CHANGE IS IN THE AIR: State to Pilot “Expertise Based” Procurement

By Wally Irvin | September 7, 2016

97058383_3cd06b19c8_zOn August 15, the State of Tennessee Real Estate Asset Management Division (STREAM) held a educational session on a new expertise-based procurement approach it intends to pilot on select future projects within the Capital Projects Group. The presentation was led by John Savicky, with the Arizona State University Performance Based Studies Research Group. In contrast to traditional competitive bidding, the new approach focuses on the identification of risks and value-added alternatives along with interviews of the contractor’s key personnel. The goal of the new procurement method is to identify contractors with particular expertise who can identify and address risks before the commencement of construction. With both the State and the contractor armed with more information at the beginning of construction, the State hopes the new approach will reduce project disputes and allow the State to become a “client of choice.”

According to the State, the traditional procurement methods face several problems. Requests for proposals are never completely accurate and vendors are selected based only on minimum thresholds. As expected, the most important factor under traditional procurement methods is cost. The problem is there is always a contractor that is willing to do it cheaper. Although high quality contractors are not bothered by getting outbid by another quality contractor, many are infuriated when a contractor that is not seen as responsible is the successful bidder. The State hopes that by focusing on a contractor’s expertise, the new approach will provide value notwithstanding the cost through the selection of an expert contractor.

But how will the State evaluate these proposals? The RFP will list the weights that are given to individual categories: 1) Cost; 2) Risks; 3) Value; and 4) Interviews. The State’s new approach requires each contractor to submit general information, cost proposals, a project plan, risk assessment, value assessment and survey questionnaires. Despite initial reactions, this method does not require the contractor to spend more time writing, as each non-cost section is expected to be page limited. Using this information, the State’s consultants contend one award will stick out based on value. Under the traditional project delivery method, all bids look the same with cost being the sole driving factor.

Two new factors that are added under this approach are the risk and value assessments. In the risk assessment (2 pages), the contractor identifies and prioritizes all major risks, such as time, money, service and satisfaction. Under the value assessment plan (1 page), the contractor has an opportunity to identify value added proposals. In theory, contractors that are experienced write less. This serves as a way to identify inexperienced contractor who will not be able to clearly and concisely summarize their goals. Finally, all contractors will be required to collect and submit past performance information, which can be collected by taking surveys of past clients. The new approach eliminates bias because it is blind; all identifying information is removed from the contractor’s submission.

Because the new approach does not contain or require much in the way of technical specifications or explanations, evaluators will be better able to understand each proposal. On high risk projects, the State will also utilize interviews with personnel that will be assigned to the project, namely the project manager and superintendent. The goals of the interview are to meet critical personnel and identify whether they have the skills to run the project. All interviewees will respond to identical questions.

The new approach will be instituted on a trial basis on several State Building Commission projects that are already approved under the State’s “best value” procurement method. The State identified roughly 20 projects that could be targeted, but no project has yet been selected. Realistically, the State will move forward with the approach on a maximum of four projects.

Although this is a drastic change for public contracting, the State is not ruling out applying it to designers as well. So start getting survey responses from your best clients and stay tuned for updates.

Photo: Ken Lund

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