State of MinnesotaPIPS Update

August 15, 2010

PPerformance erformance BBased ased SStudies tudies RResearch esearch GGrouproup

www.pbsrg.com

PBSRGGLOBAL

Dean T. Kashiwagi, Dean T. Kashiwagi, Director, PhD, Director, PhD, Professor, Fulbright ScholarProfessor, Fulbright Scholar

22

Converging Efforts of Best Converging Efforts of Best Value PIPSValue PIPS

Dato Gan and Brunsfield: Vendor of the Future

• Visionary contractor of “2010”

• Value and not cost

• Added value: 10X

• Supply chain (SC) thinking

• No constraints in SC value thinking

– Geographical– Industry– Function– Clientele– Processes

Mark Little: Procurement Vision of the Future• Co-Procurement Director of

the Year 2010

• Transform procurement from contracting silo to administrator of supply chain value

• Education of State of Idaho Agencies

• New government model: integrate high performance vendors into the State of Idaho environment

• Western States Contracting Association (WSCA)

John Morrison: Future Role of CM/FM

• 2010 State Government CM of the Year

• Discover of the difference between “bottom up” and “top down” delivery of services; RFP vs IFB.

• Changing the CM/FM role to increasing value of supply chain by hiring experts

• Architect who is also a procurement specialist

• Best value PIPS proponent in the State of Oklahoma and the midwest

Dutch Visionaries: Best Value PIPS leaders in Europe• Sicco Santema:

– Handpicked by Dutch industry to lead best value PIPS effort

– Youngest person to gain rank of professor in the Netherlands

– Supply chain and marketing expertise

– Professor at Delft and Director of Scenter

– Dutch book of best value PIPS (2,000 copies distributed)

• Jeroen van de Rijt– Best value PIPS Project

Manager

• Wiebe van Witteveen– Rijkeswaterstaat visionary– $1B test of delivery of

infrastructure projects (largest in the world)

2010 Core Group of Experts

Oct 2010

• 5 days 15 presentations• NEVA 300+

procurement agents• Type A visionary group• Government

procurement consulting group

• Rijkswaterstaat’s team being tasked to help others

ASU Visionaries Ray Jensen and John Riley

• 2010 University Administrators of the Year

• Changed the way universities operate

• Added $100M to the university coffers by hiring experts and creating the environment of efficiency and supply chain value

• Transformed university contracting to best value PIPS (used research technology from their own university)

• Integrated university operations with university research

General Services Administration (GSA)• First federal agency to implement

best value PIPS to:– Measure– Motivate vendors to become

best value measured entities– Implement full delivery

process where the vendor thinks in the best interest of the client

• Process is:– Bottom up– Does not depend on the

contract to minimize risk– Preplanning becomes more

important than construction period

– Minimizes the need to manage, direct, and control

US Army Medical Command

• Using Performance Information Risk Management System (PIRMS) to manage the delivery of construction

• Assumes no leverage, control, but uses dominant information

• Assumes that in the bureaucratic environment, everyone loses focus of the objective of being efficient and effective

• Assumes that the vendors are the only ones with risk, and the vendors are the only ones who can manage and minimize risk, and must lead the effort

• Uses imperfect and incomplete information to optimize the system

PM 2 PM 3 PM 4

Procurement Officer 1 Procurement Officer 2

Director

Contractor 5

Contractor 6

Contractor 7

Contractor 8

Contractor 9

Contractor 10

Contractor 11

Contractor 12

Contractor 13

Contractor 14

Contractor 15

Contractor 16

Facility Director

FM2 FM3 FM4

Organization CommanderCOE Procurement Office1

COE Procurement Office1COE Procurement Office1

QAQA

QAQA

PM 1

Contractor 1

Contractor 2

Contractor 3

Contractor 4

FM1

Project IntegratorProject Integrator

Project Integrators

Hospital Users

Facility Director

PM 1 PM 2 PM 3 PM 4

Procurement Officer 1 Procurement Officer 2

Director

Contractor 1Contractor 2Contractor 3Contractor 4

Contractor 5Contractor 6Contractor 7Contractor 8

Contractor 9Contractor 10Contractor 11Contractor 12

Contractor 13Contractor 14Contractor 15Contractor 16

Regional Director Regional Director

Hospital 1 Hospital 2 Hospital 3 Hospital 4

Director

S BContract

• 700 Procurements• $808 Million Construction services• $1.7 Billion Non-construction services• $1.3B Euro ($2B) infrastructure construction

test ongoing in the Netherlands• Africa/Southeast Asia/Australia • ASU procurement - $100M cash savings

over 10 years• GSA (largest organization in U.S. delivering

services) implementation in 2009• 98% Customer satisfaction, 90% of PM/RM

transactions minimized• Increased vendor profits and decreased cost

PBSRG(Performance Based Studies Research Group)

Latest Efforts

• State of Alaska $200M ERP system

• State of Idaho $30M DMV system

• State of Oklahoma $40M tax system

• State of Oklahoma $12M juvenile facility/educational program system

• State of Idaho health services for correctional facilities

• Neogard waterproofing/roofing risk management system (warranties, Alpha program, roof owners)

Rochester Public SchoolsCity of RochesterRochester Public Utilities

Olmsted County

UMNPlymouth

PIPS IN MINNESOTAPIPS IN MINNESOTA

City of Roseville

St. Louis County

General Overview

Total Number of Projects 233 Total Awarded Cost : $ 106 MPercent of Projects where BV had lowest cost 45%

Cost Increases Overall Change Order Rate 5.5%

Client 3.9% Designer 0.8% Contractor 0.0% Unforeseen 0.8%

Schedule Increases Overall Delay Rate 44.9%

Client 32.2% Designer 5.9% Contractor 3.4% Unforeseen 3.4%

Customer Satisfaction 99%

State of Minnesota

PIPS @

PIPS introduced in 2005 with first Projects

2009 PIPS became standard procurement method at UMN

Award Information to Date Construction AE

Number of Best Value Procurements 185 34

Awarded Cost: $56.7 M $6.0 M Average Number of Proposals 4 5 Projects Where Best Value was also Lowest Cost: 51% 44%

PIPS @

Cost Increases Construction AE Overall Change Order Rate 8.6% 2.7%

Client 5.1% 2.7% Internal 1.5% 0.0% Designer 0.8% 0.0% Contractor 0.0% NA Unforeseen 1.2%

Schedule Increases Overall Delay Rate 49.4% 49.2%

Client 20.7% 33.5% Internal 15.2% 10.2% Designer 5.2% 5.5% Contractor 4.5% NA Unforeseen 4.0%

• Completed Construction and AE Projects: 164

• Satisfaction of Best Value Process(1-10): 9.9

• Satisfaction of Best Value Contractors(1-10): 9.6

• 98% of projects have no contractor cost increases.

• Increased CPPM’s PM capabilities by 60%

PIPS @

MN Clients 1st Projects

• A new law enacted in 2007 allows the use of best value (instead of the traditional lowest-priced bid award).

• City of Roseville – April 2008

• Rochester Public Schools – Nov 2008

• Olmsted County – Jan 2009

• City of Rochester – Dec 2009

• Rochester Public Utilities – July 2010

General Overview

Total Number of Projects 14 Total Awarded Cost: $ 43,218,164 Percent of Projects where BV had lowest cost 29%

Cost Increases

Overall Change Order Rate 1.7% Client 0.4% Designer 0.9% Contractor -0.1% Unforeseen 0.4%

Schedule Increases

Overall Delay Rate 9.0% Client 0.6% Designer 8.1% Contractor 0.0% Unforeseen 0.3%

Satisfaction Ratings Completed Projects 4 Post Project Evaluation of Vendor 9.9

MN County/City Projects

20

No General Contractors No Mechanical Subcontractors1 Adolfson & Peterson Const. 1 Climate Makers, Inc.2 Alvin E. Benike, Inc. 2 Cool Air Mechanical3 Award Construction 3 Corval Group4 Berg Construction 4 DMC Mechanical5 Carlson-LaVine, Inc. 5 Doody Mechanical6 Commercial Systems 6 Egan Companies7 Crossroads Construction 7 Galaxy Mechanical8 Cy-Con Construction 8 Harris Companies9 Dew Corporation 9 MMC

10 Donlar Construction 10 Nasseff Mechanical11 Falls & Nyhusmoen Cons. 11 Northern Air Corporation12 Flag Builders of MN 12 Pioneer Power Inc13 Graham Penn-Co Construction 13 R & S Heating & Air Conditioning14 Iyawe and Associates Builders 14 Service Fire Protection 15 James Steele Construction 15 Shield Fire Protection16 JE Dunn Construction 17 Jorgenson Construction No Roofing Subcontractors18 Key Builders 1 Berwald Roofing19 KM Building Company 2 Central Roofing20 Knutson Construction Services 3 Commercial Roofing21 Kraus Anderson 4 Ettel & Franz Roofing22 L.S. Black Constructors 5 Horizon Roofing23 M. A. Mortenson Company 6 Interstate Roofing24 McGough Construction 7 John A. Dalsin25 Min-Kota Building 26 MN Best Enterprises, Inc. No Electrical Subcontractors27 Morcon Construction 1 All Systems Incorporation28 PCL Construction Services 2 AmeriCom, Inc.29 PMI Construction 3 Bloomington Electric30 Prestige Builders fo MN 4 Egan Companies31 Pro-Con, Inc. 5 Elliot Contracting Corporation32 Reiling Construction 6 Gephart Electric33 RJM Construction 7 Hunt Electric Corporation34 Ryan Companies US, Inc. 8 Mayer Electric35 Shaw-Lundquist Associates 9 Premier Electrical Corporation36 Sheehy Construction 10 Ryan Electric37 Stahl Construction Company 11 Siemens Building Technologies38 Tarraf Construction 12 Sterling Electric Company

No Design Firms   No Design Firms Cont.1 292 Design Group 39 PDI World Group2 Adkins Association 40 Perkins + Will3 Advantage Point Group 41 Pope Associates4 AECIX, Inc 42 Rani Engineering5 AMEC Geomatrix 43 Richard Fischer Architects6 Architectural Resources 44 Roof Spec, Inc7 ATS&R 45 RSP Architects8 Benham Companies 46 Sebesta Blomberg9 Blumentals / Architecture 47 Shea Inc

10 Bonestroo 48 Short Elliott Hendrickson11 Burns & McDonnell 49 SJA12 BWBR Architects 50 Sperides Reiners Architects13 C.M. Architecture 51 Stanley Consultants14 Carlsen and Frank 52 TKDA15 Charles Levin Architects 53 Urban Works Architecture16 Collaborative Design Group 54 URS17 Conway+Schulte Architects 55 Walsh Bishop Associates18 Ericksen Ellison & Associates 56 Wilkus Architects19 Fredrick Bentz/Milo 57 Wold Architects20 Gausman & Moore 21 Harriss Architects 22 HDR Engineering 23 HGA Architects 24 Howard R. Green 25 Inspec Inc 26 Karges Falconbridge 27 Kodet Architectural Group 28 Krech Ojard & Asoociates 29 Leo A Daly 30 LHB Inc. 31 Luken Architecture 32 MacDonald & Marc Architects 33 Mechanical Systems 34 Meyer Scherer & Rockcastle 35 Miller Dunwiddie 36 Miller Hanson Partners 37 Oliver & Associates 38 Ostberg Architects

Lessons Learned

• Client’s delivery system causes major risk

• Designer issues• Current system focuses

on technical risk• Clients are making

decisions• Best value PIPS is a

constantly improving system

• Risk that contractors do not control is not being emphasized

• Designers should be using WRR and RMP

• Rating system not optimal

• Clients are defining the difference

• New improvements are not being implemented

Theoretical Foundation

August 15, 2010

PPerformance erformance BBased ased SStudies tudies RResearch esearch GGrouproup

www.pbsrg.com

PBSRGGLOBAL

Dean T. Kashiwagi, Dean T. Kashiwagi, Director, PhD, Director, PhD, Professor, Fulbright ScholarProfessor, Fulbright Scholar

Initial conditions

Final conditions

An Event

Time

Laws Laws

Initial conditions

Final conditions

Influence, Impact, and Control

Time

Laws Laws

“There is nothing so useless as doing something efficiently that should not be done at all”

Peter Drucker

Control, direction, management, and influence

Initial conditions

Final conditions

Event

Time

Laws Laws

(Control, impact, and influence)

Non-Expert vs Expert

Us

RiskRiskss

RiskRiskss

Control Don’t Control

Control Don’t Control

Me & Them

Industry Structure

High

I. Price Based

II. Value Based

IV. Unstable Market

III. Negotiated-Bid

Specifications, standards and qualification based

Management & Inspection

Best Value (Performance and price measurements)

Quality control

Perceived Competition

Pe

rfo

rman

ce

Low

High

Owner selects vendor

Negotiates with vendor

Vendor performs

Contractor minimizes risk

Client minimizes risk

High

Low

Perf

orm

an

ce

Owners

“The lowest possible quality

that I want”

Contractors

“The highest possible value that you will get”

Minimum

Problem with Priced Based Systems

High

Low

Perf

orm

an

ce

Maximum

Perf

orm

an

ce

High

Low

Ris

k

High

Low

Impact of Minimum Standards

Contractor 1Contractor 2Contractor 3Contractor 4

Contractor 1

Contractor 2

Contractor 3

Contractor 4

Perf

orm

an

ce

High

Low

Ris

k

High

Low

Decision making: what is the minimum standard, and do all contractors meet the minimum standards

Where is the problem?

Highly Trained

MediumTrained

Vendor XCustomers

OutsourcingOwner

PartneringOwner

PriceBased

MinimalExperience

Creating a “Level Playing Field”

Leve

l of P

erfo

rman

ce

Scenario 2 Unlevel Playing Field

• Vendor has expertise• Client provides incomplete

information• Client may have inaccurate

information• Award based on best-value

• Client has expertise• Client provides complete information• Client provides accurate information• Award based on lowest cost

Leve

l of P

erfo

rman

ce

Scenario 1 Level Playing Field

Identified as Potential Best-Value

Must Respond Like an Expert

Best Value

• More time into preplanning, less time in implementation

• Minimize decision making

• Accurately identify initial conditions

• Utilizing vendor’s best people (who know the answer before they do anything)

• Managing and minimizing the risk that they do not control

• Measure vendor performance

• Best value is best value for the lowest cost and the highest profit

• Cost is saved through efficiency and not value engineering

Traditional Contractor Delivery Requirement Model

Vendor 1

Requirement

Vendor 2

Vendor 3

Vendor 4

Level of

Valu

e/P

erf

orm

an

ce

Low

High

V BC

Buyer Controls Vendor Through Contract

V BC

Vendor Manages/Minimizes Risk With Contract

Best Value SystemPerformance Information Procurement System (PIPS)PM model, Risk Management model

PHASE 3:

MANAGEMENT BY RISK

MINIMIZATION

PHASE 1:

SELECTION

PHASE 2:

PRE-PLANNING

QUALITY CONTROL

Best Value also known as “sealed competitive bid” in State of Texas

Performance Information Procurement System Performance Information Procurement System (PIPS)(PIPS)

Filter 1Past

PerformanceInformation

Filter 2Project

Capability

Filter 4Prioritize (Identify

Best Value)

Filter 5Cost

Verification

Filter 6Pre-Award

Period

Time

Qua

lity

of V

endo

rs

Filter 3Interview

Aw

ard

High

Low

Blind RatingTechnical Risk of CompetitorsNon-technical

risk (no control)Value AddedMeasurement

FinancialsMilestones

(percentage quicker)

PA DocsWRRRMP

Tech. Coord.

CriteriaInterview

ScopeRA Plan

Value AddedMeasurement

FinancialsSchedule

PPISelection Phase

DominanceCheck

Ratings are dominant

Best value is within cost

range

Vendor is an Expert

Vendor is not an expert

Lessons Learned II

• PIPS system is always improving

• Understanding of PIPS system by owners is more important than the system itself

• Clients and contractors must band together to be as consistent as possible

• Clients must have the help of the industry to override the “in place” traditional “management, direction, and control” structure

Current Configuration of PIPS Users

• University of Minnesota is the hub

• Hennepin County joining group as a licensed and fully trained entity in Nov 2010

• More entities to use best value PIPS in the future

• Every entity is running PIPS as a separate entity, isolated, and not making use of the strength of other entities

• Contractors are the “key” but being more reactive than proactive

PIPS Using Group

• Client group

• Contractors

• Voluntary best value PIPS advisory group (clients, contractors, designers, consultants, other clients)

Requirements to be on Advisory Group

• Have a best value PIPS performance line

• Performance line will be audited by PBSRG

Best Value PIPS Performance Line• Entity Performance Rating

• Executive level qualified personnel (must meet minimum score of 80%) exam score and number of individuals

• Project management/procurement level qualified personnel exam score and number of individuals

• Schedule and cost deviation rate (including clients)

• Schedule and cost deviation rate actual

• Customer satisfaction rating

• Number of projects

• Total scope of projects

• Number of advisory boards and meetings

2011 Best Value Annual ConferenceFeb 14-19, 2011 in Tempe, AZ

Learn to maintain the level of quality from selection to award, minimize the politics, write a contract of the future, advance your skills, implement a successful delivery model and much, much more.

CEUs available for all professional designations!

Early Registration and Group Rates.

For more details visit us at: www.pbsrg.com

Contact: Sylvia Romero at

(480) 965-1252