series of well defined phases in which the V
  diagram is repeated for each phase
• Spiral Not certain of what is needed, so
  project development accompanied by much prototype
  development and many planning steps

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The Decision Process
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Initial Decisions Step 1
Start
Does the agency intend to outsource?
Yes
No
Does the project include a system development?
No
Yes
Use outsourcing process (procurement package 6
or 7)
Are traditional consulting services being
procured?
Yes
No
Other services being procured. Not covered by
Decision Model.
Use consulting process (procurement package
5)
Go To Step 2
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Decision Model
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The Fundamental Activities of the Following
Process

• Separate the project into individual contracts
• Determine project and agency characteristics
• Select procurement package
• Apply discriminators to multiple solutions
• Confer with Contracts
• Add terms and conditions

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Decision Model Step 2
Schedule Constraints
Step 4 Determine Agency
Start
Step 5 Select applicable systems engineering
process(es) candidate procurement package(s)
Step 6 Apply Differenti-ators
Step 7 Package Assessment and Final Selections
Step 2 Work Allocation
NO
Step 3 Define Project Categories
Step 8 Define Contract Scope and Terms and
Conditions
YES
Send Individual Projects through the Model
End
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Initial Work Allocation (Step 2)

• General rules
• In general, it is best for all work to be
  contained in a single prime contract (exceptions
  noted below)
• Minimize interdependency of contractors (i.e.
  where one contractor depends on another
  contractors completion)
• Multiple contracts require increased project
  management resources
• Reasons to consider multiple prime contracts
• Significant software and systems development, but
  largest dollar amount is in construction (i.e.
  systems contractor would not be prime under a
  single contract)
• Unlikely that a satisfactory prime contractor can
  be identified
• Significant outside expertise required

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Decision Model Step 3
Schedule Constraints
Step 4 Determine Agency
Start
Step 5 Select applicable systems engineering
process(es) candidate procurement package(s)
Step 6 Apply Differenti-ators
Step 7 Package Assessment and Final Selections
Step 2 Work Allocation
NO
Step 3 Define Project Categories
Step 8 Define Contract Scope and Terms and
Conditions
YES
Send Individual Projects through the Model
End
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Identify Project Category (Step 3)
Category 1 Category 2 Category 3 Category 4
Complexity Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Development Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Technologies Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Interfaces Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Evolution Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Requirements Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Risk Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Examples Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Example of Cell Content Primarily application
of proven well-known technology. May include
non-traditional use of existing technolog(ies)
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Decision Model Step 4
Schedule Constraints
Step 4 Determine Agency
Start
Step 5 Select applicable systems engineering
process(es) candidate procurement package(s)
Step 6 Apply Differenti-ators
Step 7 Package Assessment and Final Selections
Step 2 Work Allocation
NO
Step 3 Define Project Categories
Step 8 Define Contract Scope and Terms and
Conditions
YES
Send Individual Projects through the Model
End
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Select Organizational Levels (Step 4)
Level 1 Level 2 Level 3
Personnel Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Organizational Experience Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Resources Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Organization Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Management Support Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Expectations Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category Cells of table contain description of the characteristic appropriate to each category
Example of cell content Experience with at
least one category 2 project or greater.
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Decision Model Step 5
Schedule Constraints
Step 4 Determine Agency
Start
Step 5 Select applicable systems engineering
process(es) candidate procurement package(s)
Step 6 Apply Differenti-ators
Step 7 Package Assessment and Final Selections
Step 2 Work Allocation
NO
Step 3 Define Project Categories
Step 8 Define Contract Scope and Terms and
Conditions
YES
Send Individual Projects through the Model
End
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The Decision Matrix (Step 5)
Project Category Organizational Level Organizational Level Organizational Level
Project Category Level 1 Level 2 Level 3
1 Low Waterfall SM or DB Waterfall Low Bid, commodity, SM or DB Waterfall Lob Bid, Commodity, SM or DB
2 Moderately Complex Evolutionary SM or DB Waterfall or evolutionary Low Bid, SM or DB Waterfall or evolutionary Low Bid, SM or DB
3 Complex Not recommended Evolutionary SM or DB Evolutionary or spiral SM or DB
4 Extremely Complex Not recommended Evolutionary or spiral SM or DB Evolutionary or spiral SM or DB
Notes First line is the systems engineering
technique, second line is the procurement
package DB Design-Build SM Systems Manager
- Consulting services should be used while
project is underway
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Decision Model Step 6
Schedule Constraints
Step 4 Determine Agency
Start
Step 5 Select applicable systems engineering
process(es) candidate procurement package(s)
Step 6 Apply Differenti-ators
Step 7 Package Assessment and Final Selections
Step 2 Work Allocation
NO
Step 3 Define Project Categories
Step 8 Define Contract Scope and Terms and
Conditions
YES
Send Individual Projects through the Model
End
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Procurement Differentiators (Step 6)

• Systems manager is preferred to design-build for
  significant new software development
• Design-build preferred over systems manager, only
  for major projects and when significant amounts
  of field construction are involved
• If project includes both new software and field
  construction, consider using multiple contracts

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Procurement Differentiators continued (Step 6)

• Low-bid contracting should only be used if
• Required by agency policy (rarely true)
• Projects consist of field construction and
  off-the-shelf equipment
• Commodity procurement applicable if an available
  packages do not require modification except for
• New software drivers for interface with
  communications and field equipment
• New database reflecting system configuration
• New graphics (maps, etc.) for local environment

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Impacts of Step 6 Decisions (Step 6 continued)

• Low-bid contract will require design consultant
  low-bid contractor
• Systems manager contract will require low-bid
  contractors for field construction and field
  equipment supply
• Design-build contract will require design
  consultant and design-build contractor
• Commodity procurement may require systems
  integrator for system implementation and test

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Decision Model Step 7
Schedule Constraints
Step 4 Determine Agency
Start
Step 5 Select applicable systems engineering
process(es) candidate procurement package(s)
Step 6 Apply Differenti-ators
Step 7 Package Assessment and Final Selections
Step 2 Work Allocation
NO
Step 3 Define Project Categories
Step 8 Define Contract Scope and Terms and
Conditions
YES
Send Individual Projects through the Model
End
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Considerations When Making the Final Decision
Step 7

• Involve the agencys contracts personnel (They
  should have been involved from the beginning)
• Compatibility with the systems engineering and
  project management principles
• Agencys relative familiarity with the
  recommended alternatives

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Decision Model Step 8
Schedule Constraints
Step 4 Determine Agency
Start
Step 5 Select applicable systems engineering
process(es) candidate procurement package(s)
Step 6 Apply Differenti-ators
Step 7 Package Assessment and Final Selections
Step 2 Work Allocation
NO
Step 3 Define Project Categories
Step 8 Define Contract Scope and Terms and
Conditions
YES
Send Individual Projects through the Model
End
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It is Then Necessary to Define Terms and
Conditions
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Contract Terms and Conditions (Step 8)

• Some are common to all procurement packages,
  others are unique for each package
• Requires contracting expertise
• To a certain extent, by state law, agency
  policies, and federal law
• Defined by the NCHRP documentation

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Sample Terms and Conditions (Step 8)
Commodity Supplier Terms and Conditions Low-Bid Contractor with Design Consultant Systems Manager Design-Build Contractor with Design Consultant Consultant Outsourcing Agency Activity Outsourcing Agency Function
Contractor Inspection Requirements Design within Funding Limitation Negotiation Negotiation Negotiation Negotiation Negotiation
Inspection of Supplies Redesign Responsibility for Design Errors or Deficiencies Commercial Computer Software Restricted Design within Funding Limitations Notice of Cost Comparison Fixed Fee Fixed Fee
Option for Increased Quantity Deficiencies Rights Redesign Responsibility for Design Errors Allowable Costs and Payment Incentive Fee Incentive Fee
Ordering Fixed Price Fixed Fee Work Oversight Fixed Fee Work Oversight Work Oversight
Definite Quantity Incentive Fee Incentive Fee Suspension of Work Incentive Fee Execution and Commencement of Work Execution and Commencement of Work
Indefinite Quantity Performance/Payment Bond Rights in Data Fixed Fee Performance Based Payments Performance/Payment Bond Performance/Payment Bond
Brand Name of Equal Allowable Costs and Payment Incentive Fee Delivery Orders (Task Orders) Allowable Costs and Payment Allowable Costs
Performance/Payment Bond Performance Based Payments Execution and Commencement of Work Specifications Performance Based Payments Modifications
  Delivery Orders (task orders) Performance/Payment Bond Delays and Extensions of Time Modifications Rights in Data
  Specifications Specifications and Drawings Modifications Rights in Data
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Summary of the Seven Steps to Implementing the
Process

• Step (1) Initial Decisions
• Step (2) Allocate the work
• Step (3) Select project category
• Step (4) Determine agency level
• Step (5) Using organizational levels and
  categories, select Procurement Package(s) for
  each project
• Step (6) Apply procurement differentiators to
  make final selection
• Step (7) Make final selection
• Step (8) Define contract terms and conditions
• Contract process is complete

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Key to a Successful Procurement

• Procurement approach is dependent on project type
  and agency capabilities
• Weve always done it that way is not a good
  excuse
• The right procurement approach may not guarantee
  success, but the wrong approach will guarantee
  failure

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For More Information

• http//www.citeconsortium.org on home page under
  highlights, select Guide to Contracting ITS
  Projects to access web-based step-by-step
  selection process
• http//www.pcb.its.dot.gov/Catalogs/ITSCurriculum.
  htm for courses on ITS procurement, systems
  engineering and project management

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Contact
Mac Lister
Mac.Lister_at_fhwa.dot.gov
Phil Tarnoff
tarnoff_at_eng.umd.edu