1. Best Value Business Model
Kenneth T. Sullivan, PhD, MBA
Arizona State University

2. PBSRG’s Research Results
Worldwide as a leader in Best-Value Systems
18 Years
210+ Publications
550+ Presentations
1500+ Projects
$5.7 Billion Services & Construction
98% Customer Satisfaction
Various Awards (PMI, NIGP, IFMA, COAA, IPMA)
Clients: Federal, State, Local, School Districts, Private

4. Tested Application Areas
Construction & Design/Engineering
Large GC, infrastructure, municipal, laboratory, education, hospital, financial, large specialty, etc.
Small GC, renovation, repair, maintenance, roofing, demolition, etc.
DBB, CMAR, DB, IDIQ, JOC, Low Bid, IPD
Development, supply chain IT
Networking, Data Centers, Software (COTS, custom), ERP, etc.
Facility Services
Maintenance, industrial moving, custodial, waste management, services, etc.
Business, Municipal, & University Services
Dining, Document Management, Multi-Media Rights, Fitness Equipment, Online Education, Bookstores, Material Recycling, Furniture, etc.
Health Insurance, Medical Services
Manufacturing

5. International Efforts & Partners
6+ years
Infrastructure
€1.8B plus €1B
University of Alberta
United States - 65 clients
Tongji University
Brunsfield
Complete Supply Chain
Fulbright Scholarship-
University of Botswana
PIPS tests
RMIT
Teaching IMT
PBSRG platform

6. University of Alberta – Best Value Performance
Project
Value
Cost
Savings
Schedule
Impacts
Satisfaction / Performance
Custodial Services
(campus-wide)
$18M
$2M
10%
5.5%
performance
Improvement
10 (out of 10)
2. DB Construction
(Research Facility)
$30M
$8-12M
25%
14-18 months
9.7 (out of 10)
3. Design Services
(Building Redevelopment)
$4M
$500k
12%
0% Cost & Schedule CO’s
$190k in Value Added Options
Had high levels of success with these 3 projects
Brian Stewart, Director of Procurement will be here, talking more on Thursday about his experiences

7. IT Industry Performance
28% Projects are Successful
46% Projects are Unsuccessful
26% Projects Completely Failed / Cancelled
202% Average Cost Overrun
111% Average Schedule Overrun
The Standish Group, Chaos Reports - Collects case information on IT failures. Has studied over 70,000 projects in 15 years (Eveleens and Verhoef, 2010)

8. “The Greatest Risk that I always face, is how to accomplish all of the things that our sales team promised we could do.” 8

9. Best-Value Concepts

10. What Percent of RFP’s Are 100% Accurate?

11. Who Should Know More About Performing/Installing the Services Required?11

12. It Is More Important For The Vendor To Know What To Do Than It Is For Client To Know What The Vendor Should Do

13. “Experts” vs. “Non-Experts”
Has more experience
Has a higher success rate
Needs very detailed instructions on how to do the task
Needs others to tell them what to do
Requires minimal management of their services
Able to complete the project/task faster
Can see the project from start to end
Can clearly layout a plan of how they will accomplish the project/task
Able to provide simple/understandable explanations of the options
Able to see all the potential risks before they occur
Proactive
Are more efficient
Are more expensive
Are always looking out for everyone’s best-interest

14. Impact of Minimum Requirements
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

15. Potential Problems Owners Vendors
“The lowest possible quality that I want”
Vendors
“The highest possible value that you will get”
High
Low
Performance
High
Low
Performance
Maximum
Minimum

17. We Know: Vendors are Not a Commodity
…but how do we know who to select?

18. Best Value Objectives Minimize cost, increase efficiency
Transfer Risk
Outsource to experts (not just transfer risk...but minimize risk)
Have a “Supply Chain” mentality
Minimize risk of non-performance
Complete to the expectations w/ no changes
High Client satisfaction / No Finger pointing
Minimize the need for client management, direction, and decision making.
In return, the vendors can maximize profit by being more efficient
Many systems attempt to transfer risk from the client to the vendor. In the PIPS process, our objective is to not only transfer risk, but to transfer risk to an expert that can minimize the risk
Risk should be simple to define. It includes:
Completing the project on time
Completing the project with no cost change orders
and having high Customer satisfaction
Furthermore, the best-value system must make the overall process more efficient. This means we should minimize client management, inspection, and decision making.
In return, the vendors should be able to maximize profit by becoming more efficient (remember this is NOT low-bid award)
This creates a true “win-win” relationship

19. What we have observed: Best Practice for Risk Mitigation and Performance Optimization
Best ways to mitigate risk and have success on a contract or project
Compete & Identify best value experts
Ability to identify and minimize risks differentiates expertise
Use the expert team to set a plan that considers risks & constraints
Experts optimize plan within constraints (ID if anything not reality)
Work as a team to define roles and responsibilities
Transfer the risks and control to the experts to manage the project
Hire/select the experts
Let the experts do their work and report weekly on any deviations to the plan

20. Best Value Model

21. Best Value Model
Award
Contract

22. Best Value Model

23. Selection Hiring or selecting who will create the plan and execute it
The quality of the plan and its execution is directly linked to the individuals creating it and doing the work
Quality of Plan = Minimization of Risk & Cost

24. 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?
Scenario 1
Scenario 2

25. BV Process Filter 1 Filter 2 Filter 3 Filter 4 Filter 5 Current
Capability
Filter 2
Interview Key Personnel
Filter 3
Prioritization
(Identify
Best Value)
Filter 4
Cost
Reasonableness &
Dominance Check
Filter 5
Pre-Planning & Risk Min
Weekly Reporting & Post-Rating
High
Blind Rating
Risk Assessment
Project Capability
Value Added
Financials
PPI
Quality of Vendors
Award
The process can be explained in the following diagram. This diagram illustrates the different steps that are involved in assisting a client in identifying the potential best-valued contractor. As we go through the process, the lower performers will drop out, and we should be left with the higher performing vendors
The first filter is the process is Past Performance Information (click)
Measurement of Risk & Performance During the Contract
Low
Time

26. Selection – Value Based Proposition
Selection dictates the maximum capacity to achieve a quality plan
Procurement methodologies to identify expertise:
Risk and Value focused RFP Process
Simple, brief, anonymous evaluation process
Evaluation of key project personnel
Proven Past Performance Information
Ability to identify, prioritize, and minimize risk
Interviews of project delivery personnel
Focus on specific project needs
Minimize marketing information
Cost/Financial

27. Example of Solutions Risk: Design of Heating/Cooling System
Type: Project Capability
Plan 1
We will use our 20 years of experience in working with mechanical systems to minimize the risk of the heating and cooling system design.
Plan 2
We have identified the design of the heat/cooling system as a risk. It has not been used before in the area. Will ensure that the system performance and installation is verified in the pre-award period.
We have bid using best rated mechanical contractor in the area (rated at 9.8 out of 10.0, next best rated 9.1)
Mechanical contractor identified modifications to the design to improve output and sustainability of the system with the following impacts (mechanical system cost minimized by 15% - see VA#1)
Mechanical system will be provided by one manufacturer, and will be commissioned by the manufacturer, contractor, and general contractor, who will take full responsibility of commissioning the system
In this example, the project was to renovate a floor in an in-operation library. The greatest risk was noise from demolition.
One contractors solution was to “work with the user to minimize noise”.
CLICK
The next contractors solution was to do demolition during off hours and weekends, which would increase cost by 1%. They would also install rubber sheets on the floors to diminish noise.
This example clearly shows a contractor that has identified a risk, and identified solutions that will mitigated the risk.
Keep in mind that if the second contractor is selected, they will be required to perform the activities that they state in their RAVA Plan.

28. Example of Solutions Risk: Availability of Online Self-Service Portal for Online Housing Applications
Type: Project Capability
Plan 1
Vendor will evaluate existing Owner software platforms to ensure integration and availability of the Online Self-Service Solution
Plan 2
Online Self-Service Solution Not Available – Web coding errors during implementation or ongoing support and updates render online student solution unusable.
Vendor provides a Portal Framework for all online self-service solutions. This Portal does not require any 3rd part web development software or web development expertise by the Owner.
This approach minimizes risk of error and downtime that would normally occur if the Owner was required to use html templates, dedicate a web developer, or have to modify html code directly.
The Portal Framework has been used on three previous projects with zero downtime events.
In this example, the project was to renovate a floor in an in-operation library. The greatest risk was noise from demolition.
One contractors solution was to “work with the user to minimize noise”.
CLICK
The next contractors solution was to do demolition during off hours and weekends, which would increase cost by 1%. They would also install rubber sheets on the floors to diminish noise.
This example clearly shows a contractor that has identified a risk, and identified solutions that will mitigated the risk.
Keep in mind that if the second contractor is selected, they will be required to perform the activities that they state in their RAVA Plan.

29. Example of Solutions Risk: Noise from Demolition
Type: Project Capability
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.
Both solutions have been used on multiple previous projects w/ high levels of customer satisfaction (9.4/10).
In this example, the project was to renovate a floor in an in-operation library. The greatest risk was noise from demolition.
One contractors solution was to “work with the user to minimize noise”.
CLICK
The next contractors solution was to do demolition during off hours and weekends, which would increase cost by 1%. They would also install rubber sheets on the floors to diminish noise.
This example clearly shows a contractor that has identified a risk, and identified solutions that will mitigated the risk.
Keep in mind that if the second contractor is selected, they will be required to perform the activities that they state in their RAVA Plan.

30. Example of Solutions Risk: Loss of Radio Flagship in Major Market Type: Risk Assessment
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
In the past 10 yrs, on over 50 accounts, 7 radio stations format changes have occurred. The following solution is optimal.
We own and will maintain two radio contracts covering the area, where 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 the client.

31. Example of Solutions Risk: Getting water to the site
Type: Risk Assessment
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 (the water company does not meet schedule over 90% of the time).
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.
In this example, the project was a park renovation that included installation of several recreations fields. The greatest risk was to get water to the fields in order to grow the grass.
One contractors solution was to “coordinate with the water company as soon as possible”
CLICK
The next contractors solution was to also coordinate, but if the coordination failed, they would have temporary waterlines available, and would also have water trucks on-site if there were any issues with the temporary lines.
Once again, we are looking for differential between vendors. We are trying to identify vendors that can prove to the owner that they have experience.

32. Example of Solutions Risk: Safe Food Supply/Food Born Illness
Type: Risk Assessment
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 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.
In this example, the project was a park renovation that included installation of several recreations fields. The greatest risk was to get water to the fields in order to grow the grass.
One contractors solution was to “coordinate with the water company as soon as possible”
CLICK
The next contractors solution was to also coordinate, but if the coordination failed, they would have temporary waterlines available, and would also have water trucks on-site if there were any issues with the temporary lines.
Once again, we are looking for differential between vendors. We are trying to identify vendors that can prove to the owner that they have experience.

33. Value Add Plan Provide ways to keep project at or below budget
Modifications to requirements to meet budget
Specific cost ($) savings
Supported by metrics (high performance)
Increase customer satisfaction
Increase performance

34. Scope is Above Budget
Owner’s Scope
(-$ value add)
Owner’s Budget ($$)

35. Intent Doesn’t Match Scope
Owner’s Budget ($$)
Owner’s Intent
(+$ value add)
Owner’s Scope

36. Example: Value Added Items
Instead of purchasing “Named Licenses”, the Agency may want to consider purchasing “Concurrent Licenses”. In a “Named Licensing” model, the software designates a license per user and only that particular named user can use/access the license. If that named user is in meetings, on vacation, or not using the system, the license is not utilized. In a “Concurrent Licensing” model, the server keeps track of the total number of licenses and loans the licenses to users as they log in. If a user is inactive, the server releases the license and allocates the license to the next user. The advantage is that the Agency is not required to purchase licenses that are not being used, which can result in approximately 25% savings in cost.

37. 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 $10K and 3 weeks in schedule we can replace and repair all of these items. 37 37 37

38. Best Value Interviews: Identifying Expertise
Why were you selected for this project?
How many similar projects have you worked on? Individually and as a Team?
Describe a similar project you have developed/worked on to the current project.
What is different about this project from other projects that you have worked for?
Draw out the process for this project by major milestone activities.
Identify, prioritize, and how you will minimize the risks of this project.
What risks don’t you control? How will you minimize those risks?
What do you need from the client and when do you need it?
How are you going to measure your performance during the project?
What value do you bring to the project in terms of differences based on dollars, quality, expertise, or time?

39. Best Value Model

40. How to Clarify a Plan What is it / Why is it important?
Period of time allotted before work begins to the entity doing the work:
Present their project/service plan
Set a plan for its delivery / clarify that their plan 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
The pre award phase is a period of time allotted to the potential best-valued vendor before an award is made.
(CLICK) This period of time is crucial for the vendor because it provides them with an opportunity to accomplish several tasks:
First, it provides the vendor with an opportunity to preplan the entire project in detail
Secondly, it allows the vendor time to minimize all potential surprises (which is also in the best interest of the client as well)
Thirdly, it provides the vendor with an opportunity to clarify if their proposal is accurate or not. During this phase, the CPPM Project Manager will provide the potential best value vendor with a list of all the risks that were identified by the other vendors. No solutions are provided (only risks). The vendor must respond to each risk with their plan to mitigate the risk.
And the last thing that the pre award phase allows the vendor to do, is place the client at risk for items that are outside of the vendors control
(CLICK) The pre award period has three major steps.
First, there is a 1-hr kick-off meeting where the vendor will be introduced to the client and the clients team. A short tutorial will also be played for all parties discussing the PA Phase
The next step is the actual pre-planning phase. This is where the vendor will spend a majority of their time in coordination and ironing out any issues
The final step is the PA Meeting. This is a 1-hr meeting to summarize the vendors Quality Control plan. 40

41. How to Clarify a Plan What is it / Why is it important?
Period of time allotted before work begins to the entity doing the work:
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
Coordinate the schedule
The pre award phase is a period of time allotted to the potential best-valued vendor before an award is made.
(CLICK) This period of time is crucial for the vendor because it provides them with an opportunity to accomplish several tasks:
First, it provides the vendor with an opportunity to preplan the entire project in detail
Secondly, it allows the vendor time to minimize all potential surprises (which is also in the best interest of the client as well)
Thirdly, it provides the vendor with an opportunity to clarify if their proposal is accurate or not. During this phase, the CPPM Project Manager will provide the potential best value vendor with a list of all the risks that were identified by the other vendors. No solutions are provided (only risks). The vendor must respond to each risk with their plan to mitigate the risk.
And the last thing that the pre award phase allows the vendor to do, is place the client at risk for items that are outside of the vendors control
(CLICK) The pre award period has three major steps.
First, there is a 1-hr kick-off meeting where the vendor will be introduced to the client and the clients team. A short tutorial will also be played for all parties discussing the PA Phase
The next step is the actual pre-planning phase. This is where the vendor will spend a majority of their time in coordination and ironing out any issues
The final step is the PA Meeting. This is a 1-hr meeting to summarize the vendors Quality Control plan. 41

42. Clarification / Preplanning Period
Start
End
Very High Level
Cost Verification
Included in Proposal
Excluded from Proposal
Major Assumptions
Major Client Risks/Concerns
High Level
Project Work Plan
Client Risks/Concerns
PA Schedule
Uncontrollable Risks
Response to all risks
Roles and Responsibilities
Value Added Ideas
Coordination
Review Functionality
Technical Level
Performance Reports / Metrics
Additional Documentation
Technical Details
Project Schedule
High level demos
PA Document

43. Clarification / Preplanning Period

44. Importance of Pre Planning - University of Alberta
Bad news is really good news if found out during Pre-Planning (Pre-Award / Clarification period)
Execute the project in advance of actually executing the project
Ex: DB Balmoral Facility – Cyclotron
Highly sensitive schedule & budget
Formal pre-planning enabled the team to optimize the facility and minimize surprises that could have driven other changes.
Doing it correctly brings value,
and there is time to do it correctly

45. Importance of Pre-Award
Pre Award Impact – Major Risks Identified & Mitigated
Actual Building dimensions
Field review revealed significant square footage difference from bridging documents
DB proposed floor layouts to incorporate additional space & minimize cost impact
Cyclotron Vault Design
Wall thickness, foundations, piling, shielding
DB proposal minimized schedule impact
Existing structure concerns
Field review revealed cracking on perimeter concrete beams
DB proposed to address structural issues during roof deck replacement

46. Best Value Model

47. Measured Environment Must be simple and dominant
Must be for the purposes of positive accountability
Transparency and openness
Measuring against a plan (or expectation created by the individual/team doing the work)

48. Weekly Risk Report
Excel Spreadsheet that tracks only unforeseen risks on a project
Client will setup and send to vendor once Award/NTP issued
The final project rating will be impacted by the accuracy and timely submittal of the WRR 48

49. Measurement of Deviation from the Expectation Management by Risk Minimization
Unforeseen Risks
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

50. Post Project Rating Update PPI Filter 1 Filter 2 Filter 3 Filter 4
Past
Performance
Information
Filter 2
Current
Capability
Filter 3
Interview Key Personnel
Filter 4
Prioritization
(Identify
Best Value)
Filter 5
Cost
Reasonableness &
Dominance Check
Filter 6
Pre-Planning & Risk Min
High
Quality of Vendors
Award
The process can be explained in the following diagram. This diagram illustrates the different steps that are involved in assisting a client in identifying the potential best-valued contractor. As we go through the process, the lower performers will drop out, and we should be left with the higher performing vendors
The first filter is the process is Past Performance Information (click)
Measurement of Risk & Performance During the Contract
Low
Time
Update PPI

51. Project Management Model
Initial conditions
Final conditions M3 C1 M2
Laws
Laws
Time
C1: Client Expectations based decisions and various factors – may or may not be “realistic”
M1: Measured expert plan that more accurately describe the initial conditions replaces C1 – converts to a predictive contract
M2: RMP/WRR measures deviation & performance to plan
M3: Final performance measurement M1

52. What is different
Value focus, simple, transparent, risk-based, measured, expertise- driven
Leverage experience of industry experts to minimize risks and increase efficiency
Select and give advantage to high performers in the procurement process, consider value (cost & ability) (the capability of the key PEOPLE you hire will correlate more to project success than any other factor)
Proper preplanning BEFORE contract is signed
Risk-based, value-based contracting
Consistent measurement of risk and performance with accountability loops

53. Best Value One and a Half Day Seminar
December 5-6, 2012
Halifax, Nova Scotia
What you will learn
How to minimize cost
Increase Efficiency in your Organization
Best Value process details
Risk management, pre-planning & performance measurement
Workshops, examples, etc.
CEUs for all professions and designations
Early bird & group rates available
Don’t Delay Register Today!
For more details visit us at:

54. Comments / Questions
W W W . P B S R G . C O M