The Arizona State University Case Study

21 Mar The Arizona State University Case Study

Date of Work: 2006 – 2013

Background:

Ray Jensen, the Associate Vice President for University Business Services at Arizona State University, was introduced to the PIPS process in 1996. At the time Ray Jensen and ASU decided that their process would not benefit from the PIPS at the time. Ray Jensen explains that the reason for this was because they felt that, “many of the ideas were intuitive and we were doing them in our own way.” In 2006, Ray Jensen and John Riley, the ASU Executive Director of Purchasing and Business Services, were given an update briefing of the PIPS and the updates and modifications that had occurred in the last ten years. Soon after, ASU decided to start testing the PIPS. The first service that was tested was a small Information Communication Technology Software project. The project ended up going well, and ASU soon decided to implement the PIPS on a $400M, ten year, Dining Service contract. Both of the projects saw amazing benefits and efficiencies due to the PIPS. The University then began testing the PIPS on multiple ICT projects and a wide variety of services.

Ray Jensen later concluded that the Best Value PIPS:

1. Provides a better mechanism to select the supplier that is best positioned to perform successfully.
2. Reduces the need for the development of overly detailed scopes of work that actually transfer risk and responsibility to the owner.
3. Requires a more thoughtful response from the supplier community.
4. Transfers the decision making and risk to the contractor.
5. Provides a more efficient approach to contract management, something they were not very successful at doing.

PIPS Performance:

The following is a list of the Best Value Projects that ASU has performed:

1. Financial Software
2. Dining Services
3. ASU Public Relations
4. Student Recreation Complex Equipment and Maintenance.
5. Information Technology Networking
6. Furniture
7. Digital Document Services
8. Bookstore
9. On-line course Delivery Services
10. Help Desk Services
11. Television Services

ASU implemented 10 projects over the course of six years. Table 15.25 shows the value and satisfaction of the services performed.

Criteria	PIRMS Results
Estimated Dollars Awarded	$153,862,589
# of Projects	10
# of Projects In Progress	8
# of Projects Completed	2
# of Close Out Surveys	6
PBSRG Close Out Rating	9.3 out of 10

Table 15.25: ASU Six Years Results

The 10 projects created a $114.5M return to the University annually in savings and increased value of services. When projected over the ten year period that equates to over a $1B savings and increased value of services (Table 15.26). The only service that did not create any cost savings or increased value to the University was the financial software project they performed. The furniture project was believed to have created savings; however, not enough information was available to verify the exact amount. 

#	Project	Annual Savings and Value Added Estimate	10 Year Savings and Value Added Estimate
1	Information Technology Network	$       2,963,868.00	$        29,638,680.00
2	Help Desk	$          414,000.00	$          4,140,000.00
3	Dining Services	$       3,254,507.70	$        32,545,077.00
4	Bookstore Services	$       2,900,000.00	$        29,000,000.00
5	Document Services	$          500,000.00	$          5,000,000.00
6	Public Relations	$       2,700,000.00	$        27,000,000.00
7	Television Services	$       1,771,828.00	$        17,718,280.00
8	On-Line Education	$   100,000,000.00	$   1,000,000,000.00
9	All Services	$   114,504,203.70	$   1,145,042,037.00

Table 15.26: ASU Project Estimated Savings Results

Included are two of the landmark projects in PIPS which was accomplished at ASU: (1) Dining Contract and (2) IT Networking.

ASU Dining Contract

The ASU food services contract has become one of the most challenging contracts at ASU due to the economic times.  Results and lessons learned from the food services contract include:

1. The best value PIPS contract changed the operations of the food services industry.
2. The transfer of accountability to the vendor maximized the value to the university.
3. ASU received a best value contract that far superseded any other food services contract to a university in the United States. 
4. Vendors are not used to simple, transparent contracts that use dominant financial terms and risk management. 
5. The fear of accountability results in relationships and decision making which causes transactions.
6. As the university enters tenuous times, the food services vendor becomes a real partner with the university.  
7. It is difficult to maintain transparency without dominant performance information. 

Dining Project Description

The ASU food services contract was the largest university food service contract in the US.  It is estimated at $400 million over a potential ten year contract.  The contract is to service 65,000+ university students, faculty, and staff.  The incumbent vendor had been contracted with the university for the past fifty years.

Dining Contract PIPS Results

Table 15.27 presents the incumbent vendor’s 2006-2007 fiscal year performance in comparison to the new vendor’s 2007-2008 fiscal year performance.  The data shows that the revenues generated by the new vendor increased by 12 percent ($3.35 M), the total return and commissions to the university increased by 23 percent ($0.5 M), and the student satisfaction increased by 37 percent, all while the university’s administrative efforts decreased by 79 percent.  Also, it is important to note that ASU did not have well tracked incumbent performance data, so the table below has adjusted data to allow a direct comparison of the available incumbent data to the new contract data

		FY 06-07 Incumbent	FY 07-08 New Vendor	Difference	% Difference
#	Category
1	Total Revenue ($M)	$27.02	$30.37	$3.35	12%
2	Total Return & Commissions ($M)	$2.17	$2.67	$0.50	23%
3	Capital Investment ($M)	$14.75	$30.83	$16.08	109%
4	Capital Investment ‘06 vs. ‘07 ($M)	$0.26	$5.70	$5.44	2092%
5	ASU Administration (# of People)	7	1.5	-5.5	-79%
6	Student Satisfaction (1-10)	5.2	7.1	1.9	37%
7	Mystery Shopper Satisfaction (1-10)	NA	9.6	–	–

Table 15.27: Incumbent vs. Current Vendor Financial Performance Comparison

Due to slight issues with the initial contract such as inaccurate meal plan counts and uncontrollable risks (Main dining hall fire) which occurred, a new approach was required. As a result of these challenges faced in year one of the contract, an amendment was generated.  The amendment addressed all of the glitches encountered in year one of the contract.  Details of the amendment are outlined in Table 15.28. 

Item	Original Contract	New Contract	% Difference
Number of Years	10	16	60%
Number of Campuses	1	4	300%
Projected # of Students	60,000	100,000	67%
Revenue ($M)	$677.00	$ 1,470.00	117%
Capital Investment ($M)	$31.10	$36.20	16%
Min. Commissions ($M)	$39.50	$ 88.20	123%
Min. Commissions/year ($M)	$3.95	$5.51	39%

Table 15.28: New Contract Details

Testimonial: “The Best Value method literally took us through the process [of procuring the dining service contract] much more rapidly than we ever have done in the past. We’re talking weeks to do things that took months, and a couple months to do things that sometimes would’ve taken up to a year… I’m very grateful for the work that we’re doing with Dr. Kashiwagi and the PBSRG.” – Ray Jensen, Associate Vice President of Business Services

Related Presentation – Risk Management of a Best Value Vendor – Fire breaks out in campus community/dining center

ASU Networking Contract

The ASU IT network is one of the largest university networks in the United States, consisting of:

1. 64,000 Students and 12,000 Faculty.
2. 4 Different Campuses.
3. Estimated Cost: $12.9.
4. Number of UTO/IT employees: 18 Full-time employees, 8 Students, 3 Contract technicians.

Arizona State University (ASU) decided to utilize the best value PIPS in 2008 to procure IT Networking maintenance services.  The head of ASU University Technology Office (UTO) had a difficult time getting information from his own staff.  The following was transpiring:

1. He had been trying for two years to define what the IT networking services included in terms of requirement and resources, and had not been successful.
2. He requested from his staff a vision of what it would take to transform the antiquated system to a system deserving of a Level 1 research institution.
3. He received no proposals.  Answers he received included, “No one has all the information.”  “No one can control the system.”  “No one has enough control over the network.”  “The problem is too complex.”

After the selection of the best value vendor, Century Link, through the PIPS process, provided incredible performance. The entire system was measured.  The vendor not only was providing every critical measurement that was requested, but also measuring against other major universities to ensure cutting edge IT Networking services; the UTO Director could not believe the results.

However, less than a year later, the senior management of ASU/UTO separated from ASU.  The new management was more MDC oriented.  As time moved on, the vendor was told to stop the constant use of metrics.  However, PBSRG, the Best Value expert, instructed the vendor to continue to keep and post their metrics internally.  At the same time, the ASU Director of Procurement was promoted to the Senior Business Manager position, and ASU hired a new director of Procurement. 

IT Networking Test for the Best Value Vendor

By 2013 both the ASU procurement office and the UTO group were questioning the performance of the BV IT vendor.  They proposed that the contract would not be renewed in 2013, and the contract should be re-competed.  The following reasons for non-performance were given:

1. There were too many outages and the vendor was the reason for the outages.
2. The BV vendor was overcharging for services.
3. The BV vendor was not billing accurately. 
4. The ASU users of the IT networking were dissatisfied.
5. The UTO office had to use MDC [2012-2013] to keep the service acceptable.
6. The BV vendor was not acting like an expert vendor in keeping ASU in the forefront of technology.  They were viewed as reactive and not moving ASU to the latest technology. 

The level of the degree of disagreement on the performance of the vendor was so high that the differences seemed irreconcilable.  PBSRG recommended that the contract would have to be competed again.  PBSRG proposed that this was not only in the best interest of ASU/UTO [who felt they were being cheated] but in the best interest of the vendor who thought they were delivering high performance services. 

PBSRG proposed to the ASU Procurement Office and the ASU UTO office that the performance metrics should be used to resolve any disagreements of performance.  Everyone agreed and the vendor presented their performance metrics in the fall of 2013 (see Tables 15.29 and 15.30). The metrics were so dominant; it changed ASU/UTO’s position.  They dropped their request to re-compete the service, and wanted to renew the contract with the BV vendor.

Before CL	CL (2010) Signing Agreement	CL (2013) 3rd year Performance
Business Costs
MSA Baseline	$12.29M	$10.81M	$11.96M
Growth – Out of Scope	N/A	N/A	$1.15M
Value Add	N/A	$0.43M/yr	$0.98M/yr
Net MSA	$12.29M	$10.38M	$9.83M
Reliability and Satisfaction
# of Major Outages	N/K	37	11
% Uptime	99.802	99.989	99.998
Customer Satisfaction (max 4.0)	3.6	3.71	3.81
% of Tickets within SLA	0.94	0.97	0.97
Technology
% Network supported (Not at end-of-maintenance)	0.89	0.99	0.99
% 1Gb- Wired Connections	0.57	0.715	0.96
% Wireless(n)	0.09	0.087	0.926
IT Spending Ratio (New vs. Maintenance)	6/94	26/74	56/44

Table 15.29: Century Link Best Value Performance

Before CL	CL 3rd year results
Manual KPI tracking	On-line KPI tracking
Informal Change Management	Formal Change Management Process
Manual Project Tracking	Sharepoint
Single level of Engineering Review	Multiple levels of Engineering Review
No Redundancy Testing	Bi-annual testing

Table 15.30: Other CL Improved Services

REFERENCE: Ray Jensen, Associate VP of Business Services | Ray.Jensen@asu.edu | 480-965-5282