Best Value Procurement: The Cradle of Agile Procurement 4.0.

The definition of Best Value Procurement

The general definition of Best Value Procurement is "a procurement method that emphasizes value over price. The best value might not be the lowest cost."

Value results from comparing costs and benefits. Therefore, a procurement professional must choose not the cheapest but the most valuable offer.

Nevertheless, there are many recipes for value identification. The following method attempts to turn a great slogan into actionable advice. 

My Path to Best Value Procurement   

Suppose you ever managed complex multi-vendor acquisition processes for software development. In that case, you might've realized a rate card isn't the decisive factor for the quality or capability of a contractor. 

There's hardly such thing as saving in software development. 

Scrum teams need to deliver standard quality output. For that, various enabling factors exist —the skill mix, previous experience, familiarity with the particular platform or product in a specific customer's environment, the customer itself, the chemistry between scrum team members, and many more. 

Quality and timeliness matter at the end of the day.

Then I came across this great note on Agile projects by Philippe Guenet: "It is not about tendering anymore. It is about augmenting (with best performers) and reducing (with worst performers) your relationships over time." That perfectly resonated with my experience. 

When I worked on the following Agile supplier selection slide for this post on 12 alternatives to RFP, I highlighted the importance of risk management and evidence-based supplier selection.

Agile supplier selection sprints


And then, I came across Best Value Procurement.

The Best Value Procurement as an answer to low-bid procurement failures

The Best Value Procurement (BVP) development was started in 1991 by Dean Kashiwagi and the Performance Based Studies Research Group (PBSRG) at Arizona State University. 

Kashiwagi invented the Information Management Theory and developed a method to improve the procurement and management of construction projects by reducing risk in selecting the top performer. 

The application of BVP in the construction industry can be seen in the context of the dramatic changes in the 1990s. Until 2000, the construction industry had all the features of a low-bid arena: specifications, qualifications, standards-based (Design-Bid-Build), and management and inspection by the client. 

Multiple scandals and fraud cases triggered adopting integrated project delivery models, such as Design-Build and Design-Build-Finance-Maintain, and award criteria based on price and quality.
 
In 2008, the so-called Fast Track Program in the Netherlands became the world's most extensive BVP program, with a combined worth of € 600 million. Ten countries generally adopted BVP.  

The Best Value Procurement process

The BVP process consists of 4 stages.

Stage 1: Prequalification

The supplier selection (core) team will be formed at this stage. They will formulate project objectives, plan the BVP process, and assign the weighting factors for supplier selection.

The core team will issue the tender guidance and scout potential vendors.

Vendors will be invited to participate in the BVP process simultaneously. Most importantly, they will join training sessions where the logic and contents of the BVP will be explained to them.

Some vendors may opt-out if they feel that the process could be more suitable for them.

Stage 2: Selection

There are five ingredients in the supplier selection process :
  • The written plans include the following;
    • Level of Expertise
      • Why (not "how") a supplier will lead a project to success;
    • Risk Assessment document
      • Why certain risks are essential;
      • What is the mitigation strategy, and why is it going to work;
      • What to do in case the mitigation does not work.
    • Value-Added document
      • Extra features to improve the value of the proposed delivery and stand out from the rest by offering more value while not adding high costs and scope;
  • The interviews
    • To what extent does the supplier's key personnel (not account managers) understand the project and demonstrate commitment and the ability to minimize risks;
  • The price
    • is not higher than the maximum budget;
    • offers a minimum scope in which the project goals can be realized;
    • provides extra opportunities that can be realized within budget;
    • enables the level of management needed to reach the goals without additional risks.
The interviews will be given the highest weighting, while the price only constitutes around 10-25% of the total score.

The result of this stage is the selection of the best supplier.

Stage 3: Clarification

The purpose of this stage is not to negotiate the offer. It is to 
  • clarify
    • the solution;
    • the scope;
    • the assumptions;
    • the risk mitigation plan;
    • the KPIs,
    • the project plan;
  • find out if the offer is acceptable to the client;
  • come to an overall agreement between the two parties.
The actual content of the proposal must remain the same. The supplier is only supposed to clarify and support the material they delivered up to this point. The client is not supposed to steer the supplier to a wanted outcome.

The award happens when all the risks and concerns have been resolved. It is clear how the vendor will coordinate the project, all non-controllable risks are identified and made measurable with performance indicators, and all the added value has been discussed.

Stage 4: Execution

In this phase, both the client and the supplier need to stick to the BVP method and
maintain the main ingredients of transparency, accountability, and measuring performance.

 Best Value Procurement process

Best Value Procurement: the cultural shift towards Agile Procurement 4.0.

Some elements of this method are highly appealing:
  • the entire process is based on transparency and trust in suppliers;
  • it enables partnership from the earliest stages of the supplier selection;
  • the key personnel of suppliers involved in the selection stage, so later on, the risks of undue handover of a sales pitch to the actual implementation team will be minimized;
  • the supplier selection was conducted not to achieve savings but to minimize the chances of the project failure by choosing the most capable (not the cheapest!) supplier;
  • suppliers compete by capabilities and value. 
The last illustration shows what the Procurement 4.0 professionals need to demand from their suppliers - THE VALUE! 
Best Value Procurement deliverables and opportunities
Whenever procurement hunts for savings, a supplier must sacrifice a portion of their inner realm—the scope and deliverables—or subject successful project execution to additional risks by manipulating the project's key ingredients—timelines, resources, assumptions, etc.

In fact, procurement 4.0 should facilitate constructive relationships with a preferred supplier, de-risk the project delivery, and achieve value beyond the mandatory project scope.

This is the true nature of agile procurement: partnership, risk awareness, and value delivery.

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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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