Transformation of ASU Transformation of ASU Contracting OfficeContracting Office

April 2008

PPerformance erformance BBased ased SStudies tudies RResearch esearch GGrouproup

www.pbsrg.com

PBSRGGLOBAL

Dean Kashiwagi, Professor, PhD, PEDean Kashiwagi, Professor, PhD, PEDirectorDirector

Ray JensenRay JensenSenior Vice President, Business Senior Vice President, Business

ServicesServicesJohn RileyJohn Riley

Director, ASU ContractingDirector, ASU Contracting

Efficiency: more economical, better value, higher performance

• Minimize management/administration of contract by as much as 90%

• Increase performance to 98% (on time, on budget with no contractor/vendor generated cost change orders, meet quality expectations)

• Pay no more, but contractors/vendors increase profits by 5%

• Use logic instead of experience

• Minimize contract administration, decision making, and surprises

– Conducting research since 1994 Conducting research since 1994 – 146 Publications146 Publications– 441 Presentations, 6,200 Attendees441 Presentations, 6,200 Attendees– 530 Procurements530 Procurements– $683 Construction services$683 Construction services– $451Non-construction services$451Non-construction services– 50 Different clients (public & private)50 Different clients (public & private)– 98% Customer satisfaction98% Customer satisfaction– Decreased management functions by 90%Decreased management functions by 90%– Increase vendor profit by 5%Increase vendor profit by 5%

Worldwide as a leader in Best-Value Worldwide as a leader in Best-Value Procurement /Construction Procurement /Construction Performance Research and Performance Research and DocumentationDocumentation

2006/2008

2008/2009 Award to Africa

Best Value PIPStransformation

International Council for Research and Innovations in Building and Construction

Corenet Global2005 Innovationof the Year Award

Current Research Clients• General Dynamics• United Airlines• Entergy, Southern US• Schering Plough• Neogard• TREMCO• Heijmans, Netherlands• Ministry of Transportation,

Netherlands• University of Minnesota• Arizona State University• New Mexico State

University • States of Washington,

Missouri, Arizona (Parks and Recreation)

• US Army Medical Command• USAF Logistics Command• US Corps of Engineers• City of Peoria, AZ• City of Miami Beach, FL• City of Sitka, Alaska• NY/NJ Port Authority• Denver Hospital• Georgia Tech University, Florida

International University, Central Connecticut University, Glasgow Caledonian University, Salford University (Research)

Logic Models

• Use logic instead of experience

• Price based system vs best value

• Minimize the flow of information between parties

• Blind vs the visionary contractor/vendor

• Minimize risk that they do not control

Experience vs. LogicK

now

ing

noth

ing

Kn

ow

ing

every

thin

g

Decisions

How to use logic instead of experience

• Admit that you don’t know

• Ask

• Ask those who come, how they know they know

• Ask them to go from beginning to the end of the project

• Ask them to minimize the risk they do not control

Me vs Us

Us

RiskRiskss

RiskRiskss

Control Don’t Control

Control Don’t Control

Me & Them

Logic Models

• Use logic instead of experience

• Price based system vs best value

• Minimize the flow of information between parties

• Blind vs the visionary contractor/vendor

• Minimize risk that they do not control

Industry Structure

High

I. Price Based (minimums)

II. Best Value (actuals)

IV. Unstable Market

III. Negotiated-Bid

Specifications, standards and qualification based

Management & Inspection

Performance and price measurements

Quality control

Competition

Pe

rfo

rman

ce

Low

High

Owner selects vendor

Negotiates with vendor

Vendor performs

Contractor manages and minimizes risk

Client manages

High

Low

Perf

orm

an

ce

Owners

“The lowest possible quality

that I want”

High

Low

Perf

orm

an

ce

Vendors

“The highest possible value that you will get”

Minimum

Maximum

Perception on Standards

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

Industry performance and capability

Highly Trained

MediumTrained

Vendor XCustomers

OutsourcingOwner

PartneringOwner

PriceBased

MinimalExperience

There is something wrong with the delivery of services…..

No one knows how bad the problem really is…..

Entire system is broken….

Requires more management….

Performance is decreasing….

Relationships are more important than results….

Skill levels are decreasing….

Management

….it becomes less important to be skilled, accountable, and able to minimize risk

As management, control, and direction become more important…..

Skill 1 Skill 2 Skill 3 Skill 4

“Manager’s Code” The movement of risk.....

Don’t Mess With It!

YES NO

YES

YOU IDIOT!

NO

Will it Blow UpIn Your Hands?

NO

Look The Other Way

Anyone ElseKnows? You’re SCREWED!

YESYES

NO

Hide It

Can You Blame Someone Else?

NO

NO PROBLEM!

Yes

Is It Working?

Did You Mess With It?

Initial conditions

Final conditions

An Event

Time

Laws Laws

How to use logic instead of experience

• Admit that you don’t know

• Ask

• Ask those who come, how they know they know

• Ask them to go from beginning to the end of the project

• Ask them to minimize the risk they do not control

Best Value SystemPerformance Information Procurement System (PIPS)

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

Self Regulating Loop(Six Sigma DMAIC Generated)

Actions• Minimize data

flow• Minimize analysis• Minimize control

Risk Assessment

Preplanning, Quality Control Plan

Measure again

50%

Identify value (PPI, RA, Interview, $$$$$)V

50%

Interview Key PersonnelPast PerformanceInformation

M

Requirements(DBB, DB, CMAR, DBO)

Efficient Construction

M R

MM

R

R

R

= Minimize Risk

= Self Measurement

= Identify Value

M

R

V

Filter 1Past

PerformanceInformation

Filter 2Proposal & Risk / Value

Plan

Filter 4Prioritize (Identify

Best Value)

Filter 5Pre-Award

Phase (Pre-Plan)

Filter 6Weekly

Report &Post-

Rating

Time

Qualit

y o

f V

endors

Filter 3Interview

Aw

ard

High

Low

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

Me vs Us

Us

RiskRiskss

RiskRiskss

Control Don’t Control

Control Don’t Control

Me & Them

Unforeseen Risks

PERFORMANCE SUMMARY• Vendor Performance• Client Performance• Individual Performance• Project Performance

QUALITY ASSURANCE• Checklist of Risks• Sign and Date

QUALITY CONTROL• Risk• Risk Minimization• Schedule

WEEKLY REPORT• Risk• Unforeseen Risks

PM 1 PM 2 PM 3 PM 4

Procurement Officer 1 Procurement Officer 2

Director

Contractor 1

Contractor 2

Contractor 3

Contractor 4

Contractor 5

Contractor 6

Contractor 7

Contractor 8

Contractor 9

Contractor 10

Contractor 11

Contractor 12

Contractor 13

Contractor 14

Contractor 15

Contractor 16

Risk Management by Contractor

Procurement Officer 1 Procurement Officer 2

PM 1 PM 2 PM 3 PM 4

Director

Division Overview

Contractors

PM/PI Performance Line

OVERVIEW PM 1 PM 2 PM 3

Total Awarded Budget $50,000,000 $10,000,000 $45,000,000

Current Cost $51,250,000 $10,000,000 $45,800,000

Over Budget $1,250,000 $0 $800,000

OVERVIEW OF PROJECTS      

Total Number of Projects 15 3 6

% Projects Completed On Time 87% 100% 83%

# of Jobs Delayed 2 0 1

% Projects Completed On Budget 93% 67% 100%

# of Jobs Over Awarded Budget 1 1 0

AVERAGE PROJECT      

Project Budget $3,333,333 $3,333,333 $7,500,000

% Over Awarded Budget 2.5% 0.0% 1.8%

# of Days Delayed 15 0 11

Number of overdue risks 0.51 1.20 0.92

Owner Rating 9.81 9.71 10.00

Risk Number 1.80 1.40 1.03

UMN Pilot Program Analysis• Number of Best-Value Procurements: 45 (GC, Mech, Elec, Roof)

• Allocated Funds: $10.8M

• Awarded Cost: $10.0M (-7.4%)

• Average Number of Proposals: 3

• Projects Where Best-Value was also Lowest Cost: 49%

• Completed Projects: 18– Cost Increases: 5.4% (Client) / 0.4% (Unforseen)– Schedule Increases: 49.6% (Client) / 0.8% (Unforseen)– 16 projects had no contractor cost increases

• UMN Project Manager’s management decrease: 90%

• Average customer satisfaction: 100%

• Average contractor close out rating: 9.4

ASU (largest university in US)

• Procurement office is transforming into best value operation

• Food services (10 year, $400M), sports marketing, furniture, and IT/networking

• Transfer contract administration to contractors as well as risk and control

• Results are beyond the wildest expectations

Commissions $30,254,170 $60,137,588 $64,000,000

Capital Investment $14,750,000 $20,525,000 $12,340,000

Equipment Replacement Reserve $ 7,213,342 $ 4,100,001 $ 8,171,811

Total $52,217,512 $84,762,589 $84,511,811

Raw Financial Analysis

 Financial Criteria

Incumbent

A

Awarded vendor

B C

Total financial distance between incumbent and awarded vendor:$ 32,545,077 (66%)

Entergy Test Results

• $100K investment ($75K education/$25K license)• 7 projects, 3 completed• 83% low price• First two projects: $8M budget, regular bidders bid $6.7M on

two projects• BV contractor attracted by system bids $3.2M (saves Entergy

$3.7M, on time on budget, and met Entergy expectations.• Cushman & Wakefield PMs transferred off of both projects

(leaving no PM support on both projects)• Non-performer allowed to participate, performs well• Used on traditional delivery another project, does not perform

• Conclusions: best value saved funding, minimized need for PM, and assisted non-performing contractor to perform

Alpha Roofing ManufacturerNeogard and BASF

• 98% customer satisfaction

• 98% roofs not leaking

• Service period

• Customer satisfaction rating

• Every other year, physical inspection of roofs

• Every year, call every customer of roof larger than 5,000 SF

Alpha Contractor PLines

Performing Systems

• Location: Torrington, WY

• Roof installation: 1983 5 year spec

• Hailstorms: 1984, 1999

• Hail tested: 1995,2002

• Recoated: 2003: 3 inch steel ball from 17.75 feet

• Green, sustainable, lightweight, retrofit over existing

Dallas Independent School District

“Circle of Life”

Meaningless technical data &

Price based award

Poor quality products

Bad applicationsBuy Best Value

3737

No Correlation Between Performance No Correlation Between Performance and Priceand Price

School Budget 1st 2nd 3rd 4th 5th 6thCont A Cont B Cont C Cont G Cont H

$875,818 $1,084,712 $1,133,200 $1,017,998 $1,835,664Cont A Cont B Cont C Cont G Cont H Cont L

$474,418 $428,540 $541,300 $545,820 $461,415 $560,000Cont A Cont B Cont C Cont G Cont H

$575,799 $703,571 $589,300 $673,276 $936,517Cont K Cont B Cont A Cont C Cont G Cont H

$447,000 $654,378 $509,719 $635,000 $580,846 $790,663Cont B Cont A Cont K Cont G Cont C Cont H

$187,054 $155,694 $178,000 $186,498 $244,700 $281,746Cont A Cont B Cont C Cont G Cont H

$425,281 $529,801 $501,500 $512,752 $875,750Cont B Cont A Cont K Cont G Cont C Cont H

$352,770 $328,086 $368,500 $388,502 $595,900 $608,617Cont B Cont A Cont K Cont G Cont C

$406,531 $365,981 $533,000 $420,989 $487,700Cont B Cont A Cont K Cont C Cont G Cont H

$366,445 $295,739 $334,200 $397,600 $353,588 $373,174

$716,928

$175,576

$437,080

$434,444

Auburn

Macon $336,892

$434,120

Johnston

Donald

Long

Foster

Edison

Carver

$1,153,634

Madison

$548,347

$587,336

School Budget 1st 2nd 3rd 4th 5th 6thCont A Cont B Cont C Cont G Cont H

$875,818 $1,084,712 $1,133,200 $1,017,998 $1,835,664Cont A Cont B Cont C Cont G Cont H Cont L

$474,418 $428,540 $541,300 $545,820 $461,415 $560,000Cont A Cont B Cont C Cont G Cont H

$575,799 $703,571 $589,300 $673,276 $936,517Cont K Cont B Cont A Cont C Cont G Cont H

$447,000 $654,378 $509,719 $635,000 $580,846 $790,663Cont B Cont A Cont K Cont G Cont C Cont H

$187,054 $155,694 $178,000 $186,498 $244,700 $281,746Cont A Cont B Cont C Cont G Cont H

$425,281 $529,801 $501,500 $512,752 $875,750Cont B Cont A Cont K Cont G Cont C Cont H

$352,770 $328,086 $368,500 $388,502 $595,900 $608,617Cont B Cont A Cont K Cont G Cont C

$406,531 $365,981 $533,000 $420,989 $487,700Cont B Cont A Cont K Cont C Cont G Cont H

$366,445 $295,739 $334,200 $397,600 $353,588 $373,174

$716,928

$175,576

$437,080

$434,444

Auburn

Macon $336,892

$434,120

Johnston

Donald

Long

Foster

Edison

Carver

$1,153,634

Madison

$548,347

$587,336

Best Value PIPS Technology

• Contracts with vendors who minimize the risk they do not control

• Transfers risk and control

• Makes everyone accountable

• Creates a transparent system

• Uses dominant information

• Increases performance

Comments / QuestionsComments / Questions

Next Session: ASU Transformation