The Best Value
Business Model
Paul Dugal SCMP (C.P.P.), C.I.M.
Manager - Purchasing Services
University of Manitoba
paul.dugal@ad.umanitoba.ca
Why Best-Value?
Best-Value Allows Organizations To:
• Improve Performance
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Minimize change orders / cost increases
Minimize project delays
Increase quality
Increase accountability
Eliminate claims / disputes / litigation
• Improve Operational Efficiency
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Increase internal capabilities
Manage more projects with less resources
Spend taxpayer money wisely
Better utilize internal personnel
Create, document, and integrate metrics
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Arizona State University
Worldwide Expertise In Best-Value Procurement
• 20 Years of Experience in Best-Value Procurement
• Over 1,500 Projects Tendered | $4.6 Billion Tendered
• Partnered with Private, Public, Federal, International Organizations
• Numerous awards with innovation and best practices
• Over 200 publications
Canadian Efforts
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University of Alberta
University of Ottawa
University of Manitoba
Wilfrid Laurier University
Queen’s University
University of Waterloo
Western University
Dalhousie University
Simon Fraser University
City of Spruce Grove
Alberta Infrastructure
Information
Technology
networking
help desk services
data centers
eProcurement
hardware
COTS software
ERP systems
Facility
Management
maintenance
custodial
landscaping
conveyance
security service pest control
building systems
industrial moving
waste management
energy management
Health Insurance/
Medical Services
Manufacturing
Business / Municipal /
University Services
Construction / Design /
Engineering
material recycling
dining
bookstores
multi-media rights
furniture
fitness equipment
online education
document management
property management
audiovisual
communications systems
emergency response systems
laundry
large gc
infrastructure
municipal
laboratory
education
hospital
financial
large specialty
small gc
renovation
repair
maintenance
roofing
demolition
development
supply chain
DBB
CMAR
DB
IDIQ
JOC
Low Bid
IPD
Our Research Has Shown…
…There Is A Fundamental
Problem With Our Traditional
Approach To Tendering
The Traditional Approach To
Hiring An Expert
OBJECTIVE: Hire a brain surgeon to perform surgery on a loved one
TRADITIONAL APPROACH:
• First Step = Hire the cheapest surgeon
• Second Step = “Negotiate” their proposal:
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Ask that surgeon to find ways to lower their price some more
Request that the surgeon completes the surgery faster
Request that they follow your instructions on performing brain surgery
Identify what tools they are allowed to use
Direct them on which nurses/doctors they can use
Hire other individuals to tell the surgeon how to do the surgery?
• Third Step = Act completely surprised when the surgery is not successful!
The Paradox With Traditional
Activities
• Awarding based on lowest-price alone increases risk and non-performance
• When an owner issues “minimum standards”, they are interpreted as
“maximum standards” by the vendors
• Technical specifications are not always correct and can be the actual source of
risk and non-performance
• The more detailed instructions and specifications we provide, the easier it
becomes for a low-performer to compete
• Owners spend too much time creating documents that are never 100%
accurate
• It is impossible to create a 100% perfect document (too much time, money and
you cannot account of perception levels)
Best-Value Approach
We need a process that…
• Is fair, open, and transparent
• Is efficient for owners and vendors (minimize efforts)
• Attracts high-performers or experts
• Gives the advantage to “expertise”
• Scares away low-performers
• Awards based on overall value (not just cost alone)
How Does An Expert Act?
What the Owner
Described
What the
Consultant Specified
What the
Contractors Installed
What the Owner
Really Needed
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Factors For Success
• Fair (state/follow rules)
• Open
• Impartial and Transparent (minimize evaluator bias / provide debriefing)
• Efficient (minimize efforts)
• Award Based on Value
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Becoming the “Client Of Choice”
We Want A Process That Attracts All
Of The Best / Highest Performing
Experts To Your Projects
High Level Similarities
CRITERIA
Vendor Prepares a Written Approach to the Project
Past Performance / Resumes
Presentations / Interviews
Cost vs. Performance Weighting Criteria
TRADITIONAL
APPROACH
BEST-VALUE
APPROACH
Fundamental Differences
CRITERIA
Vendor Prepares a Written Approach to the Project
Past Performance / Resumes
Presentations / Interviews
Cost vs. Performance Weighting Criteria
Process Requires Vendors to Spend Significant Effort/Resources
Process Requires Owner to Spend Significant Effort in Evaluating
Process Has a Structured Preplanning Phase Prior to Award
TRADITIONAL
APPROACH
BEST-VALUE
APPROACH
Best Value System
High Level Overview
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Proposal ($)
Schedule
Past Performance
Team Qualifications
Risk Assessment
Value Assessment
Interviews
Details
• Pre-Planning &
Clarification
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Award
Weekly Reporting
Post Award Metrics
Final Documentation
Update PPI
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2 Significant Differences
With The Vendors Proposal
1) NO NAMES!!!
• The evaluated proposal documents MUST NOT contain
any names that can be used to identify who Proposer is
(such as company names, personnel names, project
names, or product names).
• Reason = To keep the process fair and non-biased
2) LIMIT PROPOSAL LENGTH!!!
• The evaluated proposal is limited to 3 pages (regardless of
size/scope of the project)
• Reason = Give the advantage to high performers that are
capable of explaining things very simply and concisely.
Minimize effort of vendors and time to evaluate by the
owner
Examples
Can You See The Difference?
Risk Assessment Example
Renovating A Room In A Library On Campus
• VENDOR 1
• RISK: Noise from our demolition may result in student/staff complaints (since
we will be doing demo in an in-operational library during finals week).
• SOLUTION: To minimize this risk it is very important that we work with the user
to develop the best strategies to optimize success. This partnership will be
essential to mitigate the impact of complaints.
• VENDOR 2
• RISK: Noise from our demolition may result in student/staff complaints (since
we will be doing demo in an in-operational library during finals week).
• SOLUTION: To minimize this risk, we have planned to demolition during off
hours, nights, and weekends. We will also install rubber sheets on the floors to
diminish noise and vibrations.
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Risk Assessment Example
Replacing A Roof
RISK:
A poor roofing system can result in roof leaks, which may cause complaints, increase
maintenance, damage building contents, and be a source of mold issues.
Vendor A Solution:
• To minimize this risk, we are proposing one of the best roofing systems in the
industry. This system uses state-of-the-art technology to thermally-weld the roofing
seams. The system that has a tensile strength of 2,130 PSI, elongation of 300%, tear
strength of 312lbs, and has been tested for over 10,000hrs using xenon lighting. We
will also use our highly trained personnel to install the roof to meet all manufacturer
specs.
Vendor B Solution:
• To minimize this risk, we are proposing a roofing system that has been installed on
over 400 roofs and has had an average roof age of 24 years. Our customers are
100% satisfied and 100% of the roofs don’t leak.
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Value Added Suggestions
Scope = Replace the roof to stop water leaks
• Vendor 1 = Reroofing this building will not stop all water leaks. The majority
of leaks are being caused by cracks in the parapet walls, broken glass, and
poor caulking. We would suggest that you allow us to address these items to
minimize all water leaks in your building.
• Vendors 2-8 = We will install your roof exactly as you specified.
Interview Comments
Goal Is To Minimize Risk
“I have no idea why I am here today”…“My boss called me last night and
told me to show up for this interview” - $10 Million Project
“I did not participate at all in preparing our proposal”
“I am not currently employed by this company, but if we win this project,
they will then hire me” - $25 Million Service Project
“I have never managed a project of this size/scope” - $30 Million Project
“There is no risk on this project” - $2 Million IT Project
“The greatest risk that I always face, is how to accomplish all of the
things that our sales team promised we could do” – $5 Million
Cleanroom Design Project
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Case Studies
University of Minnesota
• Award Analysis:
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Number of Best-Value Procurements: 161
Awarded Cost: $51M (11% below average cost)
Average Number of Proposals per Project: 4
53% of Projects = Best-Value was also Lowest Cost
Percent of awards made to Targetted Buisnesses = 17%
• Performance Information:
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Contractor Impacts: 0% Change Orders (Traditional = 34%)
0 litigation/protests in 5 years (Traditional = $17 Million in claims)
Post Project Customer Satisfaction Rating (10 max): 9.6
65% Decrease in Internal University Project Management
Average Contractor Increase in Profit: 5%
Testimonial
“And through the best-value process
we’ve saved about $42 Million or 31%
of our expected spend”
Michael Perkins
Associate Vice President
Capital Planning and Project Management
University of Minnesota
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ASU Dining Service
Best-Value Results
• $1+ Billion Dining Service contract
• Vendor proposed 62% increase in revenue ($33 Million)
• 4-year analysis of the vendor has shown:
Criteria
Year 1
(From
Incumbent)
Year 2
Year 3
Year 4
(From Year 1) (From Year 2) (From Year 3)
Sales 14% Increase
11% Increase
24% Increase 13.5% Increase
Commission 23% Increase
6% Increase
20% Increase
22% Increase
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1% Decrease
9% Increase
3% Increase
ASU Management
Reduced 79%
Requirement
Student Satisfaction 37% Increase
University of Alberta
Project
Value
Cost
Savings
Schedule
Impacts
Satisfaction /
Performance
1. Custodial Services
(campus-wide)
$18M
$2M
10%
5.5%
performance
Improvement
10 (out of 10)
2. DB Construction
(Research Facility)
$30M
$8-12M
25%
14-18 months
9.7 (out of 10)
3. Design Services
(Building Redevelopment)
$4M
$500k
12%
0% Cost &
Schedule CO’s
$190k in Value
Added Options
University of Manitoba
• Partnered with ASU in April 1, 2013 to assist UM in adding a new tool (bestvalue) to the existing structure
• Food Service Contract
• Best-Value RFP was issued on 8/26/13
• Apparent Best-Value Vendor identified on 10/28/13
• 10-Year Service Contract
• Project is still being finalized with apparent Best-Value Vendor, so no additional
details can be provided
• General Findings:
• Process was more efficient (faster to evaluate)
• Process was easier to document and defend (no names, simple spreadsheet with all
the date)
• The “Proposed Revenue” are significantly %%% higher than previous contract (20122013 = $11.3 Million in Gross Sales)
University of Manitoba
• Upcoming Projects
1. Window Replacement Project (Construction)
2. Cold Beverage Vending Service (Service)
Common Questions
• Should the Best-Value Process be used on every project?
• No. It is just another tool. We would recommend using it on any project with high “risk” (where hiring an
expert is crucial). You can still take “bits-&-pieces” of the process an integrate them into traditional processes.
• How much additional time does the process take?
• Usually “none”. Evaluations can be done in one day, and the extra time is used to pre-plan. Spending 2 weeks
to pre-plan has documented a 70% savings in cost change orders.
• We are not comfortable issuing a project without a specification or details
• You will still issue the exact same specification or details that you normally would. The only difference is how
we educate the vendors to think differently, and how we select the best-qualified-best-valued vendor
• Why can’t we create a perfect document/specification so that the only unknown is price?
• This is the traditional approach which leads (on average) to 20%-60% customer satisfaction. The problem with
this approach is that even with a perfect document, if you hire a bad vendor (low performer), they may still
not understand what you are saying, and you increase the odds of getting something you didn’t want. The
most efficient environment is always to hire an expert (who may not always need a perfect document).
• Are you saying that the vendors have more expertise than the owner?
• Yes, in the majority of cases, a true “expert” vendor has more expertise than the owner because that is their
area of expertise. That is all they do, and often they have done these projects/services many times more than
the owner has.
Comments / Questions
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