2. Transformation of ASU Contracting Office April 2008 P erformance B ased S tudies R esearch G roup www.pbsrg.com PBSRG GLOBAL Dean Kashiwagi, Professor, PhD, PE Director Ray Jensen Senior Vice President, Business Services John Riley Director, ASU Contracting

3. Efficiency: more economical, better value, higher performance Minimize management/administration of contract by as much as 90% Increase performance to 98% (on time, on budget with no contractor/vendor generated cost change orders, meet quality expectations) Pay no more, but contractors/vendors increase profits by 5% Use logic instead of experience Minimize contract administration, decision making, and surprises

4. –Conducting research since 1994 –146 Publications –441 Presentations, 6,200 Attendees –530 Procurements –$683 Construction services –$451Non-construction services –50 Different clients (public & private) –98% Customer satisfaction –Decreased management functions by 90% –Increase vendor profit by 5% Worldwide as a leader in Best-Value Procurement /Construction Performance Research and Documentation 2006/2008 2008/2009 Award to Africa Best Value PIPS transformation International Council for Research and Innovations in Building and Construction Corenet Global 2005 Innovation of the Year Award

5. Current Research Clients General Dynamics United Airlines Entergy, Southern US Schering Plough Neogard TREMCO Heijmans, Netherlands Ministry of Transportation, Netherlands University of Minnesota Arizona State University New Mexico State University States of Washington, Missouri, Arizona (Parks and Recreation) US Army Medical Command USAF Logistics Command US Corps of Engineers City of Peoria, AZ City of Miami Beach, FL City of Sitka, Alaska NY/NJ Port Authority Denver Hospital Georgia Tech University, Florida International University, Central Connecticut University, Glasgow Caledonian University, Salford University (Research)

6. Logic Models Use logic instead of experience Price based system vs best value Minimize the flow of information between parties Blind vs the visionary contractor/vendor Minimize risk that they do not control

7. Experience vs. Logic Knowing nothing Knowing everything Decisions

8. How to use logic instead of experience Admit that you don’t know Ask Ask those who come, how they know they know Ask them to go from beginning to the end of the project Ask them to minimize the risk they do not control

9. Me vs Us Us Risks Risks Control Don’t Control Control Don’t Control Me & Them

10. Logic Models Use logic instead of experience Price based system vs best value Minimize the flow of information between parties Blind vs the visionary contractor/vendor Minimize risk that they do not control

11. Industry Structure High I. Price Based (minimums) II. Best Value (actuals) IV. Unstable Market III. Negotiated-Bid Specifications, standards and qualification based Management & Inspection Performance and price measurements Quality control Competition Performance Low High Owner selects vendor Negotiates with vendor Vendor performs Contractor manages and minimizes risk Client manages

12. High Low Performance Owners “The lowest possible quality that I want” High Low Performance Vendors “The highest possible value that you will get” Minimum Maximum Perception on Standards

13. Performance High Low Risk High Low Impact of Minimum Standards Contractor 1 Contractor 2 Contractor 3 Contractor 4 Contractor 1 Contractor 2 Contractor 3 Contractor 4 Performance High Low Risk High Low

14. Industry performance and capability Highly Trained Medium Trained Vendor X Customers Outsourcing Owner Partnering Owner Price Based Minimal Experience

15. There is something wrong with the delivery of services ….. No one knows how bad the problem really is….. Entire system is broken…. Requires more management…. Performance is decreasing…. Relationships are more important than results…. Skill levels are decreasing….

16. Management ….it becomes less important to be skilled, accountable, and able to minimize risk As management, control, and direction become more important….. Skill 1Skill 2Skill 3Skill 4

17. “Manager’s Code” The movement of risk..... Don’t Mess With It! YES NO YES YOU IDIOT! NO Will it Blow Up In Your Hands? NO Look The Other Way Anyone Else Knows? You’re SCREWED! YES NO Hide It Can You Blame Someone Else? NO NO PROBLEM! Yes Is It Working? Did You Mess With It?

18. Initial conditions Final conditions An Event Time Laws

19. How to use logic instead of experience Admit that you don’t know Ask Ask those who come, how they know they know Ask them to go from beginning to the end of the project Ask them to minimize the risk they do not control

20. Best Value System Performance Information Procurement System (PIPS) PHASE 3: MANAGEMENT BY RISK MINIMIZATION PHASE 1: SELECTION PHASE 2: PRE-PLANNING QUALITY CONTROL Best Value also known as “sealed competitive bid” in State of Texas

21. Self Regulating Loop (Six Sigma DMAIC Generated) Actions Minimize data flow Minimize analysis Minimize control Risk Assessment Preplanning, Quality Control Plan Measure again 50% Identify value (PPI, RA, Interview, $$$$$) V 50% Interview Key Personnel Past Performance Information M Requirements (DBB, DB, CMAR, DBO) Efficient Construction MR MM R R R = Minimize Risk = Self Measurement = Identify Value M R V

22. Filter 1 Past Performance Information Filter 2 Proposal & Risk / Value Plan Filter 4 Prioritize (Identify Best Value) Filter 5 Pre-Award Phase (Pre-Plan) Filter 6 Weekly Report & Post-Rating Time Quality of Vendors Filter 3 Interview Award High Low Performance Information Procurement System (PIPS)

23. Me vs Us Us Risks Risks Control Don’t Control Control Don’t Control Me & Them

24. Unforeseen Risks PERFORMANCE SUMMARY Vendor Performance Client Performance Individual Performance Project Performance QUALITY ASSURANCE Checklist of Risks Sign and Date QUALITY CONTROL Risk Risk Minimization Schedule WEEKLY REPORT Risk Unforeseen Risks

25. PM 1PM 2PM 3PM 4 Procurement Officer 1Procurement Officer 2 Director Contractor 1 Contractor 2 Contractor 3 Contractor 4 Contractor 5 Contractor 6 Contractor 7 Contractor 8 Contractor 9 Contractor 10 Contractor 11 Contractor 12 Contractor 13 Contractor 14 Contractor 15 Contractor 16 Risk Management by Contractor Procurement Officer 1Procurement Officer 2 PM 1PM 2PM 3PM 4 Director

26. Division Overview

28. Contractors

29. PM/PI Performance Line OVERVIEWPM 1PM 2PM 3 Total Awarded Budget$50,000,000$10,000,000$45,000,000 Current Cost$51,250,000$10,000,000$45,800,000 Over Budget$1,250,000$0$800,000 OVERVIEW OF PROJECTS Total Number of Projects1536 % Projects Completed On Time87%100%83% # of Jobs Delayed201 % Projects Completed On Budget93%67%100% # of Jobs Over Awarded Budget110 AVERAGE PROJECT Project Budget$3,333,333 $7,500,000 % Over Awarded Budget2.5%0.0%1.8% # of Days Delayed15011 Number of overdue risks0.511.200.92 Owner Rating9.819.7110.00 Risk Number1.801.401.03

30. UMN Pilot Program Analysis Number of Best-Value Procurements: 45 (GC, Mech, Elec, Roof) Allocated Funds: $10.8M Awarded Cost: $10.0M (-7.4%) Average Number of Proposals: 3 Projects Where Best-Value was also Lowest Cost: 49% Completed Projects: 18 –Cost Increases: 5.4% (Client) / 0.4% (Unforseen) –Schedule Increases: 49.6% (Client) / 0.8% (Unforseen) –16 projects had no contractor cost increases UMN Project Manager’s management decrease: 90% Average customer satisfaction: 100% Average contractor close out rating: 9.4

31. ASU (largest university in US) Procurement office is transforming into best value operation Food services (10 year, $400M), sports marketing, furniture, and IT/networking Transfer contract administration to contractors as well as risk and control Results are beyond the wildest expectations

32. Commissions $30,254,170 $60,137,588 $64,000,000 Capital Investment $14,750,000 $20,525,000 $12,340,000 Equipment Replacement Reserve $ 7,213,342 $ 4,100,001 $ 8,171,811 Total $52,217,512 $84,762,589 $84,511,811 Raw Financial Analysis Financial Criteria Incumbent A Awarded vendor BC Total financial distance between incumbent and awarded vendor: $ 32,545,077 (66%)

33. Entergy Test Results $100K investment ($75K education/$25K license) 7 projects, 3 completed 83% low price First two projects: $8M budget, regular bidders bid $6.7M on two projects BV contractor attracted by system bids $3.2M (saves Entergy $3.7M, on time on budget, and met Entergy expectations. Cushman & Wakefield PMs transferred off of both projects (leaving no PM support on both projects) Non-performer allowed to participate, performs well Used on traditional delivery another project, does not perform Conclusions: best value saved funding, minimized need for PM, and assisted non-performing contractor to perform

34. Alpha Roofing Manufacturer Neogard and BASF 98% customer satisfaction 98% roofs not leaking Service period Customer satisfaction rating Every other year, physical inspection of roofs Every year, call every customer of roof larger than 5,000 SF

35. Alpha Contractor PLines

36. Performing Systems Location: Torrington, WY Roof installation: 1983 5 year spec Hailstorms: 1984, 1999 Hail tested: 1995,2002 Recoated: 2003: 3 inch steel ball from 17.75 feet Green, sustainable, lightweight, retrofit over existing

37. Dallas Independent School District “ Circle of Life ” Meaningless technical data & Price based award Poor quality products Bad applications Buy Best Value

38. 37 No Correlation Between Performance and Price

39. Best Value PIPS Technology Contracts with vendors who minimize the risk they do not control Transfers risk and control Makes everyone accountable Creates a transparent system Uses dominant information Increases performance

40. Comments / Questions Next Session: ASU Transformation