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The Performance Information Procurement System, or PIPS, that was developed by the Performance Based Studies Research Group at Arizona State University is more than a procurement system. It’s also a risk management system throughout the project’s duration.

PIPS consists of three phases. Phase I is the Selection Phase, Phase II is the Preaward Phase and Phase III is the Risk Management and Quality Control Phase. To enhance this Garrison Report, I’ve attached three interviews with Jacob Kashiwagi on PIPS. Each interview discusses one of the three phases. Readers can access those interviews on the left side of the report or go to New Construction Strategies Radio at www.NCS30.com. What follows is a brief outline of PIPS.

The PIPS process is built on the foundation of Information Measurement Theory (IMT), which I have discussed before. However, for those new to the concept, IMT is based on the theory that the more perceptive a person is, the better he can understand a situation and predict the future. He is able to do this because he is perceptive, has experience and knowledge and can look ahead and predict the outcome because he knows what will happen. This is possible because based on the initial conditions, there is only one outcome. Probability creeps into the situation only when people don’t understand the information and can’t accurately predict the outcome. PIPS recognizes the contractor is an expert and, therefore, allows the contractor to control the project because he knows what do for the best results. He avoids making uninformed choices because he knows what to do. In contrast, the owner or nonconstruction expert would be forced to make decisions that place the project at risk.

Phase I—Selection Phase

The purpose of the selection process is to determine the contractor that has the best vision and is best able to preplan the project. The system relies on simple and dominant information to differentiate the contractors. By dominant information we mean information that is self-evident and obvious to everyone. By simple we mean information that is not technical and easy to understand. Once the information is dominant and simple, it’s possible to differentiate the contractors.

The selection process has four filters that the contractors must pass through. Each filter helps differentiate the contractors. After passing through the fourth filter, typically one contractor stands alone as the best-valued contractor, but more on that in Phase II.

The first filter focuses on past performance; in other words, it identifies how well the contractors performed on issues critical to the current client on previous projects. Typically these include factors such as cost, schedule and performance.

The second filter requires the contractors to develop a risk assessment plan for the project, which allows the contractors to differentiate themselves with regard to their vision and preplanning skills on the project.

The third filter consists of interviews with the project personnel to ensure they are visionaries and know how to preplan. This filter allows the contractors to differentiate the quality of their key personnel.

The fourth filter introduces cost. Here the project priorities of the first three filters are matched to the cost and prioritized to identify the best-valued contractor for this project based on the client’s requirements. Remember, cheaper isn’t better; more expensive isn’t better; only better is better. Better is defined as what best fits the client’s needs.

In the first phase, it is assumed the contractor is the expert, so the owner lets the contractor control the effort. The contractor determines how the project should be built, what the risks are and how to minimize them and what the cost is. This doesn’t mean the owner has no input. The owner states only what result it wants and assumes the contactor’s decisions are appropriate since the contractor is an expert. Once the owner has identified the best-valued contractor, the owner will have time to review all the contractor’s assumptions in Phase II.

Phase II—Preaward Phase

In the preaward phase, the owner can question the contractor about the contractor’s assumptions and pose concerns. In this phase the contractor is not the expert. The owner’s architect, engineers and other consultants as well as any in-house experts can question the contractor on the project details and technical issues. A benefit of this process is it creates a dialogue that increases the information flow and communication between the parties.

However, the real benefit of this phase is preplanning and the addressing of all project risks and concerns that could prevent the project’s success. At the end all the parties understand each entity’s role and functions during the project.

Of course, suggesting to owners that they treat the contractors like experts during the selection phase makes many of them nervous. A major advantage in this approach is the owner doesn’t have to check the validity of the contractors that aren’t selected, which saves the owner time and money. Further, the validity of the process is reinforced by the fact after hundreds of projects conducted by PBSRG, they have never had to toss out a contractor in the preaward phase because the contractor wasn’t qualified or prepared to do the job. In essence, the selection process does work.

Phase III—Risk Management and Quality Control Phase

In the third phase, it’s again assumed the contractor is the expert and he is allowed to manage the project. The contractor is made accountable for the results, so it is in his best interest to ensure its satisfactory completion. In this phase the contractor creates a risk assessment plan where he identifies all the nontechnical risks to the project. Since the contractor is a construction expert, there is virtually no technical risk, and all the risks that he can’t control are nontechnical. However, by identifying those risks, they can be planned for and minimized. As part of this process, the contractor also establishes a quality control/quality assurance program.

The key to the success of Phase III, besides the preplanning effort, is the fact that the entire process is transparent and all deviations from the expected are measured. Only by measuring performance can performance be maintained at the highest levels. In addition, when the measurement results in minimized deviation from expectations, the contractor has created past performance proof for the next project (or precedent). In essence, PIPS goes around in a continuous circle of improvement from project to project.

If you have doubts about the effectiveness of this program, consider that PBSRG has reported that after 17 years of operation, “The process has resulted in 98 percent customer satisfaction, construction on time, and without contractor generated change orders.” If you would like to learn more about the best-value approach to construction, I suggest you go to New Construction Strategies Radio at www.NCS30.com and listen to the interviews on the Best Value channel from not only PBSRG members but also clients, contractors and vendors.