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December 3, 2012 -
Today’s tip is to transfer all risk and control to the contractor in outsourcing situations. If you’ve done your due diligence, the vendor you've hired is the expert in the situation — not you.
"An expert has no technical risk," says Dean Kashiwagi, PhD, PE, professor and director of the Performance Based Studies Research Group at Arizona State University. "His only risk is others coming in to try to control him."
The ideal project scenario involves facility managers explaining what they want and the vendor letting them know what they can get, Kashiwagi says. The key is working with a contractor selected for their expertise and the value they can deliver, not the cost savings a facility manager can wring out of the contract.
In the first phase of the selection process, you assume all vendors are experts and take their performance claims at face value. Then you ask questions and verify all claims that were made, Kashiwagi says.
"Ask the vendor how they know they can do it," he says. "They'll know deviation in cost. They'll know deviation in performance. They will have self-evaluated." The vendor needs to measure their own people and operations, not the customer.
Once you have winnowed the choices down, let the contractor do what they need to do. This includes making them write the contract — pushing the risk back to them, because their lawyers won’t promise something they can't deliver on.
Cost does come into the equation, but it shouldn't be the primary deciding factor. "We're not looking to pay more, but if we're paying more we want hard evidence that it's due to valid factors," Kashiwagi says.
Remember that risk drives up cost. One strategy to use in pursuing value-based instead of price-based decision making is to talk with a desirable vendor who might be too expensive and find out what risk factors influenced their bid. Mitigate the ones you can and have them rebid.
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