Best Value Project Model

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Best Value Project Model
Kenneth T. Sullivan PhD, MBA Performance Based
Studies Research Group School of Sustainable
Engineering and the Built Environment Ira A.
Fulton Schools of Engineering Arizona State
University
www.pbsrg.com
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What are we trying to accomplish?
Question If Purchasing wants to buy a green
circle, in which scenario is hiring the right
green circle easiest to justify?
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Who we are PBSRG Overview

• Established in 1994 to assist clients in
  improving the quality of construction.
• Research has grown into
• Information Measurement Theory (IMT) measuring
  of current conditions to predict future outcomes
• Clients implementation of Best-Value Performance
  Information Procurement System (PIPS)
• Organizational Transformation Models
• New project management model (alignment/leadership
  instead of management/influence) PIRMS
• New best value model
• New information environment (minimize access and
  flow of information)
• Testing of concepts outside of construction
• Risk management by using deductive logic,
  minimization of decision making

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PBSRGs Research Results(Performance Based
Studies Research Group)

• Worldwide as a leader in Best-Value Systems
• Conducting research since 1994
• 168 Publications
• 800 Projects
• 4.6 Billion Services Construction
• 5 Increase in Vendor profit
• 98 On-time, On-Budget, Customer satisfaction
• PMI, NIGP, IFMA, IPMA
• Tests in Netherlands, Botswana/Africa, Malaysia
• ASU investments of over 100M due to BV

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Research Clients

• General Dynamics
• University of Minnesota
• General Services Administration (GSA)
• US Solar
• Heijmans, Netherlands
• Ministry of Transportation, Netherlands
• State of Alaska
• University of Alberta
• State of Oklahoma
• State of Idaho
• Idaho Transportation Department
• State of Oregon
• Arizona Parks and Recreation
• US Army Medical Command
• USAF Logistics Command
• University of New Mexico
• University of Idaho
• EVIT School District

• Arizona State University
• US Corps of Engineers
• Arizona Public Service (APS)
• Salt River Project (SRP)
• Rochester Utility
• Boise State University
• Idaho State
• Lewis Clark
• City of Phoenix, AZ
• City of Peoria, AZ
• City of Roseville, MN
• Olmstead County, MN
• Fann Environmental
• Brunsfield
• Fulbright Program /University of Botswana, Africa
• US Embassy, Bank of Botswana
• RMIT, Melbourne Australia
• Aramark, Canon, Qwest, ISP, HP, Chartwells, AP,
  Pearson
• Various Contractors and Consultants

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Working Commission 117 JournalInternational
Efforts Partners
Brunsfield Complete Supply Chain
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What makes our research message unusual..

• Simplistic
• Uses logic
• Efficiency less decision making, less
  management, and better results (best value and
  high profits)
• It is more important for the vendor who does the
  work to know what to do than it is for clients
  representative to know what the vendor should do
• Measurement

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Industry Structure
High
III. Negotiated-Bid
II. Value Based
Qualified vendors invited Owner selects
vendor Negotiates with vendor Vendor performs
Best Value (Performance and price
measurements) Quality control
Vendor minimizes risk
Performance
I. Price-Based/Traditional
IV. Unstable Market
Specifications, standards and qualification
based Management Inspection Reactive vendor
Client minimizes risk
High
Low
Competition
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Impact of Minimum Standards Expectations
High
Low
High
Low
Vendor 1
Vendor 2
Risk
Risk
Performance
Performance
Vendor 1 Vendor 2 Vendor 3 Vendor 4
Vendor 3
Vendor 4
Low
High
Low
High
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Perception Problems with Traditional Systems
Owners The lowest possible quality that I
want
Vendors The highest possible value that you
will get
Maximum
Minimum
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BV Objectives

• Outsource to experts (not just transfer
  risk...but minimize risk)
• Do not rely upon minimum requirements
• Minimize risk of non-performance
• Complete to expectations
• Complete within cost
• Customer satisfaction / No complaints
• No Finger pointing
• Minimize client management, direction, and
  decision making.
• In return, the vendors can maximize profit by
  being more efficient

WIN WIN
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Best Value System PIPS PIRMS
PHASE 1
PHASE 2
PHASE 3
Measurement of Deviation from the Expectation
Pre Planning and Risk Management
Identification of Potential Best-Value
PIRMS
PIPS
Performance Information Procurement System
Performance Information Risk Management System
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What is the model?

• Identify the expert with as little effort as
  possible, using measurement and differential
• Transfer risk and control to the expert through
  preplanning and risk minimization, focusing on
  risk that are not controlled
• Hire the expert
• Use alignment, planning, measurement in place
  of management, control, and direction
• Create a performance information environment to
  drive accountability and change
• Proactive vs. Reactive
• Supply chain (us mentality)
• Logic vs. Experience
• Predictable vs. Chance

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BV Process
Filter 2 Current Capability
Filter 3 Interview Key Personnel
Filter 1 Past Performance Information
Filter 4 Prioritization (Identify Best Value)
Filter 5 Cost Reasonableness
Filter 6 Pre-Planning Risk Min
High
Quality of Vendors
Award
Measurement of Risk Performance During the
Contract
Low
Time
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Evaluation Criteria

• Past Performance Information
• Firm
• Key Personnel
• Scope Plan
• Technical Risk Plan
• Risk Assessment Value Added Plan (RAVA)
• Schedule
• Cost
• Interviews of Key Personnel

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Survey Form
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Calculating the Overall Score
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Example of Solutions Risk Concrete
EscalationType Non-Technical (RAVA)

• Plan 1
• The owner can be assured all risks associated
  with material escalations will be eliminated
  because we offer the benefit of an experienced
  project team that includes the most detailed,
  prequalified and extensive list of subcontractors
  and suppliers, from around the world.
• Plan 2
• The cost of concrete has been rising drastically.
  Since this project requires a substantial amount
  of concrete, cost is a risk. To minimize this
  risk, we have secured and signed a contract with
  a local concrete manufacturer to prevent any
  increase in cost during the duration of this
  project.

MARKETING INFORMATION
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Example of Solutions Risk Loss of Radio
Flagship in Major MarketType Non-Technical
(RAVA)

• Plan 1
• We will work very hard to maintain excellent
  affiliate relationships. If we lose a radio
  station (e.g. it changes its format) we will move
  quickly to replace the lost station. If we
  cannot quickly replace a flagship station, we can
  be very creative and could even consider
  purchasing all local inventory from a new
  flagship station.
• Plan 2
• We own and will maintain two radio contracts
  covering the Phoenix area with were signals can
  be switched if required. The flagship station
  will be the station with the stronger signal and
  greater coverage. If a station is lost we will
  have a equal replacement within 2 months. If
  within two months a replacement is not contracted
  we will purchase inventory from another station
  or discount the cost of an inventory purchase and
  add it to our payments to ASU.

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Example of SolutionsRisk Noise from
Demolition Type Technical Risk

• Plan 1
• We will work with the user to minimize the impact
  of noise from demolition.
• Plan 2
• We have planned to demolition during off hours
  and weekends. This will have a slight impact on
  our cost (less than 1), but the impact to
  customer satisfaction justifies this. We will
  also install rubber sheets on the floors to
  diminish noise and vibrations. Both solutions can
  be performed within your budget.

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Example of Solutions Risk Safe Food Supply/Food
Born Illness Type Non-Technical (RAVA)

• Plan 1
• Our internal food safety standards are recognized
  as being far more stringent than government
  regulatory requirements. In the unlikely event
  of a food-borne illness, our strong relationships
  with local, state, and national health agencies
  will ensure and 24-hour response.
• Plan 2
• If a food safety issue arises, vendor will
  effectively minimize the clients risk of
  exposure by
• 1) Vendors system will issue a safety alert and
  related directives to 10,000 units and all ASU
  email accounts in less than 15 minutes.
• 2) The vendor will place a lock within in its
  foodservices purchasing system on any food with
  risk so it cannot be purchased,
• 3) The vendor will remove all potentially harmful
  products within the first hour of notice.
• 4) The vendor will identify as many purchasers as
  possible through credit receipt names and the
  client system to notify them individually.
  Warnings will be placed around campus within two
  hours of discovery.

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Example of Solutions Risk Getting water to the
site Type Technical Risk

• Plan 1
• Coordination with water company is critical.
  We will coordinate and plan with water company
  as soon as the award is made to make sure that we
  get water to the site to irrigate the fields.
• Plan 2
• We will coordinate and schedule the water with
  water company. However, based on past
  experience there is a high risk they will not
  meet the schedule. We will have temporary
  waterlines setup and ready to connect to the
  nearby fire hydrant to irrigate until water
  company is ready. We will also have water
  trucks on-site if there is problems with
  connecting the lines.

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Example of Value Added
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Example Value Added Items

• Reroofing this building will not stop all water
  leaks. The majority of the leaks are caused by
  cracks in the parapet walls, broken/missing
  glass, and poor caulking. For an additional 20K
  and 3 weeks in schedule we can replace and repair
  all of these items.

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Assessment based on actuals
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Identifying the Potential Best-Value
Proceed to highest ranked proposal within budget
Best-Value is within budget
Best-Value is the lowest price
Best-Value is within 10 of next highest ranked
firm
Best-Value can be justified based on other factors
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Best Value System
PHASE 1
PHASE 2
PHASE 3
Measurement of Deviation from the Expectation
Pre Planning and Risk Management
Identification of Potential Best-Value
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BV Process
Filter 2 Current Capability
Filter 3 Interview Key Personnel
Filter 1 Past Performance Information
Filter 4 Prioritization (Identify Best Value)
Filter 5 Cost Reasonableness
Filter 6 Pre-Planning Risk Min
High
Quality of Vendors
Award
Measurement of Risk Performance During the
Contract
Low
Time
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Pre Award PeriodWhat is it / Why is it important

• Period of time allotted to potential best value
  vendor (aka the Expert) to
• Show that they have thought about and preplanned
  the project
• Set a plan for its delivery / clarify that your
  proposal is accurate
• Identify the risks and issues that could cause
  the plan to deviate
• Identify what you dont know and when you will
  know it and how the plan could change based upon
  what you discover
• Set plans to minimize those risks from occurring
• Address all the concerns and risks of the client

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Pre Award PeriodWhat is it / Why is it important

• Period of time allotted to potential best value
  vendor (aka the Expert) to
• Know how they are being successful and adding
  value (measurement)
• What metrics you will use and how you will report
  them
• What is the current baseline condition we are
  comparing against
• Identify what you need from the client and have a
  plan for getting it
• Have completely aligned expectations between all
  parties so everyone knows what is going to
  transpire and what they are supposed to do

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Pre Award Document(Risk Management Plan)

• Scope Project/Effort Plan
• Clear and Detailed Project Scope (what is and
  what is not included) Set Baseline Expectation
• Cost or Financial Model
• Milestone schedule (linked to performance
  benchmarks)
• Risk Minimization Plan
• Uncontrolled Risks List
• A list of Risks Proposer does not control with
  plans to minimize
• Identified Risks List
• A list of all previously identified risks (by
  other bidders, user, and client) with plans to
  minimize
• Client Action Item List
• Weekly Risk Report Set Up
• Performance Metrics
• Other Agreed to Value Adding Options, Original
  RAVA Plan, Interview Minutes, etc

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Award
Filter 2 Current Capability
Filter 3 Interview Key Personnel
Filter 1 Past Performance Information
Filter 4 Prioritization (Identify Best Value)
Filter 5 Cost Reasonableness
Filter 6 Pre-Planning Risk Min
High
Quality of Vendors
Award
Measurement of Risk Performance During the
Contract
Low
Time
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Measurement
Filter 2 Current Capability
Filter 3 Interview Key Personnel
Filter 1 Past Performance Information
Filter 4 Prioritization (Identify Best Value)
Filter 5 Cost Reasonableness
Filter 6 Pre-Planning Risk Min
High
Quality of Vendors
Award
Measurement of Risk Performance During the
Contract
Low
Time
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Weekly Reporting System

• Excel Spreadsheet that tracks only unforeseen
  risks on a project
• Client will setup and send to vendor once
  Award/NTP issued
• Vendor must submit the report every week
  (Friday).
• The final project rating will be impacted by the
  accuracy and timely submittal of the WRS

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Management by Risk Minimization
Unforeseen Risks
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Tendencies of Successful Proposers

• Identify best people in their company for the
  type of project
• Those folks meet, think as if they were the
  client, look at the RFP requirements and
  information, and try to understand the clients
  intent
• Develop a optimal plan to deliver that solution
  or service within the clients constraints
• Think of their past experiences and look at the
  unique attributes of the current project, and
  think of what risks they see that could cause the
  plan to get of track
• Prioritize those risks
• Plan how they can minimize those risks
• They think of ways to help better meet the
  clients intent or add value
• Then they prepare their proposal documents

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More information available atwww.pbsrg.com