benefits funded procurements - a more complete perspective - … · 2014. 6. 13. · agenda •...

FTA Annual Mee+ng • June 8 – 11, 2014

Agenda

•  Benefits Based Procurements – What, Why, What It Is NOT

•  Es3ma3ng Benefits •  Benefit Model – Baselines, Measurements, and Payments

•  RFP Considera3ons – Terms and Condi:ons

•  Key Success Factors

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Benefits Based Procurements


What It Is

•  A financing approach that pays for a project based upon ROI –  Vendor finances the procurement

•  A partnership between agency and vendor •  Can be fully or par3ally funded by benefits •  “Benefits” are defined as addi3onal revenues that are a

result of the product and/or services –  Measured by comparing a historical “baseline” to actual revenue

aFer the solu:on is implemented and/or services are performed •  Cost savings may also be measured as a benefit •  Vendor paid a percentage of measurable benefits •  Benefits payments typically capped at the fixed price bid

amount

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Why Use It?

•  Enables an agency to proceed in spite of funding and/or budget issues –  It may be the only way an agency can procure new capabili:es

•  It avoids extended delays pending budget appropria3ons –  Time is money -‐ delays are lost revenue opportuni:es

•  Transfers funding risk to the vendor –  Don’t pay unless results are achieved

•  In many states it provides contrac3ng flexibility –  An agency can expand scope if addi:onal revenue opportuni:es exist

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However, it is NOT

•  a “free” system •  a success if benefits are achieved but the system is a failure

•  a viable op3on if poten3al benefits are not sufficient to cover the cost of the project

•  a success if both par3es are not focused on working together to achieve each others’ objec3ves

•  a guarantee that the system implementa3on will be successful


Three keys to success -‐ Partnership, Partnership, Partnership

•  A partnership with mutual and interdependent objec3ves and outcomes

•  Each party has an obliga3on to assist the other achieve the objec3ves –  the agency successfully acquires new technology and services –  the vendor is fully paid for successfully delivering the technology and

services •  Benefits realiza3on takes both par3es

–  the vendor provides new/more efficient capabili:es –  the agency follows through by implemen:ng and resourcing new

programs –  neither party can do it independently


Success for one should be success for both

Know what you’re geXng in to 8

•  Cost of the system will be higher –  Cost of Capital -‐ The longer the an:cipated payment period, the more

interest cost built into the price –  Risk Premium -‐ The more vendor risk, the higher the risk fee

•  More work –  Benefits measurement, categoriza:on, tracking, and repor:ng –  Staffing benefits projects in addi:on to project work –  Repor:ng and dealing with external oversight and other factors (economic

changes, legisla:on, external audits, etc.) •  Can be a major project management distrac3on from

implemen3ng the integrated tax system •  It may limit the number of vendors par3cipa3ng in the

procurement


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Es3ma3ng Benefits


Benefits Es3mates •  Es3ma3ng poten3al benefits needs to be a joint effort •  Avoid a guessing game; both par3es gain from working together to

accurately project benefits •  Benefits projec3ons are es3mates

–  Not reasonable to expect absolute precision –  Timing of benefits realiza:on difficult to predict and control

•  The economy, budgetary environment, and compliance issues will change during life of the project. So will the benefits opportuni3es. –  Some benefits streams will be smaller; some will be more; some will be new –  Flexibility required to accommodate events that impact revenues but are not

foreseeable or controllable •  Benefits es3mates are a means to support the business case

–  Avoid using higher projec:ons as a scoring criteria

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How to develop es3mates

•  Access to historical revenue and performance data •  Allow vendor Due Diligence phase

•  Provide agency insights about known and expected revenue streams, legacy system limita:ons, etc.

•  On-‐site review of opera:ons and access to relevant agency staff •  Iden:fy poten:al revenue opportuni:es and likelihood of collec:ng amounts assessed

•  Iden:fy poten:al risks •  Future state or agency plans that may impact revenue benefits

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Vendor/agency coopera:on is cri:cal to es:ma:ng the amount and 3ming of the poten3al revenue benefits, the level of effort to achieve them, and to preliminarily define poten3al baselines


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The Model – Baselines, Measurements, and Payments


Baselines

•  Based on historical revenue and performance trends •  Not possible to account for every poten3al excep3on or

outlier •  If you want to baseline it, it needs to be measurable

–  i.e., voluntary compliance is not reliably measurable •  Keep it simple – fewer baselines and less complexity •  Avoid narrow baselines that require alloca3ng benefits

between func3ons –  i.e. Are increased collec:ons the result of improved audit selec:on, enhanced collec:on capabili:es, or both

•  It is a joint and coopera3ve effort

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Benefits Measurement and Repor3ng Process

•  Calculate revenue benefits –  Compila:on results, compare to baseline, verify

•  Determine the measurement period, monthly vs. quarterly •  Define events and milestones that trigger coun3ng benefits

–  Comple:on of a specific release, i.e. quick wins, sales tax rollout, personal income tax rollout, etc.

–  Acceptance of a deliverable that has corresponding revenue impact

•  Establish the benefits fund –  Benefits and invoices don’t usually match in a given period –  Account for benefits/invoices pending payments

•  Usually requires dedicated staff during the project •  It is a joint and coopera3ve effort

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Vendor Payments

RFP must specify: •  Reasonable sharing percentage –  Typically 75% -‐ 90% (to the vendor) –  Earlier payments = lower cost

•  Payments con3ngent upon acceptance of reasonable number of deliverables

•  Provisions for periods for which the benefits do not exceed the baseline

•  How long will benefits be measured –  Sufficient for vendor to reasonably expect to get paid –  Allow for new programs to reach peak revenue levels

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RFP Considera3ons


Terms and Condi3ons

•  Many standard T’s and C’s aren’t applicable –  Retainage –  Performance bonds –  Liquidated damages –  Liability –  Replacement/excess costs

•  These items covered due to nature of benefits contract •  They only increase risk to the vendor and further delay

payments = higher costs •  Mandated use of legacy tools/systems

–  Avoid increasing risk and uncertainty by having a por:on of revenue benefits dependent upon products or services that are outside the control of the vendor

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Key Success Factors

Key Success Factors

•  It is a partnership…. both par3es need to succeed –  Be prepared and commihed to working together to achieve benefits

•  Keep it simple… limited number of baselines, simple math

•  Make the model flexible… things will change; allow for it

•  Recognize the reali3es –  Higher costs, more work, increased oversight

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Closing Thoughts

•  The focus must be the new system….the benefits are just the way to pay for it

•  The primary project challenge is the system implementa3on….do not lose sight of that

•  Make decisions that put the success of the system implementa3on first

•  If the system implementa3on is a success, the benefits realiza3on will be a success


There are mul3ple projects that achieved or exceeded benefits projec3ons but the system implementa3on was not successful and/or canceled

Contact Informa3on


Joseph Milack [email protected] 480 209-‐3498

benefits funded procurements - a more complete perspective - … · 2014. 6. 13. · agenda •...

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