Best Value Procurement, a one-size-fits-all solution?
Well over a year ago I had several people who talked to me about Best Value Procurement (BVP for short). For different reasons they were all very positive about this approach and its potential benefits. Fragmented stories and various recommendations were a reason for me to go to the source: the Performance Based Studies Research Group from Arizona State University. I found some of the info I was looking for on their website and I registered as a user. Working for one of the Big 4 consultancy companies had its benefits: two days after my registration I got an email from Professor Dean Kashiwagi himself. He was scheduled to be in the Netherlands shortly and triggered by my employer (and I hope some of the questions I raised) he suggested to discuss Best Value over dinner. Together with a colleague we had a very entertaining evening and I gradually got convinced of the value of BVP.
According to Kashiwagi, there is a systematic flaw in the way commercial engagements are set up. To ensure comparable offers between different vendors, the focus is on creating a level playing field and acquiring very similar offers from the participants in the tender process. By doing so, the only real differentiator remaining is price and the traditional approach therefore facilitates a competition on price, rather than a comparison on added value. Surely one can argue that any traditional approach takes into account other factors as well, such as quality and cultural fit but in the end of the day everything is translated to numbers when the final decision is made. The BVP approach suggests to avoid price as the key discriminator at least in the early phases. Clients should state their need in very general terms and the subsequent process is aimed at identifying the expert. A rigorous approach with structured interviews and assessment of past performance allows candidate vendors to show their expertise, present potential added value and point out risks but limited to the risks where mitigation needs client involvement. Supported by many examples and underlying data, Kashiwagi points out that in the majority of the cases one vendor will stand out as the expert. In those cases where there are no clear differentiators, apparently the requirement is a commodity. Then the next determining factor becomes price and we know how that works. So the response from Kashiwagi to my ‘why BVP?’ question was quite simple: ‘why not?’
Conditions to use Best Value practice
The track record for BVP in the Netherlands is mainly in public tenders and there it has proven to be quite successful. Government agencies are subject to very strict requirements and (European) legislation when it comes to buying products and services. Over the years, regulations have evolved up to a point that many government agencies feel they have very little control once they enter into a European Tender process. Quoting a recent client: ‘Once we have set our requirements and define our rating criteria, the tender process convicts us to a vendor’. The high level of interaction early on in the process and the early down select to one vendor in BVP are of significant benefit for public clients. BVP outcomes have been tested in court and the process has proven to be EU Tender compliant. Many contracts (and not just in government) fail due to the imbalance between control and accountability. I believe any engagement can only be successful if each party is fully accountable for everything in its control. BVP puts a lot of emphasis especially on the risk assessment of exactly this principle. I feel this is an important success factor in the approach. Kashiwagi believes there is always a best way to do things: the more experienced you are, the better you can predict the outcome of various actions and therefore the expert is best capable of taking decisions and minimizing risks. Clients should not dictate a solution to a vendor (the alleged expert) as this will create risk for both and reduce the value of the overall solution. In BVP this goes back to the principles of ‘natural laws’.
So BVP is good for all?
No, BVP is no one-size-fits-all approach. For some type of products and services it is clear upfront that they are a commodity. In those cases BVP does not add significant value and an auction of any type can be more beneficial for a quick and easy result. Furthermore BVP requires a bit of a mind-shift for all participants (both client and vendors) in the way vendor expertise is leveraged during the process. Real life examples show that it takes some getting used to and not every organization is able to make the shift. Without some upfront instruction and the willingness to comply to the principles, BVP is better avoided. I think Kashiwagi is right in presenting Best Value as a paradigm shift and there is no middle ground here: ‘comply or avoid’ should be the motto. Personally I am not yet fully convinced that BVP is the way forward in sourcing engagements. In Information Technology Outsourcing (ITO) there have been some examples of tenders especially in the government area but it is too early to assess whether these contracts will also bring the added value of BVP in the execution phase. For Business Process Outsourcing (BPO) I haven’t seen any examples at all. The basic assumption that there is always a best solution for any given problem to me is up for debate. When providing services, during the lifetime of a contract there are quite often multiple alternatives and ‘the best’ option quite often depends on the perspective of a party as client and vendor might have different interests and incentives by nature and therefore different and potentially conflicting perspectives and goals.
More research needed
So I don’t have a final opinion yet. The additional interaction in European tenders is clearly beneficial and the focus on accountability obviously is important. I don’t argue the track record of BVP, especially in the area of project management and construction; the figures are available and speak for themselves. It is here that the method originated and has proven its value. But I am not yet fully convinced that Best Value can also work in all type of sourcing engagements especially where less predictable services are involved. I will remain interested in the Best Value methodology and am looking forward to the opportunity for hands-on experience with different types of sourcing engagements. At this moment there is limited data available to reach a final verdict. And I do subscribe to one of the starting points of Kashiwagi: a final assessment should be based on clear data and measured performance.