The Story of Inga3 Democratic Republic of Congo (DRC)

Transcription

1 EDEN Doctoral Seminar 2013 The Story of Inga3 Democratic Republic of Congo (DRC) August 2013 Dean Kashiwagi, Professor, Fulbright Scholar, IFMA Fellow Director, Performance Based Studies Research Group

2 SKEMA Team

3 Micro-management 3

4 4

5 Deductive Research Easily observable logic on a very high level [natural laws] Identification of problems Application of natural laws to solve the problems Easily observable conclusions 5

6 Deductive Logic Simplistic logic of what we observe Observation Acceptance of observation Simplify problems Run tests Test results must be dominant 6

7 Advantage of Using Natural Laws Apply to all cases [no exceptions, no silos] Applies to present, past and future Simplification of event 7

8 1976 (37)

9 1992(21)

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11 Simplicity/Dominant Information Parents Myself and my Wife Children Children s Future Families Children s Future Jobs Children's Future Children We Are Supply Chains 30K Foot Level Technical Details w w w. p b s r g. c o m

12 Natural Laws The Number of Natural Laws PAST = PRESENT = FUTURE 100% Laws 100% Laws 100% Laws Laws are not created they are discovered. 12

13 Conditions Always Exist PAST PRESENT FUTURE Conditions Conditions Conditions Conditions are unique and change according to natural laws 13

14 Natural Laws identify the future outcome Initial conditions Laws Time Final conditions Laws 14

15 Natural Laws [always work] Every future condition is predictable No person can control another person Everything is related and relative Every person is doing the best they can Every event happens only one way Characteristics are related Decision making, MDC, communication, transactions, inefficiency, high cost Transparent, dominant metrics, logic, visionary 15

16 Identifies source of cost, risk and transactions Initial conditions Laws Time Final conditions Laws (control, impact, and influence) 16

17 Performance Industry Structure (Reactive vs Proactive) High III. Negotiated-Bid Owner selects vendor Negotiates with vendor Vendor performs II. Value Based Best Value (Performance and price measurements) Quality control and quality assurance IV. Unstable Market I. Price Based Specifications, standards and qualification based Management, direction, and control Decision making Technical expertise on client s side Low Perceived Competition High 2011, Arizona State University, PBSRG

18 There is something wrong with an inefficient micro-managed system.. There is too much work. Everyone has to do everything, and no one has the time to succeed. Performance will not go up The only way to survive is through relationships This is not an efficient or successful environment

19 Micro-manager s Code The movement of risk... YES Is It Working? NO Don t Mess With It! YES Did You Mess With It? YOU IDIOT! NO Anyone Else Knows? YES You re SCREWED! YES Will it Blow Up In Your Hands? NO Hide It NO Can You Blame Someone Else? Yes NO Look The Other Way NO PROBLEM!

20 Dutch Implementation Over-management of vendors Procurement and execution takes too long [12 years] Infrastructure repair is critically needed [drivers spend 1-2 hours on road going and coming] 16 project, 6 awards, $1B test of best value PIPS Goal is to finish 10 projects in 3 years 20 20

21 Results Program results: 15 projects finished (expectation was 10) Delivery time of projects accelerated by 25% Transaction costs and time reduced by 50-60% for both vendors and client 95% of deviations were caused by Rijkswaterstaat or external [not vendor caused] NEVI, Dutch Professional Procurement Group [third largest in the world] adopts Best Value PIPS approach Now being used on complex projects and organizational issues 21 21

22 Entire Supply Chain is Implementing Largest federal organizations, largest cities, procurement professionals, risk and project management and professional engineers 22

23 Netherlands Criteria Metrics Entered 2004 Industry Impact BV PIPS Changed Entire Nation # of Projects Delivered 16 Estimated Project Cost $1 Billion Actual Cost $800 Million Procurement Cost Reduced by 50% Projects Finished 25% Faster Awards 2012 Dutch Sourcing Award Licensed NEVI

24 PBSRG Metrics Criteria Metrics Founded 1993 by Dr. Dean Kashiwagi Department Del E Webb School of Construction Operation 20 years Expertise IMT & BV PIPS Projects and Services Delivered Projects and Services Delivered $5.7 Billion Customer Satisfaction 98% Client Rating of Process 9.0/10 Research Funds $13 Million Licenses 27

25 Key Information 20 year research program ASU adopted system; difference is $110M/year First three tests net $100M investment 98% customer satisfaction 2005 Corenet Global Innovation of the Year Award 2012 DSA 2012 IFMA Fellow 2009 Fulbright Scholar 25

26 Canadian BV PIPS Projects Yukon Government University of Alberta University of Saskatchewan Simon Fraser University University of Manitoba Dalhousie University Mexico 26

27 Bangalore Mysore Chennai Pune New Delhi Indian Railways SJCE [Sri Jayachamarajendra College of Engineering] Supply Chain Management ITT Madras

28 Partnering with Practitioners Local academics do not participate Corenet Global Pres Supply Chain Management Pres CIB Industry Pres (+65) Australian government representatives have tremendous interest Potential partner to run first tests

29 Deductive Logic Honors Class Criteria Metrics Started Spring 2011 Class Growth Student Growth 1-4 classes [400% increase] students [60% increase] Total # Students Taught 413 Instructor Rating 4.82 Course Rating 4.71 Total # Honors Students Taught 154 Honors Instructor Rating 4.77 Honors Course Rating 4.77 Rate My Professor 4.87 Attracts Various Majors Business, Psychology, Engineering, Design, Education

30 $14B Inga3 Hydroelectric Power/Dam Project Inga3 is first phase of seven phases 4,800 megawatts Powerplant will be largest in the world Twice the power generation of the 3 Gorges Dam[40,000 megawatts]

31 Current Performance of the Delivery of Construction in Congo 16 current projects [avg value $162M] Time and cost deviation: 50% Average delay: 2.3 years, max: 4 years None of the projects are currently completed; performance could worsen All countries have the same problem Problem has been there for the past 20 years No good solution has been proposed The problem is not technical, it is process/ structural 31

32 Existing Inga 3 Project Situation Traditional approach will deliver financial closing in if everything goes right [ ] The cost of not meeting delivery of construction is $4.8M/day [$164M/month, $1.958B/year] Cut delivery of contractor financial closing in 2015 saves $4B. 32

33 Paradigm Shift [Project delivered by Orrick, Tractabel Engineering and Lazard, using ASU BV PIPS Procedure] Owner is DRC Scenter NEVI Dean Kashiwagi, PhD Director, Professor Performance Based Studies Research Group CIB W117 Coordinator Fulbright Scholar IFMA Fellow Pbsrg.com July 24, 2013 SKEMA Business School PBSRG GLOBAL

34 Academic Presentation Give competing developers a feel for the paradigm shift All requirements and conditions will be in the RFP Information will continue to come out and will be given to vendors by the Orrick led team BV process was identified by the DRC due to the concept of utilization of expertise and the poor past performance of traditional delivery systems 34

35 Development of BV PIPS Model Over 1,600 tests Information at Worldwide expert in documenting performance of BV projects Manuals and education on best value delivery available Change of paradigm Supporting delivery team and DRC 35

36 PBSRG Responsibility Ensure BV PIPS and paradigm shift Assist vendors in clarification period to meet requirements of detailed plan and utilization of the WRR Assist vendors and DRC in the design and construction phase to adhere to change in paradigm Provide transparency through posting of performance and WRR and publication of selection process Track performance of project based on metrics 36

37 Background for Inga3 Project First phase of a multiple phase $80B project Best value approach [price and performance] using dialogue delivery method following prequalification Transparent and competitive environment where vendors are competing to be the developer and potentially contractor of one of three construction components Potential model for DRC in future 37

38 Traditional Paradigm Change: MDC to Utilizing Expertise of the Vendor Client Defines Project Management, Direction and Control (MDC) Owner tries to decrease cost Owner tries to minimize risk Hire vendor for lowest cost Best Value Owner / Consultants Identify intent Utilize Expertise of Expert Vendors Planning Risk management

39 Precedence of Process Design Build Integrated project delivery (IPD) Best Value Implementation of Dutch $1B infrastructure project using (MEAT) 2012 Dutch Sourcing Award ISM component NEVI and Risk Management component RISNET both educating and certifying in BV Approach 2005 Corenet Global Innovation of the Year award

40 INGA3 Schedule Nine months to put together financing, design, construction, operation package for development of scope Metrics to identify capability, ability to use transparency to minimize risk that vendor does not control Put together cost and concession plan Selection of BV then clarification of BV [BV selection could extend into financial closing period] Actions are best interest of DRC [not MDC but identification of BV]

41 Language of Metrics Dominant information describing development Transparency (clear, simple, no decision making) Need for trust is minimized Need for relationships is minimized Utilizing metrics is easier than making decisions 41

42 Performance Industry Structure High III. Negotiated-Bid Minimized competition Long term Relationship based Vendor selected based on performance IV. Unstable Market II. Value Based Buyer selects based on price and performance Vendor uses schedule, risk management, and quality control to track deviations Buyer practices quality assurance Contractor minimizes risk I. Price Based Wrong person talking Management, direction, and control No transparency Client minimizes risk Low Perceived Competition Performance Based Studies Research Group 2012 High

43 MDC Systems Create Confusion, blindness, reactivity and act in own best interest High Owners The lowest possible quality that I want Contractors The highest possible value that you will get High Maximum Minimum Low Low

44 Non-Sustainable Business Model Customers Outsourcing Owner Vendor X Highly Trained Partnering Owner Price Based Medium Trained Minimal Experience

45 Paradigm Shift: contractors should have minimal technical risk and minimize risk that they do not control Me vs. Them Client, user, designer, and inspector etc.. Us Client, user, designer, and inspector etc.. Risks Risks Inexperienced contractor Experienced contractor Technical Requirement Don t Control Control Don t Control Performance Based Studies Research Group 2012

46 Change in Paradigm: Delivery of Services Supply Chain approach instead of silo based approach Minimization of use of MDC Utilization of expertise [see into future, detailed plan, cost and value] Minimization of risk by using transparency Transparency environment 46

47 Overall Group A Group B Group C Group D Group E Group F Group G Owner Causes Most Project Deviations Best Value PIPS records sources of all deviations PIPS creates transparency General Overview PIPS allows vendors to identify and mitigate risk that they do not control PIPS forces client and buyer to be more accountable Total Number of Projects Total Awarded Cost ($M) $ $0.19 $37.81 $17.24 $5.07 $29.50 $ $12.36 Projects where BV lowest cost 54% 0% 83% 42% 33% 33% 55% 0% Percent Awarded Below Budget 6% 11% 1% 9% -13% 12% 5% 29% Cost Increases Overall Change Order Rate 8.83% % 4.04% 1.27% 2.54% 10.16% 4.53% Client 7.61% % 1.08% 0.33% 0.34% 8.83% 1.16% Designer 0.69% % 2.07% 0.63% 1.57% 0.33% 2.55% Contractor 0.01% % -0.17% 0.00% 0.00% 0.01% 0.21% Unforeseen 0.52% % 1.06% 0.31% 0.63% 0.51% 0.62% Schedule Increases Overall Delay Rate 47.17% % 1.59% 16.38% 7.44% 51.68% 12.73% Client 21.92% % 0.00% 7.41% 3.93% 24.13% 5.45% Designer 4.47% % 1.59% 8.97% 0.00% 4.48% 7.27% Contractor 2.65% % 0.00% 0.00% 3.51% 2.42% 0.00% Unforeseen 4.54% % 0.00% 0.00% 0.00% 5.04% 0.00% Satisfaction Ratings Number of Close Out Surveys Vendor Selection Process

48 Overall MEDCOM Performance by NTP Completed Projects NTP 2007 NTP 2008 NTP 2009 NTP 2010 NTP 2011 # of Projects Original Awarded Cost ($$) $181,945, $177,275, $183,989, $107,091, $16,278, Final Awarded Cost ($$) $193,881, $187,844, $192,602, $110,952, $16,352, Total Over Budget ($$) $11,935, $10,569, $8,613, $3,861, $74, Total % Over Budget 6.56% 5.96% 4.68% 3.61% 0.46% % due to owner 4.58% 5.59% 3.61% 2.36% 0.46% % due to Designer 0.00% 0.14% 0.00% 0.21% 0.00% % due to contractor 0.11% -0.17% -0.01% 0.08% 0.00% % due to unforeseen 1.88% 0.40% 1.09% 0.96% 0.00% Total % Delayed 51.56% 48.43% 36.77% 28.53% 3.31% % due to owner 41.38% 39.96% 28.51% 16.53% 9.20% % due to Designer 0.00% 0.49% 0.00% 1.32% 0.00% % due to contractor 1.86% -0.02% 1.29% 0.12% -6.40% % due to unforeseen 8.32% 8.01% 6.97% 10.56% 0.51%

49 What is an Expert? See into the future Communicates with dominant language Project manager first, technical expert second Utilize expertise of key personnel [developer, designer, engineering, construction PM, site superintendent] Accountable using dominant information Before the event happens Has a plan that can be measured against Plan comes before coordination with stakeholders 49

50 Risk Mitigation Decision Less Structure No management, direction and control (MDC) Approach (use expertise) Results Transparency Accountability Experience and expertise Detailed pre-planning 50

51 Risk Model 50% 50% Whose Fault? Decision Making Transparency Risk Accountability 51

52 Risk Model 100% 0% 52

53 Traditional Leadership Model: Abusive Focus on changing people Followers are the constraint Requires lots of resources Relieves management from accountability Win-lose; abuse; negative results Reactive 53

54 Efficient Leadership Model: No Control Alignment Requires Understanding Leader is the constraint Proactive Focus is on changing the system Efficient 54

55 V C B Buyer Controls Vendor Through Contract

56 V C B Vendor Manages/Minimizes Risk With Contract

57 Risk Financial responsibility of buyer/owner Any changes to developer s plan is a change order [identified, justified and agreed to by owner] Change orders include [infusion of public funding, change of scope by buyer of energy, change of conditions from available information] Developer protects themselves by quantifying metrics of delivered development and identifying risk and risk mitigation Risk plan has to be acceptable to owner 57

58 Vendor Thinking Does not price in the cost of risk that they do not control Clarification period and planning will identify risk that vendor does not control Identify risk which there may be inadequate information Identify risk that is not controlled Best value vendor will identify final scope, risk, risk mitigation, financial package [fully competitive] 58

59 Best Value Best value for the lowest price Do not cost in risk that vendor does not control or information that vendor does not have Best value plan will be procured [no plan is perfect] Risk is minimized by transparency [identifying source of deviation] 59

60 What is a plan? Deliverables in terms of metrics Milestones [various stages of deliverable] Activities that you do not control Activities that you do not have enough information [best estimate] Plan is uncoordinated Proposed to stakeholders Stakeholders can respond Transparency [WRR] 60

61 Plan Detailed schedule from beginning to end Expertise used in areas where there is insufficient information Risk that cannot be controlled [requirements] Deliverables [metrics] Milestones [metrics] 61

62 What is an Expert? See into the future Communicates with dominant language Project manager first, technical expert second Utilize expertise Accountable using dominant information Before the event happens Has a plan that can be measured against Plan comes before coordination with stakeholders 62

63 Deductive Logic Changes present vs. future Silo Based Based on leverage Nontransparent win-lose Price based Based on minimum requirement Management, direction and control Decision making Designed by practice Relationships and trust Supply chain based Efficiency and effectiveness Transparent win-win Best value Best available Utilization of expertise Minimized decision making Designed by observation of natural laws Metrics and dominance 63

64 Model of the Future: Performance Information Procurement System (details documented in manuals at pbsrg.com and ksm-inc.com) Expertise identified by natural law Expertise is utilized SELECTION CLARIFICATION/ PRE-AWARD MANAGEMENT BY RISK MINIMIZATION Identify expertise Dominant Simple Differential (non-technical performance measurements) Full competition BV expert s proposal must be acceptable to user Clarification Detailed project scope and schedule Resource & Man- power schedule Expectation vs. delivered Risk Management using metrics Quality Control Quality Assurance 64

65 Owner intent Select 1 developer/concessionaire Select construction vendors for three components [intake/common works, power plant, transmission lines] Developers will compete for developer and propose on three components Awards will be based on capability, financial package, risk 65

66 Overview Ten months from submit best value documents Documents [capability, risk assessment, value added, financial package, pricing package] Key personnel will be interviewed Dominant information will be put in a matrix Weighted according to priority BV developer identified, decision made based on factors of risk [political, financial], capability, and financing to award three components Clarification period of detailed plan, financing etc.

67 Selection Phase Describe capability, risk [cannot control, what is not in the project scope, insufficient information/assumptions] and value added Use metrics [cannot be misunderstood] Cost components [examples: overall cost, cost/kwhr, value of government property [% of revenue], financing cost, quality of private financing] 67

68 Submittals and Selection Criteria Past Performance Development Information (PPI) [size of development, profit generation, cost of financing, projects in Africa, number of defaults] Project Capability of Team (PC) [includes financing capability] Risk Assessment Plan (RA) Value Added (VA) Price Package and Financial Support Package Interview Milestone schedule [not a selection criteria]

69 Submittals and Selection Criteria Past Performance Information (PPI) Project Capability (PC) Risk Assessment Plan (RA) Value Added (VA) Price Interview Milestone schedule

70 Selection Criteria Weights Past Performance Information 5% Project Capability 15% Risk and Risk Mitigation 20% Value Added 10% Price and Financial Package 15% Milestone Schedule 10% Interview 25% Dominance Check and Clarification Period to follow

71 Project Submittals Project Capability, Risk Assessment, Value Added Limited pages Claims and verifiable performance metrics

72 Rating System Two components: Claims. Verifiable performance measurements (VPM) to substantiate each claim. High performance claim with VPM. High/Low performance claim with no VPM. If there is a blank sheet of paper. If a decision has to be made. Low performance claim with VPM

73 Selection Criteria Considerations Capability to develop, design and construct Contribution to the DRC Cost of power Financial capability Overall cost of project, cost of financing Based on verifiable metrics

74 Project Requirement/Intent New hydroelectric / dam/ distribution systems Fast track project African environment Develop, finance, design, construct, operate

75 Project Capability Submittal Claim: best project manager in company, does only large hydro-electric/civil projects, best in the hydro-electric project arena Verifiable performance metrics: 1.last 10 years 2.5 projects 3.scope $100M 4.customer satisfaction cost deviation 1% 6.time deviation 1%

76 Project Capability Address key areas: developer, designer, construction PM, critical subcontractors Developer capability to develop, design, construct and operate Ability to work in Africa or developing countries Minimize risk through transparency

77 Interview The interview of key personnel is the event when the selection committee can get the most dominant information to identify a best value vendor. The interview is different in the following ways: The key person who will do the work is the one who will be interviewed. The interview is searching for an "expert. The interview is non-technical. The interview is searching for an individual who can lead a team. The interview should have the following characteristics: Be as short as possible. A 20 minutes duration is sufficient. The number of questions should be limited to a few questions, and clarifications can be asked if the key personnel do not respond in a dominant fashion.

78 Dominance Check View all information PPI Project Capability Interview rating Cost Are ratings dominant? Is the best value the lowest cost or within 10% of the average bid price? If not dominant, override matrix and go with best value for lowest cost

79 Clarification Period [Project Management takes over from procurement] Expertise identified by natural law Expertise is utilized SELECTION CLARIFICATION/ PRE-AWARD MANAGEMENT BY RISK MINIMIZATION Identify expertise Dominant Simple Differential (non-technical performance measurements) Full competition BV expert s proposal must be acceptable to user Clarification Detailed project scope and schedule Resource & Man- power schedule Expectation vs. delivered Risk Management using metrics Quality Control Quality Assurance 79

80 Clarification Phase Deliverables Scope of Work (what is in and out ) Detailed project schedule Cost/time Risk activities Performance measurements Risk mitigation plan Weekly Risk Report Milestone Schedule Utilize expertise

81 Transparency Detailed plan supported by milestone schedule Risk management plan Metrics Identification of metrics up front Posting of performance information weekly on an internet webpage Tracking of performance metrics [cost and time deviations, milestones, metrics] Vendor will track risk and risk mitigation utilizing transparency and weekly risk report/developer report

82 Conclusion Transparency [metrics, deviation rates, posting to all stakeholders on internet] and tracking by Arizona State University [academic third party interested in DRC ability to manage project] Metrics [time, cost and capability] Full competition by capability, cost and risk All detailed plans before contract signing All information available to all parties

83 Best Value Education and Training Jan 12-16, 2014 Tempe, AZ Linked in Youtube Pbsrg.com