Performance indicators in the Best Value approach: proposed process for developing and using performance indicators for infrastructural projects approached with Best Value

Horstman, A. (2013) Performance indicators in the Best Value approach: proposed process for developing and using performance indicators for infrastructural projects approached with Best Value.

Abstract:The construction industry is evolving. The traditional focus on lowest price is no longer sufficient, because this leads to an adverse relation between client and contractor and to a low profitability for the contractor. Best Value is an emerging method where the focus is not on lowest price, but on the best price-value ratio. It is a procurement, project management, and risk management approach, based on the concepts of win-win, less management, direction and control, and transparency. The approach consists of three phases: selection, clarification, and execution. The goal of the selection phase is to select the expert contractor with a high value for a low price. While traditional procurement is based on comprehensive tenders, the Best Value approach requires suppliers to deliver three two-page submittals, namely a project capability submittal, risk assessment plan, and a value-added plan. After that, interviews are held with key personnel of the suppliers, to find out whether they can manage the project and identify risks upfront. In both the submittals and the interviews, suppliers can use verifiable performance information to support their claims in a short and clear way. Moreover, they can propose performance indicators for the execution phase, in order to show how they measure the claims during the project. The selection phase ends with a prioritised list of suppliers. The submittals and interviews count for 75% and the price for only 25%. The best-prioritised supplier proceeds to the pre-award clarification phase. In this phase, the prospective contractor pre-plans the project, aligns the expectations with the client, develops risk mitigation measures for all project risks, and develops a set of performance indicators, if not done in the selection phase. When the clarification phase is run successfully by the prospective contractor, the contract is awarded. During the execution phase, no management, direction and control has to be used by the client, since the selected contractor is the expert. To keep the client updated, the contractor has to send a Weekly Risk Report to the client each week. The performance indicators, as determined in the clarification phase and as measured by the contractor, are communicated by means of this report. If needed, risk mitigation measures have to be developed. The indicators provide transparency about the performance on project goals, about the allocation of risks, and they are the base of learning and improvement for both client and contractor. The performance information can be used by the contractor in a next tender. From the perspective of the Information Measurement Theory, the theory behind the Best Value approach, performance indicators are a form of so-called dominant information: they are non-disputable, verifiable, and accurate. They mitigate risk by transparency and enable experts to explain complex situations in a simple way to non-experts. From the perspective of New Institutional Economics, performance indicators in Best Value projects reduce uncertainty, take bounded rationality into account, and reduce the tendency to opportunistic behaviour. Rijkswaterstaat, the executive body of the Dutch Ministry of Infrastructure and the Environment, uses Best Value since 2010, when it was used to approach 16 road-widening projects of the Spoedaanpak programme. Because these pilot projects were a success, Rijkswaterstaat decided to implement Best Value in other projects. Performance indicators were not used in the first projects, but contractors are now obliged to develop and use performance indicators. However, Rijkswaterstaat and the contractors find it hard to develop and use performance indicators. To find out what problems are encountered, interviews are held with project team members of both Rijkswaterstaat and contractors. The encountered problems relate to (1) the introduction of performance indicators, (2) the awareness of both client and contractor of the goals of measuring causing a lack of motivation, (3) the lack of knowledge regarding the development and use, and (4) the availability of data and benchmarks. Furthermore, a quantitative analysis showed that more than 98% of risks in earlier Best Value projects are owned by the client, while most projects interviewed mainly measure the contractor. This research focuses on the lack of knowledge regarding the development and use, because most problems related to this subject. First, theory on performance indicators in general, but especially in the construction sector is studied. This study shows that there is a wide range of performance indicators and characteristics for indicators. An analysis on these performance indicators and characteristics led to a set of characteristics for the development and use of performance indicators that is useful in Rijkswaterstaat’s Best Value projects.
Item Type:Essay (Master)
Rijkswaterstaat, the Netherlands
Faculty:ET: Engineering Technology
Subject:56 civil engineering
Programme:Civil Engineering and Management MSc (60026)
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