QUALIFICATIONS-BASED SELECTION WHY VALUE OUTWEIGHS COST IN THE SELECTION OF DESIGN SERVICES 21...

QUALIFICATIONS-BASED QUALIFICATIONS-BASED SELECTIONSELECTION

WHY VALUE OUTWEIGHS COST IN THE WHY VALUE OUTWEIGHS COST IN THE SELECTION OF DESIGN SERVICESSELECTION OF DESIGN SERVICES

21 October 200421 October 2004BrusselsBrussels

What is QBS?What is QBS?• Qualifications-Based SelectionQualifications-Based Selection

• Quality-Based SelectionQuality-Based Selection

• QBS is the process by which the owner selects QBS is the process by which the owner selects the best qualified firm by objective criteria and the best qualified firm by objective criteria and then negotiates the specific scope of work and then negotiates the specific scope of work and price, thereby ensuringprice, thereby ensuring the best value to the the best value to the owner in terms of quality and total project owner in terms of quality and total project cost.cost.

HistoryHistory• The first U.S. law governing procurement of The first U.S. law governing procurement of

A/E selection was enacted in 1939. Prior to A/E selection was enacted in 1939. Prior to that, government employees designed public that, government employees designed public projects.projects.

• The 1939 law directed U.S. Government The 1939 law directed U.S. Government agencies to contract with private firms. A/E agencies to contract with private firms. A/E contracts were negotiated, and fees were contracts were negotiated, and fees were limited to 6 percent of estimated construction limited to 6 percent of estimated construction cost.cost.

• Many agencies found creative ways to exceed Many agencies found creative ways to exceed the 6 percent limit.the 6 percent limit.

HistoryHistory• A 1967 government report revealed a muddled A 1967 government report revealed a muddled

and complex A/E procurement process that and complex A/E procurement process that needed standardization.needed standardization.

• The report suggested that Congress clarify The report suggested that Congress clarify whether A/E services were subject to price whether A/E services were subject to price competition. competition.

• Over the next several years, Congress debated Over the next several years, Congress debated how to best procure A/E services.how to best procure A/E services.

• Brooks Act passed in 1972.Brooks Act passed in 1972.

Brooks ActBrooks Act• Sec.903. In the procurement of architectural and Sec.903. In the procurement of architectural and

engineering services, the agency head shall … engineering services, the agency head shall … evaluate current statements of qualifications … and evaluate current statements of qualifications … and shall shall conduct discussions with no less than three conduct discussions with no less than three firms regarding anticipated concepts and the relative firms regarding anticipated concepts and the relative utility of alternative methods of approach for utility of alternative methods of approach for furnishing the required services furnishing the required services and then shall select and then shall select therefrom, in order of preference, … no less than therefrom, in order of preference, … no less than three of the firms deemed to be the most highly three of the firms deemed to be the most highly qualified to provide the services required.qualified to provide the services required.

Brooks ActBrooks Act• Sec.904. The agency head shall negotiate a Sec.904. The agency head shall negotiate a

contract with the highest qualified firm for contract with the highest qualified firm for architectural and engineering services at architectural and engineering services at compensation which the agency head compensation which the agency head determines is fair and reasonable to the determines is fair and reasonable to the Government. Government. In making such determination, In making such determination, the agency head shall take into account the the agency head shall take into account the estimated value of the services to be rendered, estimated value of the services to be rendered, the scope, complexity, and professional nature the scope, complexity, and professional nature thereof.thereof.

Brooks Act – A/E ServicesBrooks Act – A/E Services• professional services of an architectural or engineering nature which are professional services of an architectural or engineering nature which are

required to be performed or approved by a person licensed, registered, or required to be performed or approved by a person licensed, registered, or certifiedcertified to provide such services; to provide such services;

• professional services of an architectural or engineering nature … that are professional services of an architectural or engineering nature … that are

associated with research, planning, development, design, construction, associated with research, planning, development, design, construction, alteration, or repair of alteration, or repair of real propertyreal property; and; and

• such other professional services of an architectural or engineering nature, such other professional services of an architectural or engineering nature, or incidental services, which members of the architectural and engineering or incidental services, which members of the architectural and engineering professions (and individuals in their employ) may logically or justifiably professions (and individuals in their employ) may logically or justifiably performperform, including studies, investigations, surveying and mapping, tests, , including studies, investigations, surveying and mapping, tests, evaluations, consultations, comprehensive planning, program management, evaluations, consultations, comprehensive planning, program management, conceptual designs, plans and specifications, value engineering, conceptual designs, plans and specifications, value engineering, construction phase services, soils engineering, drawing reviews, construction phase services, soils engineering, drawing reviews, preparation of operation and maintenance manuals, and other related preparation of operation and maintenance manuals, and other related services. services.

QBS: The ProcessQBS: The Process• Selecting a Design FirmSelecting a Design Firm

1. An owner identifies the general scope of work and 1. An owner identifies the general scope of work and develops a selection schedule.develops a selection schedule.

2. A request for qualifications is issued.2. A request for qualifications is issued.

3. Statements of qualifications are evaluated.3. Statements of qualifications are evaluated.

4. A short-list of qualified firms to be interviewed is 4. A short-list of qualified firms to be interviewed is determined.determined.

5. Interviews are conducted and the firms are ranked.5. Interviews are conducted and the firms are ranked.

6. The owner invites the highest ranked firm to assist in 6. The owner invites the highest ranked firm to assist in defining a detailed scope of workdefining a detailed scope of work

QBS: The ProcessQBS: The Process7. The design firm develops and submits to the owner a 7. The design firm develops and submits to the owner a

detailed fee proposal, based on the agreed upon scope of detailed fee proposal, based on the agreed upon scope of work.work.

8. If the proposed fee is not acceptable to the owner, the 8. If the proposed fee is not acceptable to the owner, the owner and designer work together to modify the scope of owner and designer work together to modify the scope of work, schedule and budget to determine if an agreement on work, schedule and budget to determine if an agreement on fee can be achieved. fee can be achieved.

9. If an agreement cannot be reached with the top ranked 9. If an agreement cannot be reached with the top ranked firm, those negotiations are ended and negotiations begin firm, those negotiations are ended and negotiations begin with the next most qualified firm. with the next most qualified firm.

10. An agreement covering the above is executed. 10. An agreement covering the above is executed. 11. Firms involved in the selection process are given post-11. Firms involved in the selection process are given post-

selection feedback, when requested.selection feedback, when requested.

Why not use low-bid?Why not use low-bid?• To those not familiar with our industry low-To those not familiar with our industry low-

bid may seem logical bid may seem logical

The Reality of BiddingThe Reality of Bidding

• Low-bidding can lead to inferior results and Low-bidding can lead to inferior results and can actually increase overall project costscan actually increase overall project costs

The cost of A/E services is typically less than The cost of A/E services is typically less than 1% of the project life-cycle costs.1% of the project life-cycle costs.

What Does the Owner Really Want?What Does the Owner Really Want?

Lowest Construction CostLowest Construction CostLowest A/E CostLowest A/E CostLowest Life-Cycle CostLowest Life-Cycle CostValueValue

Engineering ServicesEngineering Services• A/E services are unique in that they comprise a A/E services are unique in that they comprise a

small percentage of the overall cost of a small percentage of the overall cost of a project and at the same time have an project and at the same time have an unparalleled impact on the project’s ultimate unparalleled impact on the project’s ultimate success.success.

• Engineers provide: Engineers provide: • Technical ExpertiseTechnical Expertise• InnovationInnovation• Latest TechnologyLatest Technology• High Degree of Professional CompetenceHigh Degree of Professional Competence

Engineering ServicesEngineering Services

Life Cycle Cost

Impact on Project Success

Operation & Maintenance

Representation of Typical Life Cycle Cost and Impact on Project Success

Engineering

Construction

Why QBS?Why QBS?• QBS leads to lower life cycle costsQBS leads to lower life cycle costs

• Fewer change ordersFewer change orders

• Lower operational and maintenance costsLower operational and maintenance costs

• QBS promotes innovationQBS promotes innovation• Negotiation process provides for clarification of the terms Negotiation process provides for clarification of the terms

of reference and exploration of alternative approachesof reference and exploration of alternative approaches

• A team approach between the Client and the selected firm A team approach between the Client and the selected firm is developed up frontis developed up front

• QBS safeguards public health and safetyQBS safeguards public health and safety• sustainabilitysustainability

Why QBS?Why QBS?• In 1984, the American Institute of Architects (AIA) In 1984, the American Institute of Architects (AIA)

compared the procurement practices of Maryland compared the procurement practices of Maryland (QCBS) and Florida (QBS).(QCBS) and Florida (QBS).

• ““Maryland’s A/E selection process is significantly more Maryland’s A/E selection process is significantly more time-consuming and expensive than Florida’stime-consuming and expensive than Florida’s. In . In Maryland, the necessity of preparing detailed programs Maryland, the necessity of preparing detailed programs on which A/Es can base price proposals results in added on which A/Es can base price proposals results in added expense to the state in the form of administrative staff, expense to the state in the form of administrative staff, time delays and consultants costs. These additional time delays and consultants costs. These additional system costs are unique to the Maryland process.”system costs are unique to the Maryland process.”

Why QBS?Why QBS?

FLORIDA FLORIDA MARYLANDMARYLAND

Procurement SystemProcurement System QBSQBS

QCBSQCBS Architect/Engineer Selection CostArchitect/Engineer Selection Cost $X$X $2X$2X A/E Selection Time - MonthsA/E Selection Time - Months 66 1111 A/E Service Time - MonthsA/E Service Time - Months 2222 3131

Why QBS?Why QBS?• A 2002 study by the Polytechnic University in New

York looked at the procurement of A/E services in New York City (QCBS) compared to New York State (QBS). Conclusions:• Competitive bidding may result in “presumed” cost savings at the time of

award, but the short term (construction phase) and long-term (life-cycle) costs may increase the original costs significantly.

• The disadvantages of competitive bidding exist even when the best technical proposal wins because the effect of the bidding process remains.

• QBS reduces procurement efforts. Rather than spending long periods of time on developing a very narrow scope of work, owners can focus on identifying qualified firms.

Questions?Questions?

• What happens if the Owner and A/E can not What happens if the Owner and A/E can not agree on the fee for the services?agree on the fee for the services?• The Owner terminates negotiations with the first ranked The Owner terminates negotiations with the first ranked

firm and begins negotiation with the second ranked firm. firm and begins negotiation with the second ranked firm. The Owner is always in control of the process. This The Owner is always in control of the process. This happens only rarely, since the A/E has invested significant happens only rarely, since the A/E has invested significant resources to arrive at this point.resources to arrive at this point.


• Why not ask for prices from three qualified Why not ask for prices from three qualified firms?firms?• Each firm will offer a price based on its own interpretation Each firm will offer a price based on its own interpretation

of the scope and not necessarily that of the owner. Each of the scope and not necessarily that of the owner. Each price therefore, represents a unique and unilateral scope. price therefore, represents a unique and unilateral scope.

• Since most equally qualified firms have similar labor cost, Since most equally qualified firms have similar labor cost, overhead, and profit structures, they will cut scope first to overhead, and profit structures, they will cut scope first to be price competitive.be price competitive.


• Does QBS result in higher A/E fees?Does QBS result in higher A/E fees?• Not when you consider the final project costs. The Not when you consider the final project costs. The

studies cited above demonstrated what is intuitive: studies cited above demonstrated what is intuitive: “savings” in engineering fees are lost in additional “savings” in engineering fees are lost in additional administrative costs, construction change orders, time administrative costs, construction change orders, time delays and increased life cycle costs.delays and increased life cycle costs.


• How does the owner know that he is getting a How does the owner know that he is getting a fair price in the negotiation?fair price in the negotiation?• A/E’s typically get about 85% of their business from repeat A/E’s typically get about 85% of their business from repeat

clients. Client satisfaction ranks second only to the A/E’s clients. Client satisfaction ranks second only to the A/E’s public safety professional responsibility. A reputation of public safety professional responsibility. A reputation of inflated fees without commensurate high quality (value) is inflated fees without commensurate high quality (value) is a sure formula for loosing clients and not in the best a sure formula for loosing clients and not in the best business interest of the A/E.business interest of the A/E.

• If the owner can not be convinced that the fees are fair, he If the owner can not be convinced that the fees are fair, he does not have to buy the A/E’s services.does not have to buy the A/E’s services.

Common MisconceptionsCommon Misconceptions• QBS takes longer – False: QBS fosters teamwork between the QBS takes longer – False: QBS fosters teamwork between the

client and engineering and facilitates construction, leading to client and engineering and facilitates construction, leading to faster project delivery. (AIA Study)faster project delivery. (AIA Study)

• QBS is a waste of taxpayer money – False: In fact, low-bid is QBS is a waste of taxpayer money – False: In fact, low-bid is more expensive because it leads to increased change orders more expensive because it leads to increased change orders and high project maintenance costs. Furthermore, QBS and high project maintenance costs. Furthermore, QBS ensures the public gets a high quality and safe design. ensures the public gets a high quality and safe design.

• QBS eliminates price as a selection criteria – False: Price is a QBS eliminates price as a selection criteria – False: Price is a factor! Price becomes a factor after the most qualified firm has factor! Price becomes a factor after the most qualified firm has been identified and a detailed scope of work has been jointly been identified and a detailed scope of work has been jointly developed by the owner and design professional.developed by the owner and design professional.

Case StudyCase Study• Three engineers were invited to submit technical and price Three engineers were invited to submit technical and price

proposals for a wastewater treatment plant upgrade project.proposals for a wastewater treatment plant upgrade project.• The price proposals and technical scores were:The price proposals and technical scores were:

1. $ 349,0001. $ 349,000 88882. $ 388,0002. $ 388,000 85853. $ 325,0003. $ 325,000 8484

• You are the Director of Public Works and have to recommend You are the Director of Public Works and have to recommend a firm for the project.a firm for the project.

• Here are your choices:Here are your choices:1. Choose the firm with the highest ranked technical 1. Choose the firm with the highest ranked technical proposal for $349,000.proposal for $349,000.2. Choose the firm with the low price.2. Choose the firm with the low price.

Option #1 Option #1 (the firm with the highest ranked (the firm with the highest ranked

technical proposal for $349,000.)technical proposal for $349,000.)

• After you have notified the winning firm, the After you have notified the winning firm, the President of the County Council calls and asks President of the County Council calls and asks you to attend the next Council meeting to you to attend the next Council meeting to explain why you agreed to pay an additional explain why you agreed to pay an additional $24,000 when the technical scores of “equally $24,000 when the technical scores of “equally qualified firms” were so close.qualified firms” were so close.

Case StudyCase Study

Option #2 Option #2 ((the firm with the low price.)the firm with the low price.)

• You have made the Council and the County Procurement You have made the Council and the County Procurement Agent happy.Agent happy.

• At the 50% submission, you realize that an important item of At the 50% submission, you realize that an important item of scope was not included in your Request of Proposal or in the scope was not included in your Request of Proposal or in the A/E’s original fee. To be fair you ask the A/E for a change A/E’s original fee. To be fair you ask the A/E for a change order. It amounts to $30,000. order. It amounts to $30,000.

• The County Council President calls and asks you to explain The County Council President calls and asks you to explain why you didn’t select the most qualified firm who “would why you didn’t select the most qualified firm who “would have known about this” and would have charged $6,000 less have known about this” and would have charged $6,000 less considering the change order that you now ask for. considering the change order that you now ask for.


Moral of the StoryMoral of the Story• When the owner writes the scope without the A/E’s When the owner writes the scope without the A/E’s

input, he is exposed to a greater risk of change orders.input, he is exposed to a greater risk of change orders.• When multiple prices are on the table, the owner is When multiple prices are on the table, the owner is

not in control; the price is.not in control; the price is.• Had the Director used QBS, he would have been able Had the Director used QBS, he would have been able

to identify contingencies and have a contract means to identify contingencies and have a contract means to handle them. He would also have been able to tell to handle them. He would also have been able to tell the Council that the procurement method he used is the Council that the procurement method he used is widely endorsed by governmental and professional widely endorsed by governmental and professional organizations.organizations.


Federal IssuesFederal Issues• Some federal funding programs are loans which Some federal funding programs are loans which

are repaid into a fund; is the money that is then are repaid into a fund; is the money that is then loan back out federal money subject to the Brooks loan back out federal money subject to the Brooks Act?Act?

• What happens when contracts include engineering What happens when contracts include engineering and non-engineering work?and non-engineering work?• Regulatory test is QBS required when engineering is Regulatory test is QBS required when engineering is

substantial; but what is substantial?substantial; but what is substantial?

• Example: Recent USAID $2 billion procurement; Example: Recent USAID $2 billion procurement; agency claims engineering not substantial.agency claims engineering not substantial.

State IssuesState Issues• Forty-four states currently have QBS lawsForty-four states currently have QBS laws

• Hundreds of municipalities use QBSHundreds of municipalities use QBS• Oregon: Amended QBS law to include local agencies using state Oregon: Amended QBS law to include local agencies using state

money for projects. Twenty-one states have similar law. money for projects. Twenty-one states have similar law.

• New York: Was able to expand their QBS law to include public New York: Was able to expand their QBS law to include public benefic corporation and authorities.benefic corporation and authorities.

• QBS is prone to attack by state administrations QBS is prone to attack by state administrations and legislators unfamiliar with the processand legislators unfamiliar with the process

• Reverse auctions in Minnesota & KentuckyReverse auctions in Minnesota & Kentucky

• Louisiana attempts to use the “two-envelope” systemLouisiana attempts to use the “two-envelope” system

Who Endorses QBS?Who Endorses QBS?• International Federation of Consulting Engineers International Federation of Consulting Engineers

(FIDIC)(FIDIC)• The American Public Works AssociationThe American Public Works Association• The American Bar Association in their model The American Bar Association in their model

municipal code.municipal code.• The American Institute of ArchitectsThe American Institute of Architects• The National Society of Professional EngineersThe National Society of Professional Engineers• Numerous Engineering Technical Societies such as Numerous Engineering Technical Societies such as

the American Society of Civil Engineers, etc.the American Society of Civil Engineers, etc.

TestimonialsTestimonials• "QBS is an invaluable tool for us. It consistently delivers high-quality, on-time infrastructure "QBS is an invaluable tool for us. It consistently delivers high-quality, on-time infrastructure

projects for the citizens of New York." - projects for the citizens of New York." - William F. O'Connor, Deputy Commissioner, New William F. O'Connor, Deputy Commissioner, New York State Office of General Services. York State Office of General Services.

• "The public interest is best served when government agencies select engineers, architects and "The public interest is best served when government agencies select engineers, architects and related professional services and technical consultants for projects and studies through QBS." related professional services and technical consultants for projects and studies through QBS." - - Marty Manning, President, American Public Works AssociationMarty Manning, President, American Public Works Association ..

• "In general, QBS has allowed us greater flexibility, placed minimal financial burden on "In general, QBS has allowed us greater flexibility, placed minimal financial burden on prospective consulting firms, initiated greater understanding of the scope of work, and prospective consulting firms, initiated greater understanding of the scope of work, and facilitated the development of contracts that are based on common understanding and sound facilitated the development of contracts that are based on common understanding and sound fiscal principles associated with the expected work." - fiscal principles associated with the expected work." - Harry Judd, Manager of TMDL, Harry Judd, Manager of TMDL, Utah State Division of Water Quality.Utah State Division of Water Quality.

• "The whole QBS process was very helpful. My only regret is that I wish we would have "The whole QBS process was very helpful. My only regret is that I wish we would have adopted it sooner." - adopted it sooner." - Rick Manchester, Parks and Recreation Director, City of Two Rick Manchester, Parks and Recreation Director, City of Two Rivers, WI. Rivers, WI.

• "QBS means that the owner gets a qualified, competent engineer who is known to have the "QBS means that the owner gets a qualified, competent engineer who is known to have the qualifications for a specific project. And the taxpayer receives a quality infrastructure system qualifications for a specific project. And the taxpayer receives a quality infrastructure system that is well-designed and meets the required service life." - that is well-designed and meets the required service life." - Paul Kinshella, Superintendent Paul Kinshella, Superintendent for the City of Phoenix Water Services Department.for the City of Phoenix Water Services Department.

ResourcesResources

• ACEC’s Online QBS Resource CenterACEC’s Online QBS Resource Center• http://www.acec.org/advocacy/qbs.cfmhttp://www.acec.org/advocacy/qbs.cfm

http://www.acec.org/advocacy/qbs.cfm

ContactContactTom McNultyTom McNulty

Director, Environmental and International ProgramsDirector, Environmental and International Programs

ACECACEC

202-682-4354202-682-4354

[email protected]@acec.org

mailto:[email protected]

QBS Case Study #1QBS Case Study #1

• The owner has asked for a price proposal for a site The owner has asked for a price proposal for a site plan for a business park. Your work will include plan for a business park. Your work will include permitting and stormwater management.permitting and stormwater management.

• You have determined that the site is suitable for an You have determined that the site is suitable for an innovative bio-filtration stormwater management innovative bio-filtration stormwater management facility. This innovative design may allow more facility. This innovative design may allow more parking and office floor space when compared to a parking and office floor space when compared to a conventional stormwater management basin. conventional stormwater management basin. However, the design and permitting effort for the However, the design and permitting effort for the innovative design is about 1.5 times the cost of the innovative design is about 1.5 times the cost of the conventional basin design. conventional basin design.

Here are your choices of action:Here are your choices of action:

1. 1. Call the owner and ask to explain the Call the owner and ask to explain the opportunities of innovative design in the hope opportunities of innovative design in the hope that he will accept your higher price.that he will accept your higher price.

2. Ask the owner to tell the other engineers to base 2. Ask the owner to tell the other engineers to base their fee on the bio-filtration design so that their fee on the bio-filtration design so that

everyone’s fees are comparable.everyone’s fees are comparable.

3. Give the owner two fees, one for the conventional 3. Give the owner two fees, one for the conventional design and one for the innovative design and design and one for the innovative design and

let let him decide.him decide.


Option #1? (Option #1? (Call the owner to explain the opportunities Call the owner to explain the opportunities of innovative design…hope he accepts your higher price.)of innovative design…hope he accepts your higher price.)

• The owner says that it is a great idea. So you The owner says that it is a great idea. So you give him your higher fee based on the give him your higher fee based on the innovative approach. innovative approach.

• But the owner calls a week later to thank you But the owner calls a week later to thank you for your effort but he just had to take the for your effort but he just had to take the engineer whose fees were 65% less than yours. engineer whose fees were 65% less than yours. But he will invite you to bid next time. But he will invite you to bid next time.


Option #2 Option #2 (Owner tells other engineers to base their (Owner tells other engineers to base their fee on the bio-filtration design.)fee on the bio-filtration design.)

• The owner says, fine. Just write a scope so he can The owner says, fine. Just write a scope so he can hand it to the other engineers.hand it to the other engineers.

• One of the other engineers calls you to ask what a One of the other engineers calls you to ask what a bio-filtration facility is.bio-filtration facility is.

• The owner calls a week later and says that he chose The owner calls a week later and says that he chose the engineer whose price was 65% lower than yours. the engineer whose price was 65% lower than yours.

• The selected engineer later talks the owner out of the The selected engineer later talks the owner out of the risky bio-something design and goes ahead and risky bio-something design and goes ahead and designs the big ugly hole.designs the big ugly hole.


Option #3 Option #3 (Give the owner two fees, one for the (Give the owner two fees, one for the conventional design and one for the innovative design.conventional design and one for the innovative design.

• The owner calls and says that he really likes the innovative The owner calls and says that he really likes the innovative option but the low conventional design fee looks really option but the low conventional design fee looks really tempting. Even though you were not the lowest fee among the tempting. Even though you were not the lowest fee among the three engineers, he would be happy to give you the job if you three engineers, he would be happy to give you the job if you would go with the innovative option for the conventional would go with the innovative option for the conventional option fee. If you can’t, he will have to go with the lowest fee option fee. If you can’t, he will have to go with the lowest fee of one of the other engineers.of one of the other engineers.


Moral of the StoryMoral of the Story• When price is on the table it trumps other When price is on the table it trumps other

considerations, even quality and innovation. considerations, even quality and innovation. However, in many cases, the difference in quality However, in many cases, the difference in quality outweighs the apparent savings in fees when outweighs the apparent savings in fees when considering the life cycle costs.considering the life cycle costs.

• Had the owner used QBS he would have worked with Had the owner used QBS he would have worked with the innovative engineer to develop a layout that the innovative engineer to develop a layout that would have generated more rentable office space and would have generated more rentable office space and a higher rate of return on his development a higher rate of return on his development investment.investment.


QUALIFICATIONS-BASED SELECTION WHY VALUE OUTWEIGHS COST IN THE SELECTION OF DESIGN SERVICES 21...

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