PIPS/PIRMS

1. PBSRG GLOBAL PIPS/PIRMS Dean T. Kashiwagi, Director, PhD, Professor, Fulbright ScholarJacob KashiwagiPhD StudentDelft University Performance Based Studies Research Group www.pbsrg.com November 12, 2009

2. Conducting research since 1994 175 Publications 483 Presentations, 8,600 Attendees 683Procurements $808Million Construction services $1.7 Billion Non-construction services $1.3B Euro ($2B) construction test ongoing in the Netherlands Africa/Southeast Asia/Australia (7 universities) ASU procurement - $100M over ten years GSA implementation in 2009 50 Different clients (public & private) 98% Customer satisfaction, 90% of PM/RM transactions minimized PBSRG(Performance Based Studies Research Group)

3. “Best Value” Processes and StructuresPerformance Information Procurement System (PIPS) • Win: Minimize up to 90% of project management/administration/busy work and minimize transaction costs by 20%. • Win: Increase vendor profit up to 100% • Win: Minimize risk to 2% of projects not on time, not on cost, and client not satisfied • Win: Cost does not increase with higher value

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

5. Low Bid Assumptions Buyer Suppliers Low $$$$ M,D,C Buyer Assumptions: A1 – Perfect identification of requirement A2 – Perfectly communication to suppliers A3 – Suppliers perfectly understand A4 – Buyer can manage, direct, and control (M,D,C)

6. High High Performance Performance Low Low Problem with Priced Based Systems Owners “The lowest possible quality that I want” Contractors “The highest possible value that you will get” Maximum Minimum

7. Me & Them Us Don’t Control Don’t Control Control Control Inexperienced vs Experienced Risks Risks

8. High Low Contractor 1 Contractor 2 Risk Performance Contractor 3 Contractor 4 Low High Impact of Minimum Standards High Low Risk Performance Contractor 1 Contractor 2 Contractor 3 Contractor 4 Low High Decision making: what is the minimum standard, and do all contractors meet the minimum standards

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

10. Event Initial conditions Final conditions Laws Laws Time

11. Believes in chance Being controlled by others Will try to control others Does not adequately pre-plan due to perception of too many variables Blames others if something goes wrong Influence Vs. No Influence

12. Chance Controlled Controls others Does not adequately preplan Blames others Does not believe in chance They dictate their own future Cannot control others Preplans Identifies what they may have done wrong Influence Vs. No Influence

13. Chance Controlled Controls others Does not adequately preplan Blames others Does not believe in chance They dictate their own future Cannot control others Preplans Identifies what they may have done wrong Change to Optimize

14. Risk Model C V B Buyer Controls Vendor Through Contract

15. Risk Model C V B Vendor Manages/Minimizes Risk With Contract

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

17. Identification of Responsibility of Vendors Past performance information on the critical elements Scope( as understood by the vendor from RFP) Schedule with major milestones Risk assessment value added (RAVA) plan Interview of key personnel

18. Making it Dominant 30K Foot Level Simplicity/Dominant Information Contracting Vendors / Manufacturers Planning / Programming Inspectors Designer Users Technical Details

19. What is Dominant Information • It is simple • It is accurate • There is minimized information • It stands out • It minimizes everyone’s decision making • It is easy to get, print out, someone has it very handy • It predicts the future outcome • It makes it clear among many parties

20. Not Dominant

21. Dominant

22. Not Dominant

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

24. University of Minnesota Results • Number of procurements: 111 • Budget amount: $31.4M • Amount awarded: $29.5M • Number of years: 4 • Award below average bid price: 6% • Award below budget: 7% • Award to the lowest price: 60% • Cost increase due to client: 6% (trying to spend budget) • Cost increase due to contractors: 0% • Time deviations: 0% due to contractors

25. Best Value SystemPerformance Information Procurement System (PIPS)PM model, Risk Management model PHASE 1: SELECTION Lowest, responsible, bidder PHASE 2: Clarification of Bid Risk Management Plan PHASE 3: MANAGEMENT BY RISK MINIMIZATION Award of Contract

26. Construction Contract Award

27. Proceed with Alternative Bidder or Re-Run Yes Yes No No Yes Yes Yes Yes Proceed to Pre Award / Award Identification of Potential Best-Value Dominant Information to justify not awarding to lowest bidder Lowest Price is responsible bidder Prioritization

28. Vision beginning to end No technical risk 30K foot elevation analysis Preplan Schedule is risk focused Quality Control/Risk Management (minimize risk they don’t control) Supply chain thinking Win-win Important Aspects of PIPS

29. MEDCOM Structure COE Procureemnt Office1 MEDCOM Commander Director COE Procureemnt Office1 COE Procurement Office1 Project Integrator Hospital Users Project Integrator Project Integrators QA QA Facility Director Facility Director Procurement Officer 1 Procurement Officer 2 QA QA FM1 FM2 FM3 FM4 PM 1 PM 2 PM 3 PM 4 Contractor 1 Contractor 5 Contractor 9 Contractor 13 Contractor 2 Contractor 6 Contractor 10 Contractor 14 Contractor 3 Contractor 7 Contractor 11 Contractor 15 Contractor 8 Contractor 12 Contractor 16 Contractor 4

30. Case Study: US Army Medical Command26 major hospitals, 200 projects, $250M Director Director Regional Director Regional Director Procurement Officer 1 Procurement Officer 2 Hospital 1 Hospital 2 Hospital 3 Hospital 4 PM 1 PM 2 PM 3 PM 4 Contractor 1 Contractor 5 Contractor 9 Contractor 13 Contractor 2 Contractor 6 Contractor 10 Contractor 14 Contractor 3 Contractor 7 Contractor 11 Contractor 15 Contractor 8 Contractor 12 Contractor 16 Contractor 4

31. On Going Projects: Division Overview

32. Top 10 Risk Projects

33. Modifications and Risks

34. On-Going Projects: Regional Performance Lines

35. High Performing QA’s

36. Low Performing QA’s

37. PROJECT PERFORMANCE WITH/WITHOUT WRR & RMP

38. The concept was here the entire time No one knew how to transfer the logic and common sense into something so “complex”