14 Apr The Vendor Centric Approach to Delivering Projects
*This is a summary and analysis of the following publication. For full references and research details, please see original publication.
Harare, J., Kashiwagi, J., & Kashiwagi, J. (2020). Development of the Use of Performance Information. Journal for the Advancement of Performance Information and Value, 12(2), 11-11.
The Traditional Construction Industry is Client Centric
The current industry is based on a structure of technical professionals who manage, direct, and control the supply chain. The approach relies on various professionals such as architects, engineers, quantity surveyors, purchasing agents and project managers to mitigate risk through setting minimum standards and requirements. Professionals identify minimum standards throughout the supply chain to determine what type and quality of materials can be used, the design specifications, and the qualifications needed from a contractor to be hired. Within this structure, contractors and manufacturers are not liable for nonperformance if the minimum standards were followed. Similarly, professionals are not liable for nonperformance as long as they meet the industry processes which have been setup by other experienced professionals.
The industry is client centric because company operations assume in-house professionals are the experts not the contractors or manufacturers. When clients consider themselves the experts, contractors are selected based on the lowest cost which meets the professionals’ minimum specifications. As contractors aim to increase their profits and stay competitive, the minimum specification approach motivates contractors and manufacturers to lower their quality and minimize their costs.
Contractors are not motivated to be proactive or improve their expertise; rather they are motivated to be reactive to the client and rely on the client’s expertise. This moves the responsibility of performance from the expert contractor/manufacturer to the client’s professional representatives who set the minimum standards. The client’s professionals now have the responsibility to mitigate risk of not finishing on time, on budget and meeting quality expectations through the management and direction of the contractors.
The Vendor Centric Approach: The Solution to Nonperformance
The client centric approach has been identified to have many flaws; the most evident being its inefficiency and inability to deliver high performance. The second flaw is that the standards and specifications set by professionals are rarely based on performance information [e.g., in-field testing]; rather they are based on the professional’s personal decision making based on their expertise. In the paper cited above, Kashiwagi identifies that a change in paradigm is needed. This change treats contractors and manufacturers as the experts instead of client representatives. This requires clients and contactors to question the status quo. For instance, they must question the assumption that the professionals could deliver construction better than an expert contractor. The vendor centric approach moves the client’s role to a non-technical role which identifies, collects, and utilizes performance information.
The Research Focus
The Performance Based Studies Research Group has been applying a vendor centric approach to projects by using the Best Value Approach (BVA). The publication cited above reviewed the case studies and projects which have applied the BVA to determine difficulties which have arisen and conclusions which can be made.
Research Findings and Analysis
The research study focused included (1) United States Air Force (USAF) study (2) overall performance review of the performance base studies research group and (3) Five longitudinal studies from major clients.
The USAF study investigated the performance of a sprayed polyurethan roofying system. The USAF structural engineer and roofing program engineer had already identified that the SPF roof system did not perform and was not recommended on USAF facilities. A database of 1125 SPF roofs was collected, and 247 roofs inspected. The results identified 97% of the owners were satisfied and 94% of the roofs were in excellent condition. As the information was given to the USAF, the researcher immediately faced resistance both legal and political. It was later identified that the results of the study conflicted with USAF policy and standards created by their professionals [engineers, consultants]. The policy and standards created by the USAF professionals were not based on performance information, rather they were based on the professional’s technical expertise and decision making. Despite the valuable information, the research results were not used because professionals resisted the performance information and found it threatening. The study concluded:
- Professionals will resist the change from a client centric to an expert vendor centric environment despite research tests identifying their decision making, management and control as the greatest source of risk.
PBSRG’s profile was then examined to determine impact when applying a vendor centric model. Over the past 26 years, PBSRG has worked on over 2,000 projects valuing $6.6 billion dollars in over 10 countries and various industries including construction, IT and services. The study concluded:
- When placing the vendor as the lead, the project performance improves to 98% client satisfaction, minimized cost [5 – 50%], and minimized contractor time and cost deviation to less than 1%. The results of a majority of the projects have already been published through 350 refereed journal papers, conference publications and books.
The paper also examined five longitudinal studies done with the State of Oklahoma. US Army Medical Command, State of Minnesota, the Rijkswaterstaat (a Dutch government agency), and conglomerate of high performing roofing contractors. The five studies showed:
- Over 90% of all project deviations were caused by the client’s professionals decision making. The risk caused by the contractor was less than 1%.
- Contractor performance information is not the responsibility of the clients or the construction industry. Contractor performance information should come from the contractors and the information should be aligned with the specified project to demonstrate project expertise.
The research results provide compelling evidence that high performing companies are vendor centric not client centric. The entire industry may not be ready for such a shift in paradigm as the professional groups have a difficult time shifting paradigms and are often threatened by the changes required. Professionals are now tasked with the responsibility to shift their role from a technical focus to a nontechnical focus which utilizes performance information and the expertise of its contractor and manufacturer groups. In the same sense, contractors must now take their role as an expert which requires them to understand how to use performance information to identify themselves as experts before and after a project.