Saturday, February 16, 2008

Best Value Procurement

I attended a four day conference on Best Value procurement near Phoenix from February 11th through 14th. While the concept of selecting a contractor based on best value rather than purely low bid has significant public benefits to the taxpayers on public works construction projects, if designed and managed appropriately, I came away from the conference very skeptical about the particular slant on best value that was promoted by the presenters, notwithstanding the strong support that Best Value has generated with many in the construction field.

The conference was part pep rally, part testimonials by owner converts, and part explanation of a fairly rigid contracting process that has a strong bias against owners and strongly tilts towards and favors contractors. In fact, it is contractors and vendors who have funded millions of dollars in research and support of Arizona State University’s Performance Based Studies Research Group (PBSRG), the sponsors of the conference. The conference was also long on self-promotion of PBSRB by Dr. Dean Kashiwagi, its director.

Frequently repeated and unsupported statements were zealously preached to the some 60 organizations (owners, contractors, suppliers) with representatives at the conference. The “client [owner] is the source of all risk” was a major theme as Dr. Kashiwagi urged owners to “give up control [of the contractor] because you actually have no control.” PBSRG’s black and white philosophy argues that the contractor is the expert and knows best how to do the project. Under Best Value procurement, as articulated by Dr. Kashiwagi, neither management or decision making by the owner is necessary or desirable. “Decision making is not a good thing,” Dr. Kashiwagi asserted. Instead, once having picked the right contractor, the contractor should take control of the project, including writing the actual contract. In fact, according to Dr. Kashiwagi, the “contract must protect the contractor, not the owner.” Furthermore, the owner shouldn’t manage risk but delegate technical risk to the contractor.

The conference was heavy on promoting a simplistic, unrealistic, and underlying philosophy that views people mechanistically, asserting that people are always predictable and that for any event there is just one possible outcome because people are always predictable. “All event outcomes can be predicted with ‘all information,’” a questionable assumption even if we lived in a perfect world where all information was available. Thus, if these assertions are true, so goes the argument, contractors will always do the right thing if they’re just given the responsibility to manage risks instead of having the owner attempting to control a project and mitigate risks. All of this, of course, appears to be predicated on the false assumption that all contractors are competent, take pride in their work, and have the owner’s best interest at heart. Nothing in the philosophy supports an owner’s role in managing a project. Instead, the contractor, as the expert, should make the decisions and be accountable, while all efforts should be made to minimize the owner’s “management, inspection, and decision making.”

Furthermore, I found Dr. Kashiwagi’s presentation style to be condescending and derogatory of owners, procurement officers, and those who, in his words are “blind” (possess technical knowledge and experience that they try to use in managing), but are not “visionaries.” He continually repeated that his best value system was “simple” and based totally on logic, even though he made multiple unsupported and non-logical claims for his positions. I often wondered if the system is really so simple why it took a four day conference that included marketing pitches to hire PBSRG as consultants to run the procurement and project for owners. Dr. Kashiwagi repeatedly urged the attendees to make no changes to the system or it wouldn’t work.

According to PBSRG, the success of Best Value is boiled down to whether the contractor is on-time, on-budget, and “making everyone happy.” Conspicuously missing from the equation is the concept of quality. But under PBSRG’s model, the contractor will take care of the quality and the owner won’t have to even inspect the project as much because if the contractor is a high performer, they’ll manage all of this, permitting the owner to minimize decision making and managing the project.

Beyond its heavy and negative bias against owners in favor of protecting contractors, the core of the Best Value procurement system, does offer some potential tools for owners that may be able to be used even in a low bid environment. However, PBSRG’s Best Value procurement is designed to work outside of a low bid environment where non-price factors are used as part of the selection process.

While the generic concept of Best Value makes good sense, as promoted by PBSRG, it does not seem to me to be within an owner’s best interests, notwithstanding the glowing testimonies from various owners who have used it under PBSRG’s guidance.


Unknown said...

Having been involved with contractors for thirty years, I have found that when a question comes up they will always do the easiest solution, and usually not what I want. I have had good contractors and poor contractors but this is the one common thread I have found among contractors.

Anonymous said...

In my opinion the owner should be responsible for the risk and take full responsibility for the project. Whoever pays needs to be responsible. In addition, the purchasing department should be held accountable when something goes wrong. No more of this getting everything commoditized, handing over to the engineers and operational folks and saying: make it work. The finger of blame always gets pointed at the engineering staff and technical people at the owner and contractor's offices, but it should be pointing squarely at the purchasing department and their tendering/bidding process. They should take the heat when things go wrong.