Transformation of ASU Contracting
Office
Dean Kashiwagi, Professor, PhD, PE
Director
Ray Jensen
Senior Vice President, Business Services
John Riley
Director, ASU Contracting
Performance Based Studies Research Group
www.pbsrg.com
April 2008
PBSRG
GLOBAL
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
Worldwide as a leader in Best-Value
Procurement /Construction Performance
Research and Documentation
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Conducting research since 1994
146 Publications
2008/2009 Award to Africa
441 Presentations, 6,200 Attendees
530 Procurements
$683 Construction services
Corenet Global
$451Non-construction services
2005 Innovation
50 Different clients (public & private)
of the Year Award
98% Customer satisfaction
Decreased management functions by 90%
Increase vendor profit by 5%
Best Value PIPS
transformation
International Council
for Research and
Innovations in Building
and Construction
2006/2008
Current Research Clients
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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)
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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
Knowing nothing
Decisions
Knowing everything
Experience vs. Logic
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
Me & Them
Risks
Risks
Control
Don’t
Control
Control
Don’t
Control
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
III. Negotiated-Bid
Performance
Owner selects vendor
Negotiates with vendor
Vendor performs
II. Best Value (actuals)
Performance and price
measurements
Quality control
Contractor manages
and minimizes risk
IV. Unstable Market
I. Price Based (minimums)
Specifications, standards
and qualification based
Management & Inspection
Client
manages
Low
Competition
High
Perception on Standards
Owners
Vendors
“The lowest possible quality
that I want”
“The highest possible value
that you will get”
High
High
Maximum
Minimum
Low
Low
Impact of Minimum Standards
High
Low
High
Low
Contractor 1
Contractor 2
Contractor
Contractor
Contractor
Contractor
Contractor 3
Contractor 4
Low
High
Low
1
2
3
4
High
Industry performance and capability
Customers
Outsourcing
Owner
Partnering
Owner
Price
Based
Vendor X
Highly
Trained
Medium
Trained
Minimal
Experience
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….
As management, control, and direction
become more important…..
Management
Skill 1
Skill 2
Skill 3
Skill 4
….it becomes less important to be skilled,
accountable, and able to minimize risk
“Manager’s Code”
The movement of risk.....
NO
YES
Is It Working?
Don’t Mess With It!
YES
Did You Mess
With It?
YOU IDIOT!
NO
Anyone Else
Knows?
YES
You’re SCREWED!
NO
NO
Hide It
Can You Blame
Someone Else?
Yes
NO PROBLEM!
YES
Will it Blow Up
In Your Hands?
NO
Look The Other Way
An Event
Initial
conditions
Final
conditions
Laws
Laws
Time
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 System
Performance Information Procurement
System (PIPS)
PHASE 1:
PHASE 2:
PHASE 3:
SELECTION
PRE-PLANNING
MANAGEMENT
BY RISK
MINIMIZATION
QUALITY
CONTROL
Best Value also known as “sealed competitive bid” in State of Texas
Self Regulating Loop
(Six Sigma DMAIC Generated)
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Actions
Minimize data flow
Minimize analysis
Minimize control
Requirements
(DBB, DB, CMAR, DBO)
R Risk Assessment
Past Performance
Information
R Interview Key Personnel
Identify value (PPI, RA,
V Interview, $$$$$)
M
R
50%
50%
V = Identify Value
R = Minimize Risk
M = Self Measurement
Preplanning,
Quality Control Plan
M
M
Measure
again
Efficient Construction
M
R
Performance Information
Procurement System (PIPS)
Filter 1
Filter 2
Past
Proposal &
Performance Risk / Value
Information
Plan
Filter 3
Interview
Filter 4
Prioritize
(Identify
Best Value)
Filter 6
Weekly
Report &
Post-Rating
Filter 5
Pre-Award
Phase
(Pre-Plan)
Award
Quality of Vendors
High
Low
Time
Me vs Us
Us
Me & Them
Risks
Risks
Control
Don’t
Control
Control
Don’t
Control
Unforeseen Risks
QUALITY CONTROL
• Risk
• Risk Minimization
• Schedule
QUALITY ASSURANCE
• Checklist of Risks
• Sign and Date
WEEKLY REPORT
• Risk
• Unforeseen Risks
PERFORMANCE SUMMARY
• Vendor Performance
• Client Performance
• Individual Performance
• Project Performance
Risk Management by Contractor
Director
Director
Procurement
Procurement Officer
Officer 11
PM
PM 11
PM
PM 22
Procurement
Procurement Officer
Officer 22
PM
PM 33
PM
PM 44
Contractor 1
Contractor 5
Contractor 9
Contractor 13
Contractor 2
Contractor 6
Contractor 10
Contractor 14
Contractor 3
Contractor 7
Contractor 11
Contractor 15
Contractor 4
Contractor 8
Contractor 12
Contractor 16
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
15
3
6
87%
100%
83%
2
0
1
93%
67%
100%
1
1
0
$3,333,333
$3,333,333
$7,500,000
2.5%
0.0%
1.8%
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
OVERVIEW OF PROJECTS
Total Number of Projects
% Projects Completed On Time
# of Jobs Delayed
% Projects Completed On Budget
# of Jobs Over Awarded Budget
AVERAGE PROJECT
Project Budget
% Over Awarded Budget
# of Days Delayed
UMN Pilot Program Analysis
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Number of Best-Value Procurements: 45
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Allocated Funds: $10.8M
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Awarded Cost: $10.0M (-7.4%)
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Average Number of Proposals: 3
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Projects Where Best-Value was also Lowest Cost: 49%
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Completed Projects: 18
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UMN Project Manager’s management decrease: 90%
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Average customer satisfaction: 100%
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Average contractor close out rating: 9.4
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(GC, Mech, Elec, Roof)
Cost Increases: 5.4% (Client) / 0.4% (Unforseen)
Schedule Increases: 49.6% (Client) / 0.8% (Unforseen)
16 projects had no contractor cost increases
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
Raw Financial Analysis
Financial Criteria
Incumbent
Awarded vendor
A
B
C
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
Total financial distance between
incumbent and awarded vendor:
$ 32,545,077 (66%)
Entergy Test Results
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$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 Manufacturer
Neogard 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
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Location: Torrington, WY
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Roof installation: 1983 5 year spec
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Hailstorms: 1984, 1999
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Hail tested: 1995,2002
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Recoated: 2003: 3 inch steel ball
from 17.75 feet
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Green, sustainable, lightweight,
retrofit over existing
Dallas Independent School District
“Circle of Life”
Meaningless
technical data &
Price based award
Buy Best Value
Poor quality
products
Bad applications
No Correlation Between Performance and
Price
School
Budget
Edison
$1,153,634
Carver
$548,347
Madison
$587,336
Johnston
$716,928
Donald
Long
$175,576
$437,080
Foster
$434,444
Auburn
$434,120
Macon
$336,892
1st
Cont A
$875,818
Cont A
$474,418
Cont A
$575,799
Cont K
$447,000
Cont B
$187,054
Cont A
$425,281
Cont B
$352,770
Cont B
$406,531
Cont B
$366,445
2nd
3rd
4th
5th
Cont B
Cont C
Cont G
Cont H
$1,084,712 $1,133,200 $1,017,998 $1,835,664
Cont C
Cont G
Cont H
Cont B
$541,300
$545,820
$461,415
$428,540
Cont B
Cont G
Cont H
Cont C
$703,571
$673,276
$936,517
$589,300
Cont B
Cont A
Cont C
Cont G
$654,378
$509,719
$635,000
$580,846
Cont A
Cont K
Cont G
Cont C
$155,694
$178,000
$186,498
$244,700
Cont B
Cont C
Cont G
Cont H
$529,801
$501,500
$512,752
$875,750
Cont A
Cont K
Cont G
Cont C
$328,086
$368,500
$388,502
$595,900
Cont A
Cont G
Cont C
Cont K
$365,981
$420,989
$487,700
$533,000
Cont A
Cont K
Cont C
Cont G
$295,739
$334,200
$397,600
$353,588
School
Budget
Edison
$1,153,634
Carver
$548,347
Madison
$587,336
Johnston
$716,928
Donald
$175,576
Long
$437,080
Foster
$434,444
Auburn
$434,120
Macon
$336,892
1st
Cont A
$875,818
Cont A
$474,418
Cont A
$575,799
Cont K
$447,000
Cont B
$187,054
Cont A
$425,281
Cont B
$352,770
Cont B
$406,531
Cont B
$366,445
2nd
3rd
4th
5th
Cont B
Cont C
Cont G
Cont H
$1,084,712 $1,133,200 $1,017,998 $1,835,664
Cont B
Cont C
Cont G
Cont H
$428,540
$541,300
$545,820
$461,415
Cont B
Cont C
Cont G
Cont H
$703,571
$589,300
$673,276
$936,517
Cont B
Cont A
Cont C
Cont G
$654,378
$509,719
$635,000
$580,846
Cont A
Cont K
Cont G
Cont C
$155,694
$178,000
$186,498
$244,700
Cont B
Cont C
Cont G
Cont H
$529,801
$501,500
$512,752
$875,750
Cont A
Cont K
Cont G
Cont C
$328,086
$368,500
$388,502
$595,900
Cont A
Cont K
Cont G
Cont C
$365,981
$533,000
$420,989
$487,700
Cont A
Cont K
Cont C
Cont G
$295,739
$334,200
$397,600
$353,588
6th
Cont L
$560,000
Cont H
$790,663
Cont H
$281,746
6th
Cont L
$560,000
Cont H
$790,663
Cont H
$281,746
Cont H
$608,617
Cont H
$373,174
Cont H
$608,617
Cont H
$373,174
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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 / Questions
Next Session: ASU Transformation