Home > Articles By Issue > Career Development > Article Jan. 2003

Innovative Contracting Best Practices, Part 2
See also Innovative Contracting Best Practices, Part 1

By David Cotts, PE, CFM

Over the past 20 years, many facility professionals have successfully used innovative contract forms for both construction and facility management operations and maintenance services. As a result, there is a proven track record for many forms of innovative contracting-particularly job order contracting (JOC).

In a 1998 study, Dr. Dean Kashiwagi of the Center for Job Order Contracting Excellence (CJE) at Arizona State University questioned why some contractors (particularly performing contractors) seemed to meet and exceed facility manager and customer expectations consistently while others were less successful. To answer the question, Kashiwagi conducted intense research and developed a system for predicting contractor success.

The goal of the project was to create a system that would allow facility managers to get a better sense of the project before awarding the contract. Kashiwagi's contracting method, PIPS (the Performance Information Procurement System), would allow facility managers to select the right contractor for the right job at the best value-every time.

PIPS Components

PIPS is composed of four major components:

1. A database of past references for the contractor and key team members. This database gathers more detailed and pertinent information than any pro forma reference request-something that has become practically meaningless in many current procurement processes.

2. Owner generated performance criteria. This guideline must include weights or priorities for those criteria.

3. Material gathered though interviews with key contractor personnel.

4. Unbiased conclusion based on data collected in steps one, two, and three. Once all the information is entered into an artificial intelligence data processor, the machine uses information management theory to select the best contractor to meet the owner's needs.

When all of this data has been gathered and entered accurately, PIPS can provide the owner and facility manager with the best value for the contracted amount. It is able to accomplish this because it differs from other contracting methods in several ways:

• The selection process which calculates the value of the owner controlled performance criteria is done by an artificial intelligence decision maker without bias;
• The selection, based both on owner controlled criteria and price, is done in one step;
• There is no pre-qualification;
• The system barcodes the performance of contractors and critical team members. This barcode stays with that contractor or critical team member until the next procurement. Success on the current job dramatically improves this barcode;
• The system forces continuous improvement;
• There are no minimum requirements on number of references; and
• The system meets all conditions for federal procurements and all state procurements where it has been used.

But Does It Work?

PIPS has now been tested on over 350 procurements involving a variety of services (roofing, painting, etc.) and construction projects (with budgets ranging from $50,000 to $50,000,000). It has been used in both the private and public sector and is no more difficult or lengthy to implement than "normal" procurements.

In addition to improving contracts, PIPS has achieved some unexpected positive results:

• Reduced inspection and oversight costs so the owner spends more time solving customer problems (instead of squeezing results out of a non-performing contractor);
• Measured customer satisfaction near 100%;
• Minimized cost increasing contractor generated change orders;
• Received top notch contractor team members since performance-not price-was given highest priority;
• Optimized the expertise of the contractor and minimized the contract oversight of the owner/facility manager;
• Filtered out non-performing contractors as soon as they found out they would have to document performance;
• Trained the performing contractor in PIPS and reinforced importance of the methodology in terms of future work (in accordance with PIPS);
• Helped build facility management department/contractor partnership;
• Contributed to the improvement of contractor pool based on performance line (record) or barcode;
• Encouraged contractors to develop a network of performing subcontractors for work on PIPS-contracted jobs;

While not all of these situations were anticipated when the system was developed, many of them have been observed as a result of PIPS implementation.

How To Get Started

PIPS is not hard to understand. Kashiwagi frequently gives one hour seminars on the subject during major facility management conferences.

Another option is to attend one of the PIPS presentations at the Performance Based Studies Research Group (PBSRG) seminars in Tempe, AZ. Call (480) 965-4371 to request a 2003 schedule. Kashiwagi has even arranged special speaking engagements to specific groups based around the country.

The most successful PIPS implementations result from a three prong attack: first, attend one of these education sessions, then hire the PBSRG team to act as consultants through the first contract, and finally, have PBSRG help set up the database of contractors for future use. Once that database is in place (and contractors know they must have a performance barcode in order to get facility management service business), they will perform outstandingly on any current work awarded under PIPS and constantly try to improve any weaknesses.

As facility executives outsource more, they need to look for innovative ways to maximize the performance of their contractors, to provide a high level of customer service, and to minimize unnecessary administrative paperwork and non-productive contractor oversight. A combination of JOC and PIPS may offer the greatest opportunity for facility professionals to get the best bang for their buck, to increase customer satisfaction, and to maximize the budget they put into bricks and mortar rather than administration and overhead.

Author's Bio:

Cotts is an Alexandria, VA-based management consultant specializing in facility management teams. He is past president of the International Facility Management Association (IFMA), a member of its first class of Fellows, and the author of several well known facility management reference books. His new book will be published by the American Management Association this year.

If you have any questions concerning IDIQ, JOC, or PIPS, e-mail Cotts at dgcotts@aol.com.

See also Innovative Contracting Best Practices, Part 1