The Problem

1. Guidelines for SuccessfulITS ProcurementT3 Session, March 15, 2006Hosted byMac ListerFHWAPresented byPhil TarnoffUniversity of Maryland

2. The Problem • Success rate for intelligent transportation systems life cycle is very low • Problems can be traced to: • Incorrect contracting approach • Inexperience of the agency • Failure to follow appropriate procedures • Inadequate commitment of project management and systems engineering resources

3. Systems Acquisitions Late Okay 31% Cancelled 53% 16% Source: Patterns of Software Systems Failure and Successes, Jones, Capers, 1996

4. Success is Influenced by the Purchaser • Purchaser’s experience has greater impact on project success than any other factor • Success rate has increases by more than 25% for purchasers with prior experience • ITS implementation must be led by experienced staff Source; Patterns of Software Systems Failure and Successes, Jones, Capers, 1996

5. The Contracting Model

6. The Contracting Model • Defines the entire contracting form and process • Includes four dimensions: • Work Allocation – Responsibilities • Method of Award – Contractor selection • Contract Form – How is work organized • Contract Type – Methods of reimbursement • Terms and conditions apply to all dimensions

7. The Contracting Model Procurement Contract Form Method of Award Contract Type Work Allocation Low Bid Contractor Systems Manager Systems Integrator DB(OM) Commodity (COTS) Consultant Services Outsource Contractor Other Services Low Bid Negotiated Sole Source Phased Task Order Purchase Order Fixed Price Cost Reimbursable Incentive Time and Materials Terms and Conditions (payment, cancellation, disputes, etc.)

8. Use of the Contracting Model • Identifies dimensions to be included in selection process • Procurement guidelines define the process for choosing appropriate option for each dimension • Process is simplified by assembling combinations of options – procurement packages • Project may include multiple contracts and procurement packages

9. System Procurement Packages (1 of 2) • Commodity Supplier • Low-bid selection of prequalified packages • Fixed price contract • Applicable only for unmodified off-the-shelf software and hardware • Low-Bid Contractor with Design Consultant (for 100% design) • Low-bid selection • Fixed price contract • Can use incentives • Can use phased contracts • Useful if the predominant software is off-the-shelf

10. System Procurement Packages (2 of 2) • Systems Manager • Negotiated procurement • Fixed price, cost plus or time & material contracts • Can use incentives • Can use either phased or task-order contracts • Separate low-bid procurements required for construction and equipment • Design-Build Contractor with Design Consultant (for 30% design) • Best value selection • Fixed price. Cost plus or T&M may be acceptable • Can use incentives • Can use phased contracts

11. Other Procurement Packages • Consultant • Negotiated • Fixed price, cost plus or time & material contracts • Can use incentives • Can use either phased or task-order contracts • Outsourcing either an activity (such as maintenance) or an entire function (such as traveler information) • Low-bid selection may be based on rates • Fixed price or time & material contracts • Can use incentives

12. Contracting Considerations

13. Selecting the Best Procurement Approach Characteristics Contracting Solutions Organizational Level • Experience • Resources • Personnel System Development Process System Development Process Procurement Package Terms and Conditions Project Category • New or replace. • Size & complex. • Uniqueness

14. Defining Organizational Level

15. Defining Project Complexity

16. The Outputs • Systems development process • Waterfall • Evolutionary • Spiral • The procurement package • Lists of terms and conditions

17. Concept of Operations Operations & Maintenance High Level Requirements System Verification Detailed Requirements High Level Design Subsystem Verification Detailed Design Integration & Test Implementation Time The Development Processes are Based on the Systems Engineering Life Cycle

18. Systems Development Processes • Waterfall – A linear process for well-defined programs including all the activities of the “V” diagram • Evolutionary – Development of a project in a series of well defined phases in which the “V” diagram is repeated for each phase • Spiral – Not certain of what is needed, so project development accompanied by much prototype development and many planning steps

19. The Decision Process

20. Initial Decisions – Step 1 Start Does the agency intend to outsource? Yes No Does the project include a system development? Yes No Use outsourcing process (procurement package #6 or #7)* Are traditional consulting services being procured? Yes No Other services being procured. Not covered by Decision Model. Use consulting process (procurement package #5)* Go To Step 2

21. Schedule Constraints Step 4 Determine Agency Start Step 5 Select applicable systems engineering process(es) & candidate procurement package(s) Step 6 Apply Differenti-ators Step 7 Package Assessment and Final Selections Step 2 Work Allocation NO Step 3 Define Project Categories Step 8 Define Contract Scope and Terms and Conditions YES Send Individual Projects through the Model End Decision Model

22. The Fundamental Activities of the Following Process • Separate the project into individual contracts • Determine project and agency characteristics • Select procurement package • Apply discriminators to multiple solutions • Confer with Contracts • Add terms and conditions

23. Decision Model – Step 2 Schedule Constraints Step 4 Determine Agency Start Step 5 Select applicable systems engineering process(es) & candidate procurement package(s) Step 6 Apply Differenti-ators Step 7 Package Assessment and Final Selections Step 2 Work Allocation NO Step 3 Define Project Categories Step 8 Define Contract Scope and Terms and Conditions YES Send Individual Projects through the Model End

24. Initial Work Allocation (Step 2) • General rules: • In general, it is best for all work to be contained in a single prime contract (exceptions noted below) • Minimize interdependency of contractors (i.e. where one contractor depends on another contractor’s completion) • Multiple contracts require increased project management resources • Reasons to consider multiple prime contracts: • Significant software and systems development, but largest dollar amount is in construction (i.e. systems contractor would not be prime under a single contract) • Unlikely that a satisfactory prime contractor can be identified • Significant outside expertise required

25. Decision Model Step 3 Schedule Constraints Step 4 Determine Agency Start Step 5 Select applicable systems engineering process(es) & candidate procurement package(s) Step 6 Apply Differenti-ators Step 7 Package Assessment and Final Selections Step 2 Work Allocation NO Step 3 Define Project Categories Step 8 Define Contract Scope and Terms and Conditions YES Send Individual Projects through the Model End

26. Identify Project Category (Step 3) Example of Cell Content: “Primarily application of proven well-known technology. May include non-traditional use of existing technolog(ies)”

27. Decision Model – Step 4 Schedule Constraints Step 4 Determine Agency Start Step 5 Select applicable systems engineering process(es) & candidate procurement package(s) Step 6 Apply Differenti-ators Step 7 Package Assessment and Final Selections Step 2 Work Allocation NO Step 3 Define Project Categories Step 8 Define Contract Scope and Terms and Conditions YES Send Individual Projects through the Model End

28. Select Organizational Levels (Step 4) Example of cell content: “Experience with at least one category 2 project or greater.”

29. Decision Model – Step 5 Schedule Constraints Step 4 Determine Agency Start Step 5 Select applicable systems engineering process(es) & candidate procurement package(s) Step 6 Apply Differenti-ators Step 7 Package Assessment and Final Selections Step 2 Work Allocation NO Step 3 Define Project Categories Step 8 Define Contract Scope and Terms and Conditions YES Send Individual Projects through the Model End

30. The Decision Matrix (Step 5) Notes: First line is the systems engineering technique, second line is the procurement package DB = Design-Build SM = Systems Manager * - Consulting services should be used while project is underway

31. Decision Model – Step 6 Schedule Constraints Step 4 Determine Agency Start Step 5 Select applicable systems engineering process(es) & candidate procurement package(s) Step 6 Apply Differenti-ators Step 7 Package Assessment and Final Selections Step 2 Work Allocation NO Step 3 Define Project Categories Step 8 Define Contract Scope and Terms and Conditions YES Send Individual Projects through the Model End

32. Procurement Differentiators (Step 6) • Systems manager is preferred to design-build for significant new software development • Design-build preferred over systems manager, only for major projects and when significant amounts of field construction are involved • If project includes both new software and field construction, consider using multiple contracts

33. Procurement Differentiators continued (Step 6) • Low-bid contracting should only be used if: • Required by agency policy (rarely true) • Projects consist of field construction and off-the-shelf equipment • Commodity procurement applicable if an available packages do not require modification except for: • New software drivers for interface with communications and field equipment • New database reflecting system configuration • New graphics (maps, etc.) for local environment

34. Impacts of Step 6 Decisions (Step 6 continued) • Low-bid contract will require design consultant & low-bid contractor • Systems manager contract will require low-bid contractors for field construction and field equipment supply • Design-build contract will require design consultant and design-build contractor • Commodity procurement may require systems integrator for system implementation and test

35. Decision Model – Step 7 Schedule Constraints Step 4 Determine Agency Start Step 5 Select applicable systems engineering process(es) & candidate procurement package(s) Step 6 Apply Differenti-ators Step 7 Package Assessment and Final Selections Step 2 Work Allocation NO Step 3 Define Project Categories Step 8 Define Contract Scope and Terms and Conditions YES Send Individual Projects through the Model End

36. Considerations When Making the Final Decision – Step 7 • Involve the agency’s contracts personnel (They should have been involved from the beginning) • Compatibility with the systems engineering and project management principles • Agency’s relative familiarity with the recommended alternatives

37. Decision Model – Step 8 Schedule Constraints Step 4 Determine Agency Start Step 5 Select applicable systems engineering process(es) & candidate procurement package(s) Step 6 Apply Differenti-ators Step 7 Package Assessment and Final Selections Step 2 Work Allocation NO Step 3 Define Project Categories Step 8 Define Contract Scope and Terms and Conditions YES Send Individual Projects through the Model End

38. It is Then Necessary to Define Terms and Conditions

39. Contract Terms and Conditions (Step 8) • Some are common to all procurement packages, others are unique for each package • Requires contracting expertise • To a certain extent, by state law, agency policies, and federal law • Defined by the NCHRP documentation

40. Sample Terms and Conditions (Step 8)

41. Summary of the Seven Steps to Implementing the Process Step (1) Initial Decisions Step (2) Allocate the work Step (3) Select project category Step (4) Determine agency level Step (5) Using organizational levels and categories, select Procurement Package(s) for each project Step (6) Apply procurement differentiators to make final selection Step (7) Make final selection Step (8) Define contract terms and conditions Contract process is complete

42. Key to a Successful Procurement • Procurement approach is dependent on project type and agency capabilities • We’ve always done it that way is not a good excuse • The right procurement approach may not guarantee success, but the wrong approach will guarantee failure

43. For More Information • http://www.citeconsortium.org on home page under highlights, select “Guide to Contracting ITS Projects” to access web-based step-by-step selection process • http://www.pcb.its.dot.gov/Catalogs/ITSCurriculum.htm for courses on ITS procurement, systems engineering and project management

44. Contact Mac Lister Mac.Lister@fhwa.dot.gov Phil Tarnoff tarnoff@eng.umd.edu