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RE Case Study

• What was the Project Objective?

• When did it all Start?

• What was the Plan?

• How did Negotiations take place?

• What were the Benefits of this process?

• Experience needed to get the job done?

Introduction

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HistoryDetermine Future Business Needs for an EMS:

• Exec. Steering Committee and Project Team Set Up Jan. 1997.

• Large Consultant Selected to Assist with this Effort.

• Project Focus on Direction of Deregulation.

• Business Requirement Study Completed May 1997.

• Implementation Plan Completed October 1997.

RE Case Study

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RE Case Study History Team Findings and Recommendations to Project Steering Committee:

• The Current EMS can not satisfy Reliant Energy needs past the year 2001.

• The Full impact of deregulation could not be determined yet.

• Several Legacy EMS Life Extension Initiatives were proposed.

• Budgetary cost, schedule, scope, and cash flow estimates for all initiatives were provided.

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RE Case Study History

Team Received Executive direction in July 1997:

• Proceed with EMS Life Extension Initiatives to meet short-term needs, including Y2K remediation.

• Begin a multi-phase effort to acquire a new EMS meeting anticipated Reliant Energy needs for year 2000 and beyond.

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RE Case Study

Reliant Energy bidder selection and negotiation process differed from the classical process in several ways:

Plan Features

Classical Contract Negotiation Steps

• Bidder Pre-Qualification process -- 3 months • Bid Documents, including EMS Technical Specifications -- 6 months

• Bidder response and bid clarification/alignment process -- 6 months

• Negotiate a fixed price, sole source contract, including a detailed Scope of Work -- 6 months

• EMS Functional Specifications are approved -- 9 months

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RE Case Study

Reliant Energy Abbreviated the pre-qualification phase.

• Bidders were pre-qualified based upon:

Newton-Evans report Bidder’s track record on large EMS projectsProject team members experience with biddersCommercial information provided by Purchasing

• The number of large system EMS vendors to choose from was small.

• Some potential unselected bidders have since merged with the selected EMS vendors.

Bidder Qualification

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Result:

• Four bidders were pre-qualified by the project team.

• Nov. 1997 - Distribute Bid Instructions and EMS Requirements.

• Jan. 1998 - Begin bidder evaluation, including site visits and Q&A.

RE Case Study Bidder Qualification

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RE Case Study

Reliant Energy focused on the bidders’ standard systems

• Each bidders’ boiler plate EMS proposal document was requested.

• Only Reliant Energy unique system needs, sizing, and performance data were provided to the bidders.

• Detailed bidder evaluation criteria were established for the:

• Bidder’s standard system• Product development and other business processes• Ability to provide long-term product support and upgrades

Bidder Selection

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RE Case Study

Results:

• Time and resources savings.

• Only demonstrable systems, processes, and staff capability were evaluated.

• Rapid information exchange between bidder and project personnel.

• Mar. 1998 - Eliminate two EMS bidders. Send the remaining two follow-up questions and arranged for EMS demos.

• Jun. 1998 - Begin contract negotiations with intended vendor including specification of EMS functional requirements.

•Aug. 1999 - Went directly into finalizing the EMS Functional Specifications.

Bidder Selection

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RE Case Study

The result was the contract covered only that part of the project where the EMS vendor offered unique strengths.

• Reliant Energy elected to furnish certain services and third-party hardware and licenses in order to leverage RE strengths, reduce costs, and increase project flexibility:

Oracle licensing through RE Corporate.

Direct IBM HW and SW acquisition through RE Corporate.

Leverage Reliant Energy expertise in computer networks.

Commercial Negotiations

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Commercial

• Project savings.

• Improved project control.

• Risk sharing and risk management opportunities.

Results:

Technical

• Both Reliant Energy and vendor better understand the system requirements.

• Dec. 1998 - Complete negotiations with vendor. Issue Contract for the initial phase of the Reliant Energy EMS Project.

RE Case Study Technical Negotiations

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RE Case Study

The project plan was followed closely.

• The predetermined bidder evaluation criteria and bidder site visits were very valuable in identifying the two weakest EMS bidders.

• Cost and schedule estimates received from the bidders were in line with gross estimates made during the EMS business assessment in 1997.

• Reliant Energy commissioned a Newton-Evans’ custom survey, targeting the bidder’s customers for information andopinions on how well projects were conducted.

• Reliant Energy used in-house expertise to evaluate the bidder’sEMS system offerings and management practices.

What Worked

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RE Case Study

No project time was lost resolving contract requirements and approving design specifications once the contract was approved.

• Reliant Energy began acquiring EMS hardwareand software for the project IMMEDIATELY.

• The Vendor started on the system stagingand software development phases of theirwork at the factory IMMEDIATELY.

• Reliant Energy started EMS training classes,test data collection, and display standards work

IMMEDIATELY.

What Worked

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RE Case Study

The Contract represents about 2/3’s the total cost of the EMS. Reliant Energy leveraged its strengths and expertise on the other 1/3 of the project scope to participate in actual and potential savings of almost $1M.

Cost Savings

8.2

1.7

1.5

0.1

0.5

0.8

2.9

Siemens

CS Labor

IBM HW&Lic.

Oracle Lic.

Travel & Train.

Taxes & Misc.

Notes: 1. Equipment to be purchased on “just in time” basis. A potential savings of $500,000 exists due to continuing improvements in the cost-performance of workstations.

2. Enterprise licensing was used to save $400,000 in license fees for EMS clients.

3. Training will be conducted to the maximum extent in Houston to save travel and other employee expenses.

13%

52%

3%

17%

28%64%

23%

Vendor

RE Labor

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RE Case Study

EMS Proj. Exp. Total Project /

Systems Exp.

• Management Team (5) 55 127 m/yrs.

• • EMS Technical Team (4) 38

58 m/yrs.

• Remainder of Reliant Energy 171 313 m/yrs.

Personnel _____ _______

Total 264498 m/yrs.

• Project team’s average EMS-specific experience level is 15 man/years.

Personnel

Reliant Energy personnel and the EMS project team in particularhave extensive EMS applications and related systems experience.

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RE Case Study

• Create a plan for bidder selection and negotiation process and stick with it.

Take advantage of internal expertise.Leverage corporate resources and services.Establish a project contact point for communications.Manage expectations.

• The negotiating team must be on par with bidders’ team.

Must have reliable sources of bidder intelligence.Have technical, project management, commercial, and legal experts on the project team.

Conclusions

Reliant Energy employed the following guidelines successfully:

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RE Case Study

• Establish bidder selection criteria at the beginning of the process.

Know business needs and base selection criteria upon them.Consider bidders’ support and product development record.

• Select a product architecture that is “open” and supports standards.

This creates negotiating leverage when establishing the scope of work.Allows adding on “best of breed” functions from multiple vendors.

Conclusions

Reliant Energy employed the following guidelines successfully:

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RE Case Study

• Include Reliant Energy’s standard Ts&Cs in the initial Bidder Package

• Define Training expectations, requirements, and budget with the same detail as any other EMS Advanced Application

Lessons Learned

Reliant Energy would do these things differently: