10/30/2015 New Risk/Project Management Paradigm

New Paradigm: use a structure to increase value Performance Information Procurement System (PIPS) Performance Information Risk Management System (PIRMS) Development: deductive logic base, test, modify system based on test results and retest; did not use industry best practices Picked research clients based on ability to understand logic 2

PIPS goals Faster Better value Increased vendor profits Lower project cost Used less people and minimized dependence on “experts” who increased complexity Create a win-win 3

PIPS/PIRMS Differences Minimizes client decision making/expertise Makes expert vendors more competitive with less effort Uses alignment of expertise instead of management, direction, and control Vendors mitigate risks that they do not control Best value vendor determines final project scope Communication is minimized Vendor holds all parties accountable by measuring deviation 4

Bottom Line Reduce project costs Increase vendor profit Cut out waste and risk Based on logic instead of best practices (structure not experts) $$$$$$$$

6 Dominant PIPS/PIRMS Test Results  17 Years, 1050 Projects  $4.6 Billion Services & Construction  $1B Netherlands infrastructure construction test  5% Increase in Vendor profit  98% Customer Satisfaction  Minimize transactions at ASU – $100M (17%)  GSA Heartland Region (using paradigm in region processes)  Tests ongoing in Netherlands, Canada, Malaysia, Finland and Botswana

International Efforts & Partners 7 Fulbright Scholarship- University of Botswana PIPS tests RMIT Teaching IMT PBSRG platform 5 years 15 tests for infrastructure Two major GCs Brunsfield Complete Supply Chain University of Alberta United States - 65 clients CIB Network PBSRG Network PMForum Network

More differences Best value for the lowest cost Takes less than 50% time and manpower Client does not have to know exactly what you want Shortens selection time Contract administration is done by contractor

Industry Structure High I. Price Based II. Value Based IV. Unstable Market III. Negotiated-Bid Specifications, standards and qualification based Management, direction, and control Decision making Technical expertise on client’s side Best Value (Performance and price measurements) Quality control and quality assurance Perceived Competition Performance Low High Owner selects vendor Negotiates with vendor Vendor performs © 2011, Arizona State University, PBSRG

There is something wrong with an inefficient micro-managed system ….. There is too much work…. Everyone has to do everything, and no one has the time to succeed…. Performance will not go up The only way to survive is through relationships (working together to make minimums acceptable) This is not an efficient or successful environment

And no one quite knows what it is…..

“Micro-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?

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 What is causing all the confusion?

Performance High Low Risk High Low Best Value vs. Low Bid Risk is minimized vs. project has no risk Contractor 1 Contractor 2 Contractor 3 Contractor 4 Contractor 1 Contractor 2 Contractor 3 Contractor 4 Performance High Low Risk High Low

Us Risks Risks Technical Requirement Don’t Control Control Don’t Control Me vs. Them Paradigm Shift: contractors should have minimal technical risk and minimize risk that they do not control © 2011, Arizona State University, PBSRG Inexperienced contractor Experienced contractor Client, user, designer, and inspector etc…..

Business Model (Sustainable and Cost Less) Highly Trained “Visionary” Medium Trained Vendor X Customers Outsourcing Owner Partnering Owner Price Based (M,D,C) Minimal Experience “Blind”

Initial conditions Final conditions Event (Laws of Physics and Deterministic Reality) Time Laws (Control, impact, and influence) © 2011, Arizona State University, PBSRG

Best Value Project Objectives 18 PHASE 1PHASE 2 PHASE 3  Financial Proposal  Past Performance  Risk Assessment  Value Assessment  Interviews  Demonstrations  Other Requirements  Award  Weekly Reporting  Post Award Metrics  Final Documentation  Update PPI  One Vendor  Detailed Project Plan  Risks Minimized  Project Schedule  Measurement System

Performance Information Procurement System (PIPS) 19 Filter 1 Past Performance Information Filter 2 Project Capability Filter 4 Prioritize (Identify Best Value) Filter 5 Cost Verification Filter 6 Pre-Award Period TIME QUALITY OF VENDORS Filter 3 Interview AWARD High Low Blind Rating Technical Capability Non-technical risk (no control) Value Added Financials PA Docs WRR RMP Technical Coordination Criteria PPI Interview Technical Non-technical Value Added Financials Schedule Selection Phase Dominance Check Ratings are dominant Best value is within cost range Vendor is an Expert vendor is not an expert Short listing

Selection Criteria Past Performance Information (PPI) Project Capability (blind review) – Technical capability – Risk (that vendor does not control) – Value added (VA) Interview Price © 2011, Arizona State University, PBSRG

Use “Dominant” Information Simple Non-technical Verifiable performance measurement Minimizes decision making © 2011, Arizona State University, PBSRG

Blind submittals are simple Not detailed – Example 1: The project manager being proposed on this project is very experienced in design-build, mechanical system type and innovative projects. The what, but not the how – Example 2: the mechanical subcontractor can install a system that minimizes the installation time by 20% and the system minimizes the annual energy consumption by 15% Defined by performance information – Example 1: PM record over the past 5 years, 10 DB projects, $250M average scope, customer satisfaction is 9.5/10.0, deviation rate is less than 1% – Example 2: Last five projects, customer satisfaction is 9.5/10, deviation rate is less than 1%, 20% earlier finish, installed system have average energy consumption 15% under average consumption, references available on request. © 2011, Arizona State University, PBSRG

Us Risks Risks Me vs. Them Vendor acts in best interest of client because it is in their own best interest Technical scope Risk that vendor does not control Risk that the vendor does not control Inexperienced contractor Client, user, designer, and inspector etc….. Experienced contractor

Best Value Process 24 Filter 1 Past Performance Information Filter 2 Proposal & RAVA Plan Filter 4 Prioritize (Identify Best Value) Weekly Report & Post-Rating Filter 3 Interview Key Personnel TIME QUALITY OF VENDORS High Low Filter 5 Pre-Planning Phase AWARD

Best Value Risk Model 25 Vendor manages/minimizes risk with contract - Contract is predictive VENDORCONTRACTBUYER

PIPS: New Paradigm and BV Standard Transparent Documented using “dominant” information Very difficult to protest Outstanding results Changes paradigm of delivery Not just a different procurement delivery system Minimizes subjectivity and decision making (liability) “Win-win” Maximizes contractor profit (attracts performers) Holds everyone accountable © 2011, Arizona State University, PBSRG

Why have interest? High performance vendors increase profit Vendor can maintain expertise Project cost is decreased Clients get better value and reduce costs drastically Fully measured and accountable system Allows strategic changes due to performance information $$$$$$$$

Current Efforts State of Idaho and Alaska are procuring large IT contracts WSCA has a contract with ASU State of Oklahoma and State of Minnesota changed procurement laws based on best value PIPS State of Oklahoma is using best value PIPS on service/construction combinations, IT, professional services Users in state of Minnesota are attempting to setup a best value standard that is self regulated GSA is attempting a one year implementation of entire system in the heartland region (Region 6) Cy Houston, Jeff Meyer ASU is procuring all services outside of construction using best value PIPS; latest procurement is bookstore services Dutch professional procurement group NEVI (ISM/NIGP) is starting Dutch efforts to change procurement system to PIPS Brunsfield changing entire supply chain to best value PIPS

Paradigm Shift Price based (transaction based) – Wrong person talking – Decision making on both sides – Can perfectly predict the future – Experts told to not think – Buyer tells the vendor what to do and how to do it. Best Value (efficient, minimized transactions) – Buyer says what he wants – Vendors tell buyer what he can get © 2011, Arizona State University, PBSRG Decision Making Client Blind and more expensive vendors Efficient Client Visionary Vendor

State of Oklahoma Best Value Projects Performance Oklahoma Best Value Project Information # of Best-Value Procurements20 Estimated Value of Best-Value Procurements$100,000,000 Protest Success Rate (# of protest won / # of protests)3/3 # of Different Services13 % Where Identified Best-Value was Lowest Cost71% Project Performance # of Completed Projects8 Average Customer Satisfaction9.5 (out of 10) Cost Savings$500K % On-time100% % On-budget100%

Different Services Procured Commercial Off the Shelf (COTS) Tax Software Enhancement of Workforce Job Website Electronic Document Management for Construction Documents. Computer to Plate Printer State wide light bulb and lighting fixture contract Emergency hazardous Waste Removal contract Construction Commissioning Services State Mental Health Services Performance Measurement of Federal Grants New Construction and Renovation Juvenile Center and Services (cancelled)

*Estimated* PROJECT OVERVIEWWithout WRRWith WRRWith WRR & RMP # of Projects Awarded Cost $249,336,707.47$435,362,033.52$318,352, % of Projects on Time 28%31% 38% % of Projects on Budget 40%47%60% % Over Awarded Budget 7.02%6.11%4.11% % due to owner 4.77%4.31%3.46% % due to contractor 0.02%0.05%-0.08% % due to unforeseen 2.23%1.75%0.62% % Delayed 39.1%38.77%33.72% % due to owner 25.0%28.05%29.88% % due to contractor 3.58%2.44%-1.42% % due to unforeseen 10.52%8.28%4.97% Completed Project RMP Analysis

33 Priority Road Investment Programme Ambition from Minister of Infrastructure and the Environment: 30 starts of work of road widenings and rush hour lanes and 10 openings for road users before june 2011 Start september 2008 May 2011: – 30 ‘shovel hits the ground’ – 10 ‘cutting the tape’

34 Acceleration achieved! – 6 contracts awarded, each in 5 months – Tender phase reduced by 50% Costs 60% lower – Vendors: 50% to 75% lower costs – Rijkswaterstaat: estimated reduction by half, development costs for the contract excluded May 2011: On average 1 year earlier completion date per project ‘The costs to tender are significantly lower than ‘traditional’ D&C’ Evaluation of market approach

Dato Gan and Brunsfield Visionary developer/vendor in Malaysia Minimize cost by cutting risk Added value: 10X Supply chain (SC) thinking; all entities must understand PIPS Contract with PBSRG to use BV PIPS to double production in the next 3 years Wants to raise the quality of life in Malaysia © 2011, Arizona State University, PBSRG

36 University of Minnesota and GSA Region 6 Results NO CRITERIA GSA PIPS RESULTS UMN PIPS RESULTS 1 Total Number of PIPS Best-Value Projects Procured Awarded Cost (Millions): $10 Million$40 Million 3 Percent Awarded Below Average Cost -6%-12% 4 Average Number of Proposals: 44 5 Percent of Projects Where Best-Value was also Lowest Cost 80%55% 6 Number of Completed Projects Contractor Generated Cost Increases 0% 8 Contractor Generated Schedule Increases 12.2%5% 9 Vendor Post Project Rating

GSA Overview 37 PIPSNon-PIPS Number of Projects 1011 Total Awarded Cost ($$) $ 9,994, $ 14,244, Total Awarded Schedule (Days) # of Proposals/Project 4- # of Different Vendors Awarded 75 Change Order Rate 4.5 %1 Delay Rate 31.0%82.2% GSA PM Evaluation of Completed Project

Contractor WRR Inaccuracy Issues 38 Sr.Risk CategoryOccurrence % 1Risk Description unclear22.3% 2Close out incomplete17.7% 3Schedule Incomplete/not updated17.7% 4Not Received on time17.1% 5Risk is resolved late9.2% 6Failure to update Mods Tab8.0% 7Unable to Identify Risk Impact6.3% 8Incorrect Risk Responsibility1.1% 9No GSA rating0.6%

Supply Chain/System inefficiency is the problem, not bad vendors Decision Making Management Control Direction CLIENTVENDOR TOTAL COST: PROFIT: Stop Wait Go P 1. Identify Problem 2. Identify Solution 3. Schedule 4. Cost 5. Track deviation S INEFFICIENCY © 2011, Arizona State University, PBSRG

Performance Information is a Contractor Issue Performance Info © 2011, Arizona State University, PBSRG

Best Value Model is a Contractor Model Increased Decision Making Increased Management Increased Control and Direction High Trust PS 1. Identify Problem 2. Identify Solution 3. Schedule 4. Cost 5. Track deviation © 2011, Arizona State University, PBSRG

Conclusions Increase performance to 98% Documentation system in place Minimize transactions by as much as 90% Improve vendor profit by 100% Better value, better vendors, more accountability © 2011, Arizona State University, PBSRG $$$$$$$$

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