Best Value Project Model

1. 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

2. Scenario 1 Scenario 2 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?

3. 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

4. PBSRG’s 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 BillionServices & 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

5. 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 Research Clients

6. Working Commission 117 & JournalInternational Efforts & Partners 5 years 15 tests for infrastructure Two major GCs Tongji University Brunsfield Complete Supply Chain Fulbright Scholar University of Botswana PIPS tests RMIT Teaching IMT PBSRG platform

7. 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 client’s representative to know what the vendor should do • Measurement

8. 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 Low High Competition

9. 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

10. Perception Problems with Traditional Systems High High Performance Performance Low Low Owners “The lowest possible quality that I want” Vendors “The highest possible value that you will get” Maximum Minimum

11. 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

12. 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 Risk Management System Performance Information Procurement System 12

13. 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

14. 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

15. 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

16. Survey Form

17. Calculating the Overall Score

18. 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

19. 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.

20. 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.

21. 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 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.

22. 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.

23. Example of Value Added

24. 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.

25. Assessment: based on actuals

26. Best Value Prioritization Best Value Prioritization Yes No Yes Yes No Yes No No Yes Yes Yes Yes Yes Yes Yes Yes Proceed to Pre-Award Go with Alternate Proposal or Cancel 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

27. 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

28. Non-Detailed Non-Detailed Non-Detailed Non-Detailed Non-Detailed Detailed 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

29. 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 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 29

30. 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 30

31. 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…

32. 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

33. 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

34. 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

35. RISK MANAGEMENT PLAN • Risk • Risk Minimization • Schedule • WEEKLY REPORT • Risk • Unforeseen Risks • METRICS • Time linked • Financial • Operational/Client Satisfac. • Environmental • PERFORMANCE SUMMARY • Vendor Performance • Client Performance • Individual Performance • Project Performance Management by Risk Minimization Unforeseen Risks

36. 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 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

37. More information available at:www.pbsrg.com