Global Material Handling System Integrators

Project Fast Tracking - Who wins?

A recent discussion thread on LinkedIn suggested that fast tracking a project – i.e. the practice of partnering in a design-build relationship instead of using the competitive bidding approach – would add in the range of 15% to a program. The primary rationale for this critique is based on the old “fox and henhouse” design conundrum. After all, everyone knows that “…suppliers are out to take advantage of the naïve and inexperienced buyer…”, so competitive bidding is a way to keep everyone honest. Before you misinterpret my response, let me point out that I have spent a good deal of my career helping customers prepare designs and bid documents, and evaluate bid responses. Still, I see a great deal of value in the Fast Tracking process. Let me explain. First, when making a capital investment your objective should be to produce a business advantage that will take you beyond your competition. If all you are looking to do is what “they” are doing, by the time you get there, “they” will have moved on as well. Therefore, whatever you do, you must do it creatively and fast so that you can start realizing the benefits sooner. This way, you will be able to apply the benefits to support the next project that will keep you out front. By competitive bidding a project, you do several things. First, you spend time deciding what to do. Then you must spend more time documenting this decision by creating specifications for everyone to bid against. This takes time, but more significantly, it freezes your objectives for improvement at the point in time that you publish the specs (and sometimes announces your intentions to the world - including your competition) Most bid documents that I have reviewed require bidders to respond to the base bid in order to be considered. "Alternatives and improvements to the design are to be offered only as options to the base design." Frankly, too little time is being allowed for most large projects to fully optimize the response to a base bid. As a result, there is little left on the table in the form of time or energy to propose and sell an alternative. I recently saw an example for this where a company was asked to quote a $750,000 project to which they were given 36 hours to respond. Few suppliers would question such a bid request as anything but an effort to get a check bid. If they do respond, little effort is done to speculate about the right approach, and a lot of attention is given to aligning risk with the customer’s design basis so as to allow for the more profitable “change order” scenario as the project unfolds. Finally, think about this: historically, the prep, bid spec, solicit, evaluate, and negotiate cycle will add 20%-25% of elapsed time to a project over a partnership based fast track effort. If a normal project of size will take 6 months to implement, this will add 1-1.5 months to the effort from start to finish. Since most USA projects are funded under an unwritten owner’s equity rule of payback in two years or less, this additional up front cost and time represents a loss of 6%-8% of the potential return expected from the project's justification cycle. Add to this the cost of prepping and conducting the bid – generally in the 5% - 8% range - and you see that the savings you perceive from competitive bidding is quickly displaced. Now factor in that most bidders reduce their margins to work with a design-build or Fast Track project, because they know there is the assurance that “cost of sales” will be covered on the effort, and risk will be fully identified and fairly dealt with. In fact, many will agree to a modified open book basis of business where they agree on profit margins ahead of time, and then fix each part of the project’s pricing as the full definition of work is collaboratively agreed upon. The key to making fast tracking work is to partner early with a reliable firm that will be in business and is diverse enough to support you down the road. This means that both parties need to agree to share in the risk and the profits. This relationship must be based on a full and open knowledge of the process and challenges, and means the team must be sitting on the same side of the table from the start. Only this level of trust will establish an environment in which the team can move forward with agility as conditions change – even in mid-project.

Author: Gregg Durham


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