The Best Value Business Model Paul Dugal SCMP (C.P.P.), C.I.M. Manager - Purchasing Services University of Manitoba

Why Best-Value? Best-Value Allows Organizations To: 2 Improve Performance – Minimize change orders / cost increases – Minimize project delays – Increase quality – Increase accountability – Eliminate claims / disputes / litigation Improve Operational Efficiency – Increase internal capabilities – Manage more projects with less resources – Spend taxpayer money wisely – Better utilize internal personnel – Create, document, and integrate metrics

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 –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

InformationTechnology networking data centers hardware COTS software ERP systems help desk services eProcurement FacilityManagement maintenancelandscaping security service building systems industrial moving waste management energy management custodialconveyance pest control Health Insurance/ Medical Services Manufacturing Business / Municipal / University Services dining multi-media rights fitness equipment online education document management property management audiovisual communications systems emergency response systems laundry material recycling bookstoresfurniture Construction / Design / Engineering large gc infrastructuremunicipallaboratoryeducationhospitalfinancial large specialty small gc renovationrepairmaintenanceroofingdemolitiondevelopment supply chain DBBCMARDBIDIQJOC Low Bid IPD

…There Is A Fundamental Problem With Our Traditional Approach To Tendering Our Research Has Shown…

The Traditional Approach To Hiring An Expert 7 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: –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? 10 What the Owner Described What the Owner Really Needed What the Consultant Specified What the Contractors Installed

Factors For Success Fair (state/follow rules) Open Impartial and Transparent (minimize evaluator bias / provide debriefing) Efficient (minimize efforts) Award Based on Value 12

We Want A Process That Attracts All Of The Best / Highest Performing Experts To Your Projects Becoming the “Client Of Choice”

High Level Similarities CRITERIA TRADITIONAL APPROACH BEST-VALUE APPROACH Vendor Prepares a Written Approach to the Project Past Performance / Resumes Presentations / Interviews Cost vs. Performance Weighting Criteria

Fundamental Differences CRITERIA TRADITIONAL APPROACH BEST-VALUE APPROACH 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

16 Best Value System Proposal ($) Schedule Past Performance Team Qualifications Risk Assessment Value Assessment Interviews Pre-Planning & Clarification Award Weekly Reporting Post Award Metrics Final Documentation Update PPI High Level Overview Details

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

Can You See The Difference? Examples

19 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.

20 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. Risk Assessment Example Replacing A Roof

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 22

Case Studies

Award Analysis: 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: 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): % Decrease in Internal University Project Management Average Contractor Increase in Profit: 5% University of Minnesota

Testimonial “And through the best-value process we’ve saved about $42 Million or 31% of our expected spend” 25 Michael Perkins Associate Vice President Capital Planning and Project Management University of Minnesota

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:

University of Alberta ProjectValueCost 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% months9.7 (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 (best- value) 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 ( = $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.

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