1 Best Value Project Model Kenneth T. Sullivan PhD, MBA Performance Based Studies Research Group School of Sustainable Engineering and the.

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Best Value Project ModelBest Value Project Model

www.pbsrg.com

Kenneth T. Sullivan Kenneth T. Sullivan PhD, MBAPhD, MBA

Performance Based Studies Research GroupPerformance Based Studies Research GroupSchool of Sustainable Engineering and the Built EnvironmentSchool of Sustainable Engineering and the Built Environment

Ira A. Fulton Schools of EngineeringIra A. Fulton Schools of EngineeringArizona State UniversityArizona State University

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What are we trying to What are we trying to accomplish?accomplish?

Scenario 1 Scenario 2

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 OverviewWho 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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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

PBSRG’s Research Results(Performance Based Studies Research Group)

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Research ClientsResearch 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 & JournalWorking Commission 117 & JournalInternational Efforts & PartnersInternational Efforts & Partners

5 years15 tests for infrastructureTwo major GCs

Fulbright ScholarUniversity of BotswanaPIPS tests RMIT

Teaching IMTPBSRG platform

Tongji University

BrunsfieldComplete Supply Chain

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What makes our research message What makes our research message unusual…..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 client’s representative to know what the vendor should do

Measurement

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Industry StructureIndustry StructureHigh

High

I. Price-Based/Traditional

II. Value Based

IV. Unstable Market

III. Negotiated-Bid

Specifications, standards and qualification based

Management & Inspection

Reactive vendor

Best Value (Performance and price measurements)

Quality control

Competition

Pe

rfo

rman

ce

Low

Qualified vendors invited

Owner selects vendor

Negotiates with vendor

Vendor performs Vendor minimizes risk

Client minimizes risk

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Vendor 1

Vendor 2

Vendor 3

Vendor 4

Perf

orm

an

ce

High

Low

Ris

k

High

Low

Perf

orm

an

ce

High

Low

Ris

k

High

Low

Impact of Minimum Standards Impact of Minimum Standards & Expectations& Expectations

Vendor 1Vendor 2Vendor 3Vendor 4

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High

Low

Perf

orm

an

ce

Owners

“The lowest possible quality

that I want”

Vendors

“The highest possible value that you will get”

Minimum

Perception Problems with Perception Problems with Traditional SystemsTraditional Systems

High

Low

Perf

orm

an

ce

Maximum

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BV ObjectivesBV 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

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Best Value System: Best Value System: PIPS & PIRMSPIPS & PIRMS

Identification of PotentialBest-Value

Pre Planningand

Risk Management

Measurement ofDeviation from the

Expectation

PHASE 1PHASE 1 PHASE 2PHASE 2 PHASE 3PHASE 3

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PIPS PIRMSPerformance Information

Procurement SystemPerformance Information Risk Management System

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What is the model?What is the model?Identify the expert with as little effort as possible, using

measurement and differentialTransfer risk and control to the expert through preplanning

and risk minimization, focusing on risk that are not controlledHire the expertUse alignment, planning, & measurement in place of

management, control, and directionCreate a performance information environment to drive

accountability and changeProactive vs. Reactive Supply chain (us mentality)Logic vs. ExperiencePredictable vs. Chance

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Filter 1Past

PerformanceInformation

Filter 2Current

Capability

Filter 4Prioritization

(Identify Best Value)

Filter 5Cost

Reasonableness

Filter 6Pre-

Planning & Risk Min

Time

Qua

lity

of V

endo

rs

Filter 3Interview

Key Personnel

Awar

d

High

Low

BV ProcessBV Process

Measurement of Risk & Performance During the Contract

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Evaluation CriteriaEvaluation 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 FormSurvey Form

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Calculating the Overall Calculating the Overall ScoreScore

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Example of Solutions Example of Solutions Risk: Risk: Concrete EscalationConcrete EscalationType: Non-Technical (RAVA)Type: 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 INFORMATIONMARKETING INFORMATION

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Example of Solutions Example of Solutions Risk: Risk: Loss of Radio Flagship in Major MarketLoss of Radio Flagship in Major MarketType: Non-Technical (RAVA) Type: 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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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.

Example of SolutionsExample of SolutionsRisk: Risk: Noise from DemolitionNoise from Demolition

Type: Technical RiskType: Technical Risk

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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 client’s risk of exposure

by: 1) Vendor’s 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.

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

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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.

Example of Solutions Example of Solutions Risk: Risk: Getting water to the siteGetting water to the siteType: Technical RiskType: Technical Risk

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Example of Value AddedExample of Value Added

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Example: Value Added Example: Value Added ItemsItems

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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VendorNo Summary Criteria Out of A B C1 RAVA Plan 10 5.91 7.09 6.312 Transition Milestone Schedule 10 5.17 6.96 6.333 Interview 25 15.77 16.78 13.534 Past Performance Information - Survey 10 9.80 9.99 9.825 Past Performance Information - #/Clients Raw # 5.67 3.00 4.426 Past Performance Information - Financial 10 7.02 8.67 6.907 Financial Rating 10 4.00 8.00 8.008 Financial Return - Commissions Raw $ 30,254,170$ 60,137,588$ 64,000,000$ 9 Capital Investment Plan Raw $ 14,750,000$ 20,525,000$ 12,340,000$

10 Equipment Replacement Reserve Raw $ 7,213,342$ 4,100,001$ 8,171,811$ Finanical Totals 52,217,512$ 84,762,589$ 84,511,811$

VendorNo Summary Criteria Weight/Out of A B C1 RAVA Plan 28 16.55 19.85 17.672 Transition Milestone Schedule 2 1.03 1.39 1.273 Interview 25 15.77 16.78 13.534 Past Performance Information - Survey 9 8.82 8.99 8.845 Past Performance Information - #/Clients 1 1.00 0.53 0.786 Past Performance Information - Financial 15 10.53 13.01 10.357 Financial Rating 5 2.00 4.00 4.008 Financial Return - Commissions 7 3.31 6.58 7.009 Capital Investment Plan 6 4.31 6.00 3.61

10 Equipment Replacement Reserve 2 1.77 1.00 2.00100 65.09 78.13 69.04

Assessment: based on actuals

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Identifying the Potential Identifying the Potential Best-ValueBest-Value

Best-Value is the lowest priceBest-Value is within 10% of next highest ranked firm Best-Value can be justified based on other factors

Best-Value is within budget

YesNo

YesYes

Best ValuePrioritizationBest Value

Prioritization

YesNo

Go with AlternateProposal or Cancel

Proceed toPre-Award

YesYes

YesYes

YesYes YesNo

YesNo Proceed to highest ranked proposal within budget

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Best Value SystemBest Value System

Identification of PotentialBest-Value

Pre Planningand

Risk Management

Measurement ofDeviation from the

Expectation

PHASE 1PHASE 1 PHASE 2PHASE 2 PHASE 3PHASE 3

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Filter 1Past

PerformanceInformation

Filter 2Current

Capability

Filter 4Prioritization

(Identify Best Value)

Filter 5Cost

Reasonableness

Filter 6Pre-

Planning & Risk Min

Time

Qua

lity

of V

endo

rs

Filter 3Interview

Key Personnel

Awar

d

High

Low

BV ProcessBV Process

Measurement of Risk & Performance During the Contract

No

n-D

eta

iled

No

n-D

eta

iled

No

n-D

eta

iled

No

n-D

eta

iled

De

taile

d

No

n-D

eta

iled

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Pre Award PeriodPre Award PeriodWhat is it / Why is it importantWhat 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 don’t 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 PeriodPre Award PeriodWhat is it / Why is it importantWhat 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 DocumentPre Award Document(Risk Management Plan)(Risk Management Plan)

1. Scope & Project/Effort Plan Clear and Detailed Project Scope (what is and what is not included) –

Set Baseline Expectation2. Cost or Financial Model3. Milestone schedule (linked to performance benchmarks)4. 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 minimize5. Client Action Item List6. Weekly Risk Report Set Up7. Performance Metrics8. Other: Agreed to Value Adding Options, Original RAVA Plan, Interview

Minutes, etc…

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Filter 1Past

PerformanceInformation

Filter 2Current

Capability

Filter 4Prioritization

(Identify Best Value)

Filter 5Cost

Reasonableness

Filter 6Pre-

Planning & Risk Min

Time

Qua

lity

of V

endo

rs

Filter 3Interview

Key Personnel

Awar

d

High

Low

AwardAward

Measurement of Risk & Performance During the Contract

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Filter 1Past

PerformanceInformation

Filter 2Current

Capability

Filter 4Prioritization

(Identify Best Value)

Filter 5Cost

Reasonableness

Filter 6Pre-

Planning & Risk Min

Time

Qua

lity

of V

endo

rs

Filter 3Interview

Key Personnel

Awar

d

High

Low

MeasurementMeasurement

Measurement of Risk & Performance During the Contract

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Weekly Reporting SystemWeekly 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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Unforeseen Risks

PERFORMANCE SUMMARY• Vendor Performance• Client Performance• Individual Performance• Project Performance

RISK MANAGEMENT PLAN• Risk• Risk Minimization• Schedule

WEEKLY REPORT• Risk• Unforeseen Risks

Management by Risk Management by Risk MinimizationMinimization

METRICS• Time linked• Financial• Operational/Client Satisfac.• Environmental

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Tendencies of Successful Tendencies of Successful ProposersProposers

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 client’s intent

Develop a optimal plan to deliver that solution or service within the client’s 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 More information available at:available at:

www.pbsrg.com

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