Delivering Mission Critical Solutions
Lower Your Cost I Reduce Your Risk I Enable Your Business
Guaranteed
Outcome
Whitepaper
March 2012
Dave Whitcomb/RTKL
Photo by Dave Whitcomb/RTKL
Performance-Based Procurement
For Guaranteed Outcomes
The challenge
The hyper-evolution of IT equipment and strategies, accelerated by the advent of
virtualization and cloud computing, is making the cost and operational inefficiencies
of conventional data center ownership and delivery models unsustainable. IT Support
Infrastructure1 has traditionally been delivered using a fragmented supply chain process.
This approach provides uncertain outcomes and a lack of a single point of accountability.
Photo by Adam Friedberg
In response, forward-looking companies are beginning to procure their IT Support
Infrastructure using a more responsive and lower cost performance-based procurement
methodology, tied to measuring facility performance and securing infrastructure
guarantees. In this whitepaper, we compare and contrast traditional purchasing processes
with a performance-based approach for IT Support Infrastructure.
In addition, we present a case study outlining a successful implementation strategy
of performance-based procurement methodologies.
1 IT Support Infrastructure comprises the products and services required to provide a suitable environment for IT
equipment. It includes buildings, mechanical and electrical equipment, energy, communications pathways, and many
other products and services.
If what is procured
and delivered via
traditional procurement
methodologies meets
your objectives, it is
coincidental.
Traditional Procurement
Performance Procurement
Procures products and services
Procures outcomes
Uncertain outcomes
Measured and guaranteed outcomes
Seeks lowest unit costs
Seeks lowest total cost of ownership
(tco) with integrated supply chain
Optimization of incremental
products and services
Innovation and optimization
of the entire process
Ad-hoc teams for each project
Continuous learning and
improvement
Traditional procurement process
Uncertain outcomes and fragmented accountability
Business risk is
heightened if capacity
is not available when
you need it. Yet selecting
based on low fees and
lowest unit costs may
result in costs that
are too high if you build
more infrastructure
than you need.
2
The data center supply chain and the broader category of IT Support Infrastructure are complex and increasingly fragmented. Traditional procurement
and delivery methods focus on optimizing the initial cost of each individual
element, not the overall outcome. The interdependencies of the individual
components are often overlooked, minimized, or in the worst cases, ignored
completely. The owner assumes sole risk for ensuring that disparate sources
coordinate with each other and provide the desired outcomes. In the case
of mission critical infrastructure, owners often pay dearly to cover that risk
with excess capacity and mechanical redundancy.
In addition to increasing performance risk, the traditional procurement
process provides the owner with little recourse against poor vendor
performance. While there is theoretical accountability for every part of
the delivery—assuming each vendor has been given impeccable, error-free
specifications—in practice, most failures occur at points that bridge multiple
disciplines and vendors. When each component of the project is procured
independently, the control for only that item is transferred to the vendor.
Only the component risk has been transferred. Therefore, guarantees are
only possible for that specific component. The overall outcome control and
risk still remain with the owner.
Performance-Based Procurement for Guaranteed Outcome
Owner maintains overall control
and owns risk of outcome
In-house capital,
via a real estate
developer or
collocation
company
In-house
personnel or
outsourced
resource
Utility
companies
Financing
Independent
A/E firms (often
comprised of
multiple firms)
Contractor or
Large equipment construction
procured
management
directly from
firm
manufacturers
Energy
3rd party
consultant
Operations
Commissioning
Design
Early
Procurement
Construction
TRADITIONAL PROCUREMENT PROCESS
Differing abilities and lack of incentive structure
Aligning innovation with key performance metrics is a key factor in a
successful procurement process. The “ecosystem” of mission critical facilities
is as complex as the environments found in nature. Central to the ecosystem
concept is the idea that organisms interact with and affect the well-being
of every other element in their local community. Within a mission critical
environment, the interconnection of each system affects the performance
of the facility as a whole. Under a traditional procurement methodology,
individual vendors are only accountable for their piece of the facility “puzzle.”
This splintered system-by-system approach will not achieve an owner’s
holistic performance requirements over the long-term.
Under this structure, innovation is motivated solely by vendor requirements
and the endless competitive battle to expand their footprint in the supply
chain. Ultimately, vendors are only required to provide limited information
to define how their equipment or system connects to the rest of the facility.
As a result, many vendors minimally improve their products to keep pace
with industry innovation, and this effort is usually motivated by a desire
to securing additional revenues.
Performance-Based Procurement for Guaranteed Outcome
Within a mission
critical environment,
the interconnection
of each system affects
the performance of
the facility as a whole.
3
Measuring performance guarantees
“If you can’t measure it, you can’t manage it”
There is a pressing
need to link guaranteed
outcomes with an
integrated performancebased procurement
process to ensure
reliable, efficient and
lower-cost outcomes
for mission critical
infrastructure.
Holistic innovation and improvement of key performance metrics can only
be achieved by connecting the owner’s business goals, the individual system
metrics and the operation of the facility as a whole. Lack of consistent
measurement structures and data across the supply chain further complicates
the challenges of delivering a desired outcome through the traditional
procurement methodology. Each segment of the industry – real estate,
design and construction, engineering, hardware and systems – has its own
performance metrics that rarely connect to others in the supply chain.
These individual metrics are only tenuously connected to the owner’s needs
via individual, poorly coordinated contracts.
In a traditional procurement structure there is no mechanism in place for
service providers to receive feedback or measure the effectiveness on their
solution/product in a real-world environment. Incentives to improve exist,
but are not comprehensive. Consequently, the unique challenges of creating
high-performance facilities that can grow quickly and adapt to the dynamic
needs of IT infrastructure render traditional procurement methodologies both
unnecessarily expensive and risky.
A new delivery process
Performance-based procurement to guarantee outcome
There is a pressing need to link guaranteed outcomes with an integrated
performance-based procurement process to ensure reliable, efficient and lower
cost outcomes for mission critical infrastructure. Vendors need to acknowledge
that mission critical building and IT systems are linked together – for example,
through their common reliance on and use of resources and energy.
Technical expertise
is critical for lowest TCO
Performance-based
organization
4
Performance-Based Procurement for Guaranteed Outcome
Supporting your core business
Purchasing strategies
Performance-based procurement is centered on the metrics that drive value
and deliver cost savings back to the owner’s business. Performance risk
is transferred from the owner to the prime supplier to cover all of the gaps
in scope and meet objectives as cost effectively as possible.
Each data center owner needs to define a specific business risk profile,
and assess organizational sensitivity to capital cost and operating expenses.
Across all industries, owners are focused on managing the following
interdependent objectives:
• Cost and performance certainty
• Lowest capital cost
• Lowest operating costs
• Right-sizing mechanical redundancy
• Utilization of assets
• New capacity roll-out
• Highest availability
Organizations need to be able to assess the interplay of these issues on a
systemic level and identify which elements are driving inefficiencies and cost.
Innovation and optimization alignment
Performance-based procurement establishes a process for product improvement and innovation. By structuring the end user/prime supplier relationship
around performance metrics, these metrics will improve over time as supplier
incentives are realigned. Yet, the quality of innovation is dependent on the
integration of the supply chain. Vertical integration connects large segments
of the supply chain, including:
Data Center Intelligence
Platform dashboards
• Energy generation (including green and renewable energy)
• Power infrastructure
• Land
• Mechanical and electrical infrastructure
• Data center infrastructure
• Design
• Construction
• Commissioning
• Financing
• Maintenance and operations
• Measurement and verification
Performance-Based Procurement for Guaranteed Outcome
5
Short duration vs. Long duration assets
A strategy integrating
long-duration assets
as a foundation can
accommodate the rapid
IT changes required
to support business
expansion and delivers
savings in first costs.
It is important to be judicious about which elements of the supply chain are
integrated under a prime supplier. In the mission critical infrastructure supply
chain, there is a significant difference in the life cycle of infrastructure assets
of long-duration and IT assets that change according to Moore’s-Law time
frame. A strategy integrating long-duration assets as a foundation at the
beginning of the planning and design process can then accommodate rapid
IT changes required to support the business as it expands.
Accountability requires control
In an integrated supply chain a prime supplier assumes the responsibility for
identifying optimum partner and vendor solutions to proactively meet the
owner’s objectives. The prime supply-chain integrator does not simply drive
low unit cost through competitive bidding, but can use a variety of strategies
to meet those objectives including eliminating or replacing major equipment
types or partnering with other vendors to mitigate potential problems and
develop innovative solutions.
On-going measurement is critical to long-term success
In addition to strategically planning mission-critical facility infrastructure, the
owner and vendor also establish clear measurements of success for on-going
management of the relationship. Ideally those measurements go beyond
tracking the broad business Key Performance Indicators (KPIs), but also
support a granular analysis of the KPIs individual components. Particular
owner needs are typically assessed based on the following parameters:
• IT load required over time
• Lead time for new capacity
• Reliability requirements and impact of business downtime
• IT requirements for density and power
• Location requirements of the service
• Ownership and control requirements
• Income statement and balance sheet sensitivities
Photos by Dave Whitcomb/RTKL
6
Performance-Based Procurement for Guaranteed Outcome
Upon clarifying these parameters, the owner then engages with the prime
supplier to develop options for:
• Redundancy topology
• Power generation and supply
• Ownership/finance
• SLA performance guarantees
• Scalability
• IT hardware provisioning
To effectively achieve these goals, measurement systems must be integrated
to collect and analyze data from every aspect of the facility – from power
generation to applications running on servers and every point in between,
resulting in a holistic view of system performance. Performance areas to
be measured include:
• Power generation, distribution and consumption
• Mechanical systems operation
• Server mechanical and electrical system information
• Application usage
Direct control over the core metrics of value for the business and
understanding the levers that drive those metrics is a key benefit of
performance-based procurement. The more fine grained and accessible
facility performance data is, the more closely the vendor and owner
can collaborate to improve the performance of each asset. This ultimately
provides greater control for the owner.
The data gap
Guarantees cannot be ensured or enforced without collecting measurable
performance data. Regular review of contractual performance is required
to realize the full benefits of performance-based procurement. However,
organizations are still challenged to collect the data needed for a meaningful
performance audit. Restructuring the supplier relationships alone is not
sufficient to attain the goals of effective, responsive, and lower cost
infrastructure.
Data Center Intelligence
Platform dashboards
Collecting measurable
performance data
can provide not only
operational insight
but also help an owner
actively confirm their
KPI priorities.
The framework provided by performance-based contracting allows for
rigorous and honest feedback between the owner and the prime supplier,
if relevant measurements are available. This paves the way for systematic
reviews and confirmation of the owner’s KPIs with regard to alignment
of importance and effectiveness.
Performance-Based Procurement for Guaranteed Outcome
7
The solution
With Skanska, you can procure outcomes that guarantee
significantly reduced TCO. Our integrated supply chain and
continuous innovation drive efficiencies and performance
to the highest level to ensure maximized returns on your
investment and minimized risk.
Benefits of performance-based procurement
Total annual
cost per
MW perSkanska
Total
annual
cost
MW has developed a process for managing the long-duration portions of
the mission critical supply chain that allow us to deliver superior performance
to data center owners. Specifically, we use an integrated supply chain approach
to drive several key outcomes that are simply not possible through conventional
procurement:
(In $ Millions)
$10
$9
Savings
Million Dollars ($M)
$8
$7
$6
$5
• Guaranteed uptime with damage penalties including consequential
damages.
Savings
• SUnused
peed ofCapacity
delivery of additional capacity when combined with
R&M
modular solutions.
Energy
• Ability to take immediate advantage of changes in the hardware business
Interest
that are not tied to single vendors.
$4
cost per
MW
$3
ted
• Guaranteed system performance for PUE of less than 1.15 (depending
on location).
Depreciation
• TRent
otal Cost of Ownership that can be 50% or more below current
market estimates.
$2
• Energy solutions comparable to or below market rates.
$1
• Green energy solutions to offset carbon impact and/or reduce energy costs.
$Conventional
• Capturing value from smart-grid energy strategies.
Integrated
Savings
Unused Capacity
R&M
Energy
• Mitigate long-term threats of the risk of rising energy prices.
• Granular view into portfolio performance.
• Modeling and simulation of future system performance to inform
today’s decisions.
Interest
Depreciation
Rent
8
Performance-Based Procurement for Guaranteed Outcome
Case study
TELUS Communications Company
Summary
An early adopter of the performance-based procurement approach finds that
this methodology provides an optimum solution to meet their technical objectives
and manage their risk portfolio.
Challenge
TELUS planned to upgrade their national technical infrastructure. With a focus on efficiency, reliability,
and sustainability, they were looking for a state-of-the-art data center infrastructure for internal work loads
and to further differentiate managed service and cloud offerings.
IT requirements
Specifically, TELUS’ goals included consolidating existing sites and planning for future growth. A heterogeneous infrastructure deployment plan was developed that incorporated traditional IT loads and over 20%
non-conventional, telecom specific mission critical IT kit. A key requirement for TELUS was an ability to
dramatically ramp power densities over time to optimize space and cost.
Another key requirement was an ability to add increments of 2MW of critical power escalating to over
15MW in total to be accomplished by increasing power density and modular expansion as systems
demands increase.
Solution
TELUS contracted with Skanska to review potential infrastructure solutions with a specific focus on
modular deployments that could scale closely to their needs over time. After thorough analysis, the custom
configured eComb® modular solution by Inertech, LLC was selected. The delivery method integrated a
performance-based procurement process through a framework agreement with Skanska.
Skanska defined a “just-in-time” modular deployment strategy, and TELUS entered into along-term
framework agreement with Skanska to
(1) deliver the initial phase of the build-out under a guaranteed cost and schedule, and
(2) deliver future capacity and a pre-determined schedule of values over the course of the
extended agreement.
(Continued on page 10)
Performance-Based Procurement for Guaranteed Outcome
9
TELUS managed the procurement process on a performance basis; as a result, Skanska is able to manage
deployment of the system components to attain the lowest TCO while also supporting the client’s
business needs. Consequently, Skanska is able to deliver an innovative infrastructure with the following
dramatically improved performance characteristics:
• Guaranteed average annual PUE of 1.15.
• Refrigerant solution minimizing risk from outside contaminants.
• Water consumption that is approximately 10% of a conventional design
• Support of high densities up to 40kW/rack, while ensuring rack access.
• Guaranteed performance—by entrusting the control of the supply chain to Skanska, our team
was able to underwrite and guarantee the entire system’s performance.
This innovative use of performance-based contracting to procure mission critical data center infrastructure
had significant benefits for TELUS. By moving to an integrated procurement model, the client was able
to defer $55M in initial capital spend and save over $250M of combined capital and energy operating
expense over the life of the asset versus a traditional Tier III Enterprise Data Center. Their second site is
planned for later this year.
Bottom line
A traditional procurement process would not have served TELUS’ goal of consolidating their existing
sites while integrating a viable, scalable and flexible plan for growth over the next 20 years. Using
a performance-based structure and working with an innovative, collaborative partner in Skanska
drove vendor solutions to proactively meet the client’s objectives. Moving beyond competitive bidding
strategies, Skanska integrated holistic strategies to meet those objectives.
Our solution included eliminating or replacing major equipment types
and partnering with other vendors to innovate and mitigate potential
problems. Performance-based procurement processes successfully
achieved the following:
• Guaranteed system performance and uptime.
• A modular solution that incorporated “just-in-time delivery”
of additional capacity.
• The ability to act on purchasing non-vendor specific, advantageous
hardware options.
• Total Cost of Ownership is substantially lower than current market rates.
• Energy solutions that are comparable to or below market rates.
• Green energy solutions to offset carbon impact and/or reduce energy costs.
• Eliminating long-term obstacles against rising energy prices.
• Granular view into portfolio performance.
• Modeling and simulation of future system performance to inform today’s decisions.
10
Performance-Based Procurement for Guaranteed Outcome
About TELUS
TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications company in Canada, with
$10.4 billion of annual revenue and 12.7 million customer connections including 7.3 million wireless
subscribers, 3.6 million wireline network access lines and 1.3 million Internet subscribers and more
than 500,000 TELUS TV customers. Led since 2000 by President and CEO, Darren Entwistle, TELUS
provides a wide range of communications products and services including wireless, data, Internet protocol
(IP), voice, television, entertainment and video.
In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed
more than $260 million to charitable and not-for-profit organizations and volunteered 4.2 million hours
of service to local communities since 2000. Eleven TELUS Community Boards across Canada lead TELUS’
local philanthropic initiatives. TELUS was honoured to be named the most outstanding philanthropic
corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian
company to receive this prestigious international recognition.
For more information about TELUS, please visit telus.com.
About Skanska
Skanska USA is one of the largest, most financially sound construction networks in the country, serving a broad range of industries including healthcare,
education, sports, data centers, government, aviation, transportation, power,
energy and water/wastewater. Headquartered in New York with 36 offices
across the country, Skanska USA employs approximately 9,400 employees
committed to sustainable construction and an injury-free workplace. Skanska USA Building, which specializes in building construction, and Skanska
USA Civil, which is focused on civil infrastructure, generated $4.9 billion
in revenue in 2011, representing 28 percent of Skanska’s global construction
revenues. Additional operations in the U.S. include Skanska USA Commercial
Development, which pursues commercial development initiatives in select
U.S. markets, and Skanska Infrastructure Development Americas, which develops public-private partnerships. Global revenue of parent company Skanska
AB, headquartered in Stockholm and listed on the Stockholm Stock Exchange,
totaled $18.9 billion in 2011.
Performance-Based Procurement for Guaranteed Outcome
11
Skanska USA Building Inc.
www.skanska.com
350 Fifth Avenue
32nd Floor
New York, NY 10018
P: 917.438.4500
Contact
[email protected]
Authors
John Coster
Vice President and Director of Enterprise Solutions
Lee Kirby
Vice President, Strategic Operations
Terry Rennaker
Vice President and Director of Modular Infrastructure
For more information, please check our web site at
www.usa.skanska.com/missioncritical