Best Value Performance Information Procurement System (Best Value PIPS)
In this article I try to portray my experiences with a revolutionary business model that has been used most frequently in the procurement of construction and services.
It is a business model and procurement system that has had amazing implications with regard to reduction of time and cost of construction projects. The construction industry in the Netherlands saw the project time and cost cutting down by almost half after applying this model to their projects. It just about proved to be the catalyst the industry needed in order to perform. This model is now gaining even more prominence, as its application continues to spread across more countries. Currently, I have the opportunity to work on this model and contribute to future research as well. I work with a group of researchers and educators at Arizona State University who have been developing tools and processes to improve the procurement and delivery of projects and services, as well as measurement of internal operations and personnel. The Best Value PIPS model has grabbed my interest and I would like to share with everyone regarding what it is and its results thus far.
What is Best Value PIPS?
Best Value PIPS procurement is more than just a procurement system. It is a business model, a cutting edge technology and a leadership model that looks at factors other than just price, such as quality and expertise, when selecting vendors or contractors. Hence, providing a visionary outlook to the construction project right at its onset.
Best Value consists of three main phases:
2. Pre-planning and quality control, and
3. Management by risk minimization.
The purpose of all these phases is to use dominant performance metrics which eliminates decision making by the client and transfers control to the expert vendor/contractor. The intent of this is to align resources even before the project starts.
This process eliminates the need for direction, control and management on part of the client and criteria such as vendor/contractor pre-qualification, as there is complete transparency during all three phases.
If any vendor/contractor fails to demonstrate project capability, the results are there for everyone to see. This increases competition, but does not decrease quality. It creates a high competition and high performance environment. In other words it is a ‘Win-Win’ situation for all. The client eventually gains as he gets a high quality product and the contractor is justly rewarded. The customer satisfaction has been 98% on our projects till date.
In the first phase a single vendor is selected based on past performance and the ability to minimize risk. Metrics are used to complete this step so emotion or prior connections cannot cloud the selection process and the most expert vendor can be selected. Performance measurements are an integral part of the Best Value model. Each and every facet of a contractor’s performance line is measured.
PRE-PLANNING AND QUALITY CONTROL
In the second phase the selected vendor creates a detailed project plan that minimizes risk and allows for a flawless schedule to be developed which could defer from a schedule proposed by the vendor prior to this stage. Once this is done, metrics are created so that performance can be measured throughout the project. This step not only sets standards for the vendor to meet, it also ensures for the client that the right vendor was selected.
MANAGEMENT BY RISK MINIMIZATION
The third phase begins after the contract between the client and vendor is signed, and is implemented until the completion of the project. This step includes weekly risk reports that document risks impacting cost, schedule, and client expectation.
Documentation has shown that Best Value Business Model applies to any level of organization, within any industry. The details of the model are adaptable, allowing it to be used within the restraints of bureaucracy and legislation. BV has been tested across 41 industries.
The main benefits of the model are:
1. Reduction of client management.
2. Motivation towards continuous improvement.
3. Creation of accountability, through measurement.
The main goal of BV is to maximize the use of expert vendors and minimize the use of client management. By doing this risk is also minimized. BV works by utilizing expertise and maximizing transparency. BV will work best when used by a no influence leader and not a manager, as a leader naturally has the traits of aligning individuals within his organization. A manager on the other tends to force things on his employees which are against BV PIPS principles. Thereby, a leader is naturally inclined to BV PIPS ideologies.
- The BV model has been applied on 1,600 international projects worth $5.8 Billion USD. Few of the most commendable results of BV applications have been witnessed in the United States, Canada and the Netherlands. Other applications have been in Malaysia, Botswana, Norway, Finland and a massive effort is shortly going to be underway in the Democratic Republic of Congo. India will get exposure during a visit in September 2013.
- A prime user of Best Value in the United States has been the state of Oklahoma. A total number of 20 projects (100 million USD) have been performed using the BV model. The total savings from these projects has been 29 million USD. No project has seen a cost or time overrun. Arizona State University has adopted Best Value for its dining services and book store management. It has saved them $100 million since adopting Best Value.
- In Canada, similar success has been achieved using the BV model. In total, nine projects ($209 million USD) have been performed at the University of Alberta resulting in savings worth $12 million USD. The client project manager’s satisfaction on these projects has been 9.9/10. While successful, the implementations in Canada uncover some of the challenges that are currently being addressed in the construction industry sector, such as the need for overall organizational efficiency and supply chain management. Applications in Canada proved that Best Value could be combined with the existing design-build method, which also makes the transition to a new system smoother.
- The BV model revolutionized the Dutch construction industry by reducing cost overruns and delays, in response to their battle with collusion. The results from projects in the Netherlands showed their delivery time was accelerated by 25%. Time and cost spent on transactions were reduced by 50-60% for both vendors and clients. NEVI, which is the third largest procurement group in the world and a Dutch professional procurement group, has adopted the BV method. The BV model is now being used on complex projects and organizational issues. The Dutch have even developed a certification board which certifies Best Value PIPS vendors and members based on their understanding.
Performance Based Studies Research Group: link
| Client Case studies: link
| Project Case studies: link
| Dutch effort and certification: link
| About Dean.T. Kashiwagi: link