Best Value approach
Why, what and how
Wiebe Witteveen
Prague, 10th of April
Wiebe Witteveen
• Rijkswaterstaat since 2001; Best Value Procurement effort since
2008
• Member of NEVI BV-certification Board; A+-certified since 2012
• Involved in > 25 projects with a total value > 750 mln. Euro;
average customer satisfaction project teams RWS 8 (out of 10)
• Dutch Sourcing Awards 2012 voor Operational Excellence and Best
Procurement Performance
• 8 papers and 1 book published on Best Value Procurement
• PhD-student at University of Technology Delft
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Best Value Procurement
Climbing mountains
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“Micro-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
YES
Can You Blame
Someone Else?
Yes
NO PROBLEM!
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Will it Blow Up
In Your Hands?
NO
Look The Other Way
Examples are everywhere!
https://www.youtube.com/watch?v=lWfmqOOrFpU
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Problems with price base systems
Owners
Contractors
“The lowest possible quality
that I want”
“The highest possible value
that you will get”
High
High
Maximum
Minimum
Low
Low
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Best Value Procurement
Impact of Minimum Standards
High
Low
High
Low
Contractor 1
Contractor 2
Contractor 1
Contractor 2
Contractor 3
Contractor 4
Contractor 3
Contractor 4
Low
High
Low
High
Decision making: what is the minimum standard, and do all
contractors meet the minimum standards
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Best Value Procurement
Supply Chain: We work in Silos
Technical Details
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Best Value Procurement
Clients
Suppliers
Contractors
Contracting
Designer
Planning / Programming
Simplicity/Dominant
Information
30K Foot Level
Me vs. Them
Client, user,
designer, and
inspector etc…..
Us
Risks
Risks
Inexperienced
contractor
Technical
Requirement
Experienced
contractor
Don’t Control
Control
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Client, user,
designer, and
inspector etc…..
Best Value Procurement
Don’t Control
Industry Structure
High
III. Negotiated-Bid
Minimized competition
Long term
Relationship based
Vendor selected based on
performance
II. Value Based [vendor
controlled]
Buyer selects based on value
Vendor uses schedule, risk
management, and quality control to
track deviations
Buyer practices quality assurance
Contractor minimizes risk
Performance
IV. Unstable Market
Low
I. Price Based [owner controlled]
Buyer selects lowest bid
Specifications, standards and
qualification based
Management, direction, and
control
No transparency
Client minimizes risk
High
Perceived Competition
© 2011, Arizona State University, PBSRG
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Best Value Procurement
Lowest price
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Business Model for Experts
Customers
Outsourcing
Owner
Partnering
Owner
Vendor X
Highly
Trained
Medium
Trained
Minimal
Experience
MDC
Environment
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Best Value Procurement
Within procurement, what are we trying to accomplish?
Question:
If Purchasing wants to buy a “green
circle”, in which scenario is hiring the
right “green circle” easiest to justify?
Scenario 1
Scenario 2
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Best Value process
0123
PHASE 0
Preparation
PHASE 1
MEAT
PHASE 2
Clarification
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PHASE 3
Execution
Best Value works like a sieve
Filter 1
Filter 2
Filter 4
Filter 5
Filter 6
Identify
Potential
Best Value
Clarification
Phase
Weekly
Report &
Post-Rating
Filter 3
Interview Key
Risk
Past
Personnel
Performance Assessment /
Information Value Added
Award
Quality of Vendors
High
Low
Time
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© 2011,
Arizona State University, PBSRG
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Best Value Procurement
MEAT Filters
Filter 2
Filter 3
Filter 4
Project
Capability
Interview
Prioritize
(Identify
Best Value)
Dominance
Check
Clarification
Phase
Quality of Vendors
High
Filter 1
Low
Time
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MEAT phase BV Filters
Filter 1
Filter 2
Filter 3
Filter 4
Project
Capability
Interview
Prioritize
(Identify
Best Value)
Dominance
Check
Blind Rating
Clarification
Phase
Quality of Vendors
High
-Project Capability
(PC)
-Risk Assessment
(RA)
-Value Added (VA)
-Price
Low
Time
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Best Value Procurement
Filter 1
Filter 2
Filter 3
Filter 4
Project
Capability
Interview
Prioritize
(Identify
Best Value)
Dominance
Check
Criteria
Dominance
Check
-Interview
-PC
-RA
-VA
-Financials
-Ratings are
dominant
Quality of Vendors
High
Criteria
-Project Capability
(PC)
-Risk Assessment
(RA)
-Value Added (VA)
-Price
-Best Value is
within cost
range
Low
Time
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Best Value Procurement
Clarification
Phase
MEAT phase BV Filters
Submittals and MEAT Criteria
•
•
•
•
•
Project Capability (PC)
Risk Assessment Plan (RA)
Value Added (VA)
Price
Interview
• Milestone schedule [not MEAT criterium]
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Best Value Procurement
Minimizing risks from the beginning!
Use of information and logic
Project
Risk
Time
Risk
Risk
Manage and minimize from the
beginning, by monitoring risks
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MEAT Criteria Weights
•
•
•
Project Capability
Risk and Risk Mitigation
Value Added
10%
20%
15%
•
Price
25%
•
Interview
30%
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Weighting
•
Client must be comfortable
•
General Guideline
– 30% Price (but always have dominance check!!!!!)
– 70% Performance
•
Performance order of importance
– Interview
– Risk Plan
– About equal
• Capability Plan
• VA
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Example of Solutions
Risk: Design of Heating/Cooling System
Type: Technical Risk
•
Plan 1
– We will use our 20 years of experience in working with mechanical
systems to minimize the risk of the heating and cooling system
design.
•
Plan 2
– We have identified the design of the heat/cooling system as a risk. It
has not been used before in the area. Will ensure that the system
performance and installation is verified in the pre-award period.
– We have bid using best rated mechanical contractor in the area (rated
at 9.8 out of 10.0, next best rated 9.1)
– Mechanical contractor identified modifications to the design to
improve output and sustainability of the system with the following
impacts (mechanical system cost minimized by 15% - see VA#1)
– Mechanical system provided by one manufacturer, and manufacturer
will be commissioned by the manufacturer, contractor, and general
contractor will take full responsibility of commissioning the system
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Vendor is an Expert
Vendor is an Expert
CLARIFICATION
/
PRE-AWARD
CLARIFICATION
Dominant
Simple
Differential
(non-technical
performance
measurements)
BV proposal must be
acceptable to user
Clarification
Technical review
Detailed technical
schedule
Risk Management
Quality Control
Quality Assurance
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Weekly Reporting System
•
Excel Spreadsheet that tracks only unforeseen risks on a project
•
Client will setup and send to vendor once Award/NTP issued
•
Vendor must submit the report every week (Friday).
•
The final project rating will be impacted by the accuracy and timely submittal of the
WRS
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[email protected]
+31620134179
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Best Value Procurement
Which would you buy?
(If you need to buy Cocoa Puffs)
A
B
10 OZ
$3.75
10 OZ
$3.99
10 OZ
$3.50
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C
Best Value Procurement
Which would you buy?
(If you need to buy Cocoa Puffs)
A
10 OZ
$3.50
B
C
12 OZ
$1.25
14 OZ
$2.99
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“Dominant Information”
Scenario A
Scenario B
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