Bid Specification, Life Cycle Costing and Intelligent Buildings

1. Bid Specification, Life Cycle Costing and Intelligent Buildings Rawlson O’Neil King Communications Director Continental Automated Buildings Association

2. About CABA • International not-for-profit industry association • Dedicated to the advancement of intelligent home and intelligent building technologies • Membership driven • Provides members with networking and market research opportunities • Celebrating 25th anniversary in 2013

3. Prepared by: www.CABA.org

4. Project Objectives • Key Research Objectives: • The key objectives of this research are as follows: • Evaluate the main aspects of the bid specification process • Understand how decisions are made in the process and the role of key influencers in such decisions • Determine the optimal way of working with various stakeholders involved in the process • Create the right customer and partner awareness approaches to achieve better technology adoption • Understand common goals and objectives that can be established for various participants to work cohesively for success • Understand the changing dynamics of the industry and the impact on intelligent building solutions and services • Create the right business approach to respond to changing demand • Define opportunities and prospects for market participants • 4

5. Methodology • The approach and methodology combined primary and secondary research. The primary research sample categorization included the following: • Fulfillment Partners include Consulting Spec Engineers/Design Build Firms/Architects/ESCOs • Others include CIOs, Associations, etc. • Total sample size: N=60 • 5

6. Key Takeaways • The key takeaways of this research are as follows: • Intelligent building owners consider technology integration to be important. However, the investment and perceived value derived from it are not well aligned. Lack of product knowledge is a common issue among most owners and operators. • The demand potential for intelligent building solutions is further impacted by the perceived price-performance ratio of these products. Building owners do not have a clear idea of the actual benefits of buying these products and solutions. • Bid specification (also referred to as bid and spec, hereafter) is considered an integral part of the technology procurement processes in the intelligent building industry. • However, present bid and spec processes followed in the industry lack transparency, are price driven, and do not offer adequate impetus to the incorporation of intelligent technologies. • The issue lies in the fact that technology suppliers do not have a good grasp of spec practices, and likewise, spec providers lack a thorough understanding of technology advancements. • There is a greater need for vendors and service providers to collaborate and create joint bid and spec business models to service the intelligent building market. • The immediate need for industry participants is to organize initiatives to work together, and create structural frameworks for joint collaboration in developing building technology and spec development practices. • 6

7. State of the Industry • Industry Transition • A gradual state of transition from conventional to intelligent buildings • Consensus on fundamental principles: • Definition of intelligence • A buildings’ intrinsic relationships with energy • Critical importance of energy efficiency, operational cost savings, and return on investment (ROI) • Policy impetus and energy mandates • New Challenges • Incorporating non-conventional project partners • Price Pressures • Notion of single supplier • Differentiating buyer from installer • Technology silos • Key Trends and Dynamics • 7

8. Major Participant Groups • 8

9. Bid-Specification Methods • Design-bid-build • Starts with the owner contracting the design process to a fulfillment partner • No overlap of tasks • Contracts with separate parties for design and construction • Design-build and Performance Contracts • Single party for both the design and construction • Overlap of tasks reduces delivery time • Better adherence to specs • Construction Management (CM)* • CM firm acts as overall advisor • CM contracts third parties • Guaranteed maximum price • The end-user community considers these methods to be part of a well accepted structure. • Methods allow them to maximize the value on what they spend. • Methods also ensure that the involvement of right partners in execution and implementation is done in a justifiable manner. • *Also referred to as Project Management (PM) • 9

10. Challenges with the Present Methods • Design-bid-build • Takes longer to deliver, and increases the likelihood of change orders and delay claims • Building owner/operator’s limited visibility to actual construction/installation costs • Accountability issues, owing to no single point of responsibility for project delivery • Design-build and Performance Contracts • Leads to conflict of interest, with DB/CE and contractor being on the same team • Although owner/operator is guaranteed construction/installation cost, these are non-competitive • Involvement of owner/operator is only at the early stages of the process, with no impartial agent to represent owners’ interests • Construction Management • Leads to added costs to owner for hiring the CM/PM, paper work, and administrative time • May lead to cheaper products and services to offset risks and additional costs • Can cause conflict of interest, with one entity assuming multiple roles • 10

11. Process Optimization • The following aspects need to be incorporated in the present bid and spec methods: • Opting for Objective Points Criteria- An objective evaluation criterion is required to ensure that product and technology selection is based on some quantification of actual benefits to the project/building. • Role of Quality Surveyor/Advisor- Given the disconnect among various delivery partners in the bid spec processes, there is a critical need for autonomous supervision to ensure that processes are followed transparently and the correct choices are made in selection of products, technology and services. • Create Scope for New Vendors- Creating scope for the inclusion of these smaller players is necessary, as it allows the building owner to take advantage of new innovative technology – at pricing that may not be available from larger vendors. • Avoid Cost Thresholds- Removing this component could potentially help optimize the process and allow for the inclusion of more vendors and suppliers into the selection process. • Mandate a Feedback Loop- Including this as a prescriptive requirement into the contractual process can offer valuable insights into technology performance, cost-benefit evaluation and establish their importance in intelligent building projects. • Integrated Value Chainand Delivery Approaches- This will prompt suppliers and service providers to collaborate and offer the most optimal solution, while capitalizing on collective bargaining capabilities to influence selection. • 11

12. Project Cases • 12

13. Conclusions • The distinctively disjointed and transactional model leads to low technology adoption • Collaboration is required between fulfillment partners, vendors and suppliers • 13

14. LIFE CYCLE COSTING AND INTELLIGENT BUILDINGS LANDMARK RESEARCH STUDY Prepared by: www.CABA.org

15. Technology Transitions in Buildings • Technology Transitions in Buildings

16. Typical Lifecyle of Buildings and Associated Costs

17. Life Cycle Costs Approaches Adopted in Buildings

18. Life Cycle Costing Adoption Influencers

19. Market Approach to Life Cycle Costing Implementation

20. Key Findings • Concerted initatives adopted by institutional bodies and technical organizations over the last two decades have brought the life cycle costing concept to theforefront of pre-project evaluations in many industries, including intelligent buildings and construction. • Despite gaining early focus, LCC has remained largely confined to project evaluations in the federal government sector, with very limited frequency of usewitnessed in other vertical segments. This is attributed to a variety of factors including inconsistent methodologies, lack of valid data, irreconcilable values,and apathy of building owners, vendors and service providers to voluntarily incorporate LCC into the early phases of a project.

21. Key Findings • Nevertheless, the need to logically approve capital investments and validate ROI and equity, cost assessment tools have come a necessary part of the project flow,even though a full-fledged LCC approach may not be pursued. • LCC is often substituted by simple payback analysis and other capital costjustification methods to meet the same objective. They offer the minimum requiredincentive to bridge the gap between having to accommodate untendered costs as opposed to allowing paramterically justified investment. • Intelligent buildings essentially fall within two major categories: partially-integratedand fully-integrated. The true value of effective O&M, progressive asset management and cost savings via predictive energy management are onlyachieveable with a fully integrated approach. This, in turn, is reliant on the buildingindustry’s motivation to adopt open standards and integrated systems, selected onthe basis of their ability to offer lowest lifecycle costs.

22. Key Findings • Intelligent building industry participants are showing gradual signs of movingaway from putting undue emphasis on initial costs and simple payback, towardsa more holistic approach where recurring costs, incentives and lifecycleassessments are taken into consideration, albeit slowly. • A major drawback in the presently used LCC methods is that these are characterized by the absence of a consistent methodology for deriving LCC. But perhaps more hindering than this issue is the fact that the majority of these tools and calculation techniques cannot be easily comprehended by buildingowners and their operations staff. • A fragmented delivery chain and transactional interactions among value chainpartners further act as restraining factors in LCC adoption.

23. Key Findings • It is encouraging to witness a growing breed of building owners and assetmanagers that lay emphasis on superimposing cost-benefit analysis over an extended project life span, whereby better visibility into recurring costs andincentives can be obtained. • Among prevalent LCC tools, the NIST-BLCC tool is by far the mostwidely accepted, and forms the basis of various customized LCC techniques. • There is a greater need for consultants, owners, vendors and serviceproviders to collaborate and create a market approach to promote inclusive decision making so that integrated design and delivery approaches are supported. • The immediate need for industry participants is to organize initiatives to worktogether and create structural frameworks for joint collaboration in technologydeployment as well as propagating LCC adoption.

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