# Presentation: 090117

##  Guidelines for SuccessfulITS ProcurementT3 Session, March 15, 2006Hosted by Mac ListerFHWAPresented byPhil TarnoffUniversity of Maryland

## The Problem

- Success rate for intelligent transportation systems life cycle is very low
- Problems can be traced to:
- Incorrect contracting approach
- Inexperience of the agency
- Failure to follow appropriate procedures
- Inadequate commitment of project management and systems engineering resources

## Systems Acquisitions

**53%**

**16%**

**31%**

**Late**

**Okay**

**Cancelled**

- Source: Patterns of Software Systems Failure and Successes, Jones, Capers, 1996

## Success is Influenced by the Purchaser

- Purchaser’s experience has greater impact on project success than any other factor
- Success rate has increases by more than 25% for purchasers with prior experience
- ITS implementation must be led by experienced staff

- Source;  Patterns of Software Systems Failure and Successes, Jones, Capers, 1996

## The Contracting Model

## The Contracting Model

- Defines the entire contracting form and process
- Includes four dimensions:
- Work Allocation – Responsibilities
- Method of Award – Contractor selection
- Contract Form – How is work organized
- Contract Type – Methods of reimbursement
- Terms and conditions apply to all dimensions

## The Contracting Model

**Terms and Conditions (payment, cancellation, disputes, etc.)**

**Procurement**

**Work **
**Allocation**

**Method of**
**Award**

**Contract**
**Form**

**Contract**
**Type**

**Low Bid Contractor**
**Systems Manager**
**Systems Integrator**
**DB(OM)**
**Commodity (COTS)**
**Consultant Services**
**Outsource Contractor**
**Other Services**

**Low Bid**
**Negotiated**
**Sole Source**

**Phased**
**Task Order**
**Purchase Order**

**Fixed Price**
**Cost Reimbursable**
**Incentive**
**Time and Materials**

## Use of the Contracting Model

- Identifies dimensions to be included in selection process
- Procurement guidelines define the process for choosing appropriate option for each dimension
- Process is simplified by assembling combinations of options – procurement packages
- Project may include multiple contracts and procurement packages

## System Procurement Packages (1 of 2)	

- Commodity Supplier
- Low-bid selection of prequalified packages
- Fixed price contract
- Applicable only for unmodified off-the-shelf software and hardware
- Low-Bid Contractor with Design Consultant (for 100% design)
- Low-bid selection
- Fixed price contract
- Can use incentives
- Can use phased contracts
- Useful if the predominant software is off-the-shelf

## System Procurement Packages (2 of 2)	

- Systems Manager
- Negotiated procurement
- Fixed price, cost plus or time & material contracts
- Can use incentives
- Can use either phased or task-order contracts
- Separate low-bid procurements required for construction and equipment
- Design-Build Contractor with Design Consultant (for 30% design)
- Best value selection
- Fixed price.  Cost plus or T&M may be acceptable
- Can use incentives
- Can use phased contracts

## Other Procurement Packages	

- Consultant
- Negotiated
- Fixed price, cost plus or time & material contracts
- Can use incentives
- Can use either phased or task-order contracts
- Outsourcing either an activity (such as maintenance) or an entire function (such as traveler information)
- Low-bid selection may be based on rates
- Fixed price or time & material contracts
- Can use incentives

## Contracting Considerations

## Selecting the Best Procurement Approach

- _Organizational Level_

**Experience**
**Resources**
**Personnel**

- _Project Category_

**New or replace.**
**Size & complex.**
**Uniqueness**

**Characteristics**

**Contracting Solutions**

- System Development Process

- System Development Process

- Procurement Package

- Terms and Conditions

## Defining Organizational Level

| Characteristic | Immature Organization | Mature Organization |
| --- | --- | --- |
| Personnel Experience | Part time, personnel have no prior experience | Full time responsibility of experienced personnel |
| Organizational Experience | Never done it before  | Experienced with 1 or more complex projects |
| Organizational Structure | ITS responsibilities undefined | Single organizational unit responsible for all ITS |
| Resources | No defined ITS budget | ITS budget for systems and personnel |
| Management Support | Modest mid-level support | Considered a priority by senior management |
| Expectations | Not defined | Included in agency’s planning process |

## Defining Project Complexity

| Characteristic | Simple Project | Very Complex Project |
| --- | --- | --- |
| Newness | Off-the-shelf solutions | Invention(s) needed |
| Scope | Single function  | Multi-function system  |
| Interfaces | None | Both internal & external |
| Maturity | Many similar systems | Never been done |
| Stability | Requirements well defined | Not sure what is needed |
| Institutional | Being developed for single agency | Many agencies involved |

## The Outputs

- Systems development process
- Waterfall
- Evolutionary
- Spiral
- The procurement package
- Lists of terms and conditions

## The Development Processes are Based on the Systems Engineering Life Cycle

**The Development Processes are Based on the Systems Engineering Life Cycle**

## Systems Development Processes

**Waterfall –** A linear process for well-defined programs including all the activities of the “V” diagram
**Evolutionary –** Development of a project in a series of well defined phases in which the “V” diagram is repeated for each phase
**Spiral –** Not certain of what is needed, so project development accompanied by much prototype development and many planning steps

## The Decision Process

## Initial Decisions – Step 1

**Does **
**the agency intend to outsource?**

**Other services being procured. **
**Not covered by Decision Model.**

**Use consulting process **
**(procurement package #5)* **

**Start**

**No**

**Yes**

**Yes**

**Are **
**traditional consulting services being procured?**

**Yes**

**No**

**No**

**Does **
**the project include a system development?**

**Use outsourcing process **
**(procurement package #6 or #7)***

**Go To Step 2**

## Decision Model

## The Fundamental Activities of the Following Process

- Separate the project into individual contracts
- Determine project and agency characteristics
- Select procurement package
- Apply discriminators to multiple solutions
- Confer with Contracts
- Add terms and conditions

## Decision Model – Step 2

**Step 2 **
**Work Allocation**

**Step 4**
**Determine Agency**

**Step 3    **
**Define Project Categories**

**NO**

**YES**

**Send Individual Projects through the Model**

**Step 5 **
**Select applicable systems engineering process(es) & candidate procurement package(s)**

**Step 6**** **
**Apply Differenti-ators**

**Step 7**
**Package Assessment and Final Selections**

**Step 8 **
**Define Contract Scope and Terms and Conditions**

**Schedule Constraints**

**Start**

**End**

## Initial Work Allocation (Step 2)

- General rules:
- In general, it is best for all work to be contained in a single prime contract (exceptions noted below)
- Minimize interdependency of contractors (i.e. where one contractor depends on another contractor’s completion)
- Multiple contracts require increased project management resources
- Reasons to consider multiple prime contracts:
- Significant software and systems development, but largest dollar amount is in construction (i.e. systems contractor would not be prime under a single contract)
- Unlikely that a satisfactory prime contractor can be identified
- Significant outside expertise required

## Decision Model Step 3

**Step 2 **
**Work Allocation**

**Step 4**
**Determine Agency**

**Step 3    **
**Define Project Categories**

**NO**

**YES**

**Send Individual Projects through the Model**

**Step 5 **
**Select applicable systems engineering process(es) & candidate procurement package(s)**

**Step 6**** **
**Apply Differenti-ators**

**Step 7**
**Package Assessment and Final Selections**

**Step 8 **
**Define Contract Scope and Terms and Conditions**

**Schedule Constraints**

**Start**

**End**

## Identify Project Category (Step 3)

|  | Category 1 | Category 2 | Category 3 | Category 4 |
| --- | --- | --- | --- | --- |
| Complexity | Cells of table contain description of the characteristic appropriate to each category |  |  |  |
| Development |  |  |  |  |
| Technologies |  |  |  |  |
| Interfaces |  |  |  |  |
| Evolution |  |  |  |  |
| Requirements |  |  |  |  |
| Risk |  |  |  |  |
| Examples |  |  |  |  |

- Example of Cell Content:
- “Primarily application of proven well-known technology.  May include non-traditional use of existing technolog(ies)”

## Decision Model – Step 4

**Step 2 **
**Work Allocation**

**Step 4**
**Determine Agency**

**Step 3    **
**Define Project Categories**

**NO**

**YES**

**Send Individual Projects through the Model**

**Step 5 **
**Select applicable systems engineering process(es) & candidate procurement package(s)**

**Step 6**** **
**Apply Differenti-ators**

**Step 7**
**Package Assessment and Final Selections**

**Step 8 **
**Define Contract Scope and Terms and Conditions**

**Schedule Constraints**

**Start**

**End**

## Select Organizational Levels (Step 4)

|  | Level 1 | Level 2 | Level 3 |
| --- | --- | --- | --- |
| Personnel | 

Cells of table contain description of the characteristic appropriate to each category
 |  |  |
| Organizational Experience |  |  |  |
| Resources |  |  |  |
| Organization |  |  |  |
| Management Support |  |  |  |
| Expectations |  |  |  |

- Example of cell content:
- “Experience with at least one category 2 project or greater.”

## Decision Model – Step 5

**Step 2 **
**Work Allocation**

**Step 4**
**Determine Agency**

**Step 3    **
**Define Project Categories**

**NO**

**YES**

**Send Individual Projects through the Model**

**Step 5 **
**Select applicable systems engineering process(es) & candidate procurement package(s)**

**Step 6**** **
**Apply Differenti-ators**

**Step 7**
**Package Assessment and Final Selections**

**Step 8 **
**Define Contract Scope and Terms and Conditions**

**Schedule Constraints**

**Start**

**End**

## The Decision Matrix  (Step 5)

| Project Category | Organizational Level |  |  |
| --- | --- | --- | --- |
|  | Level 1  | Level 2 | Level 3 |
| 1 – Low | Waterfall
SM or DB* | Waterfall
Low Bid*, commodity, SM or DB  | Waterfall
Lob Bid, Commodity, SM or DB |
| 2 – Moderately Complex | Evolutionary
SM or DB* | Waterfall or evolutionary
Low Bid*, SM or DB | Waterfall or evolutionary
Low Bid, SM or DB |
| 3 – Complex | Not recommended | Evolutionary
SM or DB | Evolutionary or spiral
SM or DB |
| 4 – Extremely Complex | Not recommended | Evolutionary or spiral
SM or DB | Evolutionary or spiral
SM or DB |

- Notes:
- First line is the systems engineering technique, second line is the procurement package
- DB =  Design-Build
- SM = Systems Manager
- * - Consulting services should be used while project is underway

## Decision Model – Step 6

**Step 2 **
**Work Allocation**

**Step 4**
**Determine Agency**

**Step 3    **
**Define Project Categories**

**NO**

**YES**

**Send Individual Projects through the Model**

**Step 5 **
**Select applicable systems engineering process(es) & candidate procurement package(s)**

**Step 6**** **
**Apply Differenti-ators**

**Step 7**
**Package Assessment and Final Selections**

**Step 8 **
**Define Contract Scope and Terms and Conditions**

**Schedule Constraints**

**Start**

**End**

## Procurement Differentiators (Step 6)

- Systems manager is preferred to design-build for significant new software development
- Design-build preferred over systems manager, only for major projects and when significant amounts of field construction are involved
- If project includes both new software and field construction, consider using multiple contracts

## Procurement Differentiators continued (Step 6)

- Low-bid contracting should only be used if:
- Required by agency policy (rarely true)
- Projects consist of field construction and off-the-shelf equipment
- Commodity procurement applicable if an available packages do not require modification except for:
- New software drivers for interface with communications and field equipment
- New database reflecting system configuration
- New graphics (maps, etc.) for local environment

## Impacts of Step 6 Decisions (Step 6 continued)

- Low-bid contract _will_ require design consultant & low-bid contractor
- Systems manager contract _will_ require low-bid contractors for field construction and field equipment supply
- Design-build contract _will_ require design consultant and design-build contractor
- Commodity procurement _may_ require systems integrator for system implementation and test

## Decision Model – Step 7

**Step 2 **
**Work Allocation**

**Step 4**
**Determine Agency**

**Step 3    **
**Define Project Categories**

**NO**

**YES**

**Send Individual Projects through the Model**

**Step 5 **
**Select applicable systems engineering process(es) & candidate procurement package(s)**

**Step 6**** **
**Apply Differenti-ators**

**Step 7**
**Package Assessment and Final Selections**

**Step 8 **
**Define Contract Scope and Terms and Conditions**

**Schedule Constraints**

**Start**

**End**

## Considerations When Making the Final Decision – Step 7

- Involve the agency’s contracts personnel (They should have been involved from the beginning)
- Compatibility with the systems engineering and project management principles
- Agency’s relative familiarity with the recommended  alternatives

## Decision Model – Step 8

**Step 2 **
**Work Allocation**

**Step 4**
**Determine Agency**

**Step 3    **
**Define Project Categories**

**NO**

**YES**

**Send Individual Projects through the Model**

**Step 5 **
**Select applicable systems engineering process(es) & candidate procurement package(s)**

**Step 6**** **
**Apply Differenti-ators**

**Step 7**
**Package Assessment and Final Selections**

**Step 8 **
**Define Contract Scope and Terms and Conditions**

**Schedule Constraints**

**Start**

**End**

## It is Then Necessary to Define Terms and Conditions

## Contract Terms and Conditions (Step 8)

- Some are common to all procurement packages, others are unique for each package
- Requires contracting expertise
- To a certain extent, by state law, agency policies, and federal law
- Defined by the NCHRP documentation

## Sample Terms and Conditions (Step 8)

| Commodity Supplier Terms and Conditions | Low-Bid Contractor with Design Consultant | Systems Manager | Design-Build Contractor with Design Consultant | Consultant | Outsourcing Agency Activity | Outsourcing Agency Function |
| --- | --- | --- | --- | --- | --- | --- |
| Contractor Inspection Requirements | Design within Funding Limitation | Negotiation | Negotiation | Negotiation | Negotiation | Negotiation |
| Inspection of Supplies | Redesign Responsibility for Design Errors or Deficiencies | Commercial Computer Software Restricted | Design within Funding Limitations | Notice of Cost Comparison | Fixed Fee | Fixed Fee |
| Option for Increased Quantity | Deficiencies | Rights  | Redesign Responsibility for Design Errors | Allowable Costs and Payment | Incentive Fee | Incentive Fee |
| Ordering | Fixed Price | Fixed Fee | Work Oversight | Fixed Fee | Work Oversight | Work Oversight |
| Definite Quantity | Incentive Fee | Incentive Fee | Suspension of Work | Incentive Fee | Execution and Commencement of Work | Execution and Commencement of Work |
| Indefinite Quantity | Performance/Payment Bond | Rights in Data | Fixed Fee | Performance Based Payments | Performance/Payment Bond | Performance/Payment Bond |
| Brand Name of Equal  |  | Allowable Costs and Payment | Incentive Fee | Delivery Orders (Task Orders) | Allowable Costs and Payment | Allowable Costs |
| Performance/Payment Bond |  | Performance Based Payments | Execution and Commencement of Work | Specifications | Performance Based Payments | Modifications |
|   |  | Delivery Orders (task orders) | Performance/Payment Bond | Delays and Extensions of Time | Modifications | Rights in Data |
|   |  | Specifications | Specifications and Drawings | Modifications | Rights in Data |  |

## Summary of the Seven Steps to Implementing the Process

- Step (1) Initial Decisions
- Step (2) Allocate the work
- Step (3) Select project category
- Step (4) Determine agency level
- Step (5) Using organizational levels and categories, select   Procurement Package(s) for each project
- Step (6) Apply procurement differentiators to make final selection
- Step (7) Make final selection
- Step (8) Define contract terms and conditions
- 		           **Contract process is complete**

## Key to a Successful Procurement

- Procurement approach is dependent on project type and agency capabilities
- We’ve always done it that way is not a good excuse
- The right procurement approach may not guarantee success, but the wrong approach will guarantee failure

## For More Information

- _http://www.citeconsortium.org_ on home page under highlights, select “Guide to Contracting ITS Projects” to access web-based step-by-step selection process
- _http://www.pcb.its.dot.gov/Catalogs/ITSCurriculum.htm_ for courses on ITS procurement, systems engineering and project management

## Contact

**Mac Lister**

**Phil Tarnoff**

**tarnoff@eng.umd.edu**

**Mac.Lister@fhwa.dot.gov**