output specifications, cognitive biases, and you€¦ · partnering to modernize real estate and...

Partnering to modernize real estate and infrastructure 1

Output Specifications, Cognitive Biases, and YouRob Pattison BA, JD Senior Vice President, Light Rail Transit2nd Telfer School of Management SeminarAdvances in Complex Project Leadership: Setting Conditions for Project Success in a Complex EnvironmentOttawa, Ontario, Canada May 8, 2018


Infrastructure Ontario (IO)

▶ Agency of the Ontario government responsible for building, managing, financing, and enhancing the value of Ontario public assets

▶ Provides a range of services that support the Ontario government’s initiatives to modernize and maximize the value of public infrastructure and realty

▶ Upholds Ontario’s commitment to renew public services, in partnership with the private sector


AFP project status

Since 2005, Infrastructure Ontario has been assigned 116 Alternative Financing and Procurement (AFP) projects worth more than $53 billion

(as of September 30, 2017)

AFP projects Number Capital cost

Completed 60 $19.5 billion

Under construction 21 $15.8 billion

In procurement 20 $10.6 billion

Planning or pre-tender 15 $ 7.8 billion

Total 116 $53.7 billion


Transparency

▶ A collection of industry and academic reports on infrastructure, AFP, and public policy is available on IO’s website


Traditional approach to capital projects

Using the traditional project delivery model, the project sponsor enters into individual contracts at each stage of the project and retains much of the project risk

SPONSOR

CONTRACTORConstruction Contract

Warranties

OPERATOR Operating Agreement

Annual CapitalMaintenance Program

PUBLIC SECTORBORROWING

Borrowing Reserves

PROJECT MANAGER

DESIGNERDesign Contract


DBF(O)M approach to capital projects

Using the AFP model, the project sponsor enters into one contract with a project consortium (ProjectCo), which delivers the project and manages the project risk in accordance with the sponsor’s specifications

SPONSOR

INFRASTRUCTURE ONTARIO

PROJECT CO.

DESIGNERDesign Contract

CONTRACTORConstruction ContractWarranties

FINANCIERBorrowing Reserves

OPERATOROperating Agreement

Annual Capital Maintenance Program


A risk transfer tool, not a funding source!

The role of financing in DBF(O)M


DBFM payment structure

Sculpted life cycle payments

Fixed debt and equity payments

Construction Phase (~3-5 years)• Design/construction by ProjectCo• Construction financing

Monthly Service Payments (MSPs)

Sub

stan

tial

Co

mp

leti

on

Sub

. C

om

p. P

aym

en

t

Concession Term (30 years)• Maintenance/Services by Project Co • Payments to Project Co covering debt service; equity

distributions; maintenance/service*; life cycle payments** Components of the MSP that would be inflation indexed

O&M


IO conducts a value-for-money (VFM) analysis to determine which project delivery method provides the greatest cost savings to the public sector

▶ VFM analysis compares the estimated costs of delivering a project using:

• traditional delivery (known as the Public Sector Comparator); and

• the AFP model

▶ VFM is achieved if the costs of the AFP procurement model are more than offset by the transfer of project risk to the private sector

PublicSector

Comparator

AFPProcurement

Risk Retained

Risk Premium

Ancillary Cost

Financing Cost

Base Cost

Value for money


Eglinton Crosstown LRT


Eglinton Crosstown LRT: Project scope

Length: 19 kilometres (10 kilometre tunnel section, 15 underground stations and 10 surface stops)

Route: Eglinton Ave. from Mount Dennis (Weston Road) to Kennedy Station;

TTC Subway Connections: Cedarvale (Eglinton West), Yonge/Eglinton and Kennedy Stations.

GO Train Connections: Mount Dennis (to Kitchener), Caledonia (to Barrie) and Kennedy (to Stouffville).

DBFM project scope includes the design and construction of :▶ Track work▶ Stations, stops and plazas▶ Systems▶ Maintenance and storage facility at Black Creek

DBFM Scope excludes:

▶ Operations: LRV operation, security & revenue control, vehicle dispatch and customer service by TTC under contract to Metrolinx

▶ Enabling Works:– Tunnels, headwalls, and emergency exits – Bombardier Light Rail Vehicle supply – Some early utility relocations

Maintenance (including vehicles and tunnels supplied by others): Project Co.


▶ Third party

• City

• TTC

• Community

▶ Interfaces

• Vehicles

• Tunnels

▶ Utilities

▶ Enviro

▶ Geotech/hydr0

▶ Land

▶ Round-trip travel time

▶ Cost estimate

▶ Permits and approvals

Eglinton Crosstown LRT: Project characteristics and risks


Reference concept design (RCD)

▶ Also referred to as Indicative Design or Exemplar Design

▶ A Reference Concept Design is typically provided as background information (not contractually binding)

▶ A Reference Concept Design is used to:

• Acts as proof of concept for OS compared to existing constraints

• Provide one example of a compliant building layout that complies with OS

• Proponents not limited to the Reference Concept Design, provided that their design meets OS objectives

• Provides a benchmark scheme for setting project budget

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▶ “The maximum vehicle weight shall be X kg”

• Question: Why is the maximum vehicle weight required?

▶ Traditional Model: Specify maximum weight to ensure good performance, reduce energy requirements, and reduce maintenance on wheels and rail

▶ Not required under DBFM model since:

• The selected criteria (vehicle weight) may constrain other more relevant criteria (axle weight, live loads, etc.)

• Performance requirements are specified

• ProjectCo is responsible for supporting structures

• ProjectCo is maintaining the wheels and rail, and will determine during in-market period what solution delivers the lowest whole-life costs

Output specification perscriptiveness: Discussion


• Third-party requirements which cannot be negotiated out (e.g., utility standards and physical and operational limits on utility relocation)

• Binding legal requirements (e.g., statutes, regulations, by-laws)

• Inter-operability requirements (e.g., compatibility with Bombardier LRVs)

• Geometrical constraints (e.g., location of tunnel, limitations on available real estate)

• Temporal constraints (e.g., after-acquired property, after-acquired permits, licenses, and approvals)

• Fear and Insecurity

Output specification: What drives prescriptiveness?

15


Output specification: “Do’s”

▶ Define performance requirements:

• Rider throughput

• ambient temperature, light, humidity

• noise, dust, vibration

• Constraints:

• Physical (LRVs, track, and systems must fit within tunnel);

• Temporal (no contemporaneous lane closures for construction at adjacent stations)

▶ Manage stakeholder expectations:

• The final design may vary from what they have been shown


Output specification: “Don’ts”

▶ Don’t use phrases such as “should”

▶ Don’t specify cheaper equipment or materials to save money: within overall price, each Bidder will spend $ on X to save $ on Y

▶ Don’t include measurement or payment clauses

▶ Don’t repeat applicable code and standard requirements

▶ Don’t prescribe, types, makes, models, software, or hardware unless they are essential to project objectives, interfaces, or commitments to outside agencies

▶ Don’t specify means, methods or materials

▶ Don’t specify a requirement in order to meet an intent: make the intent the requirement!


Room data sheets

▶ Room data sheets are a an excellent way to specify minimum requirements

▶ However, care must be made to not accidentally make the Output Specification more prescriptive by using standard Room Data Sheets


I am Wrong 55 to 60% of the Time


Information theory: Signal vs. noise

Information Source Transmitter

Message

Signal Received Signal

Receiver Destination

Noise Source

Message

Gleick, James The Information: a History, a Theory, a Flood. New York: Vintage Books, 2012. Print.


Actions and Information: Information theory perspective

Hartley Information

H = log Sn = n log S,

Shannon Entropy


Noise: Cognitive biases, ego and expertise

Anchoring

Ambiguity effect

Availability heuristic

Confirmation bias

Fundamental attribution error

Hindsight bias

Illusion of control

In-Group bias

Negativity bias

Not-invented-here syndrome

Optimism bias

Outcome bias

Planning fallacy

Self-serving bias

Social proof

System justification

Unconscious Gender Bias

Etc.


Apples are:

a) Red

b) Sweet

c) Round

d) Fruit

Mental models


▶ Frigaliment Importing Co. v. B.N.S. International Sales Corp., 190 F.Supp. 116 (S.D.N.Y. 1960)

What’s a chicken?


Request for Information (RFI)


Output spec tensions

Project Specific Output Specifications (OS)

Program Requirements

and Desires

Geotechnical and Subsurface Constraints

Utility Protection and Relocation

Property Identification and Acquisition

Regulatory Compliance

Transportation Issues

Public (Residential and Business) Concerns

Inter-Operability Issues


Misalignment of Owner’s objectives and output specs

Owner’s

Objectives

OutputSpec


Game theory perspective on output specs

PAPI:

▶ Players

▶ Actions and Information available to each player

▶ Payoffs for each outcomeEric Rasmusen (2007). Games and Information, 4th ed., cited by Wikipedia contributors. "Game theory." Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 8 Apr. 2016. Web. 13 Apr. 2016.

Components

of DBFM

Project Game

Proponents

Players Owner Bidder 1 Bidder 2 Bidder 3

Payoffs Powner @ B1, B2 or B3 PBidder 1 PBidder 2 PBidder 3

Actions Aowner @ B1, B2 or B3 ABidder 1 ABidder 2 ABidder 3

Information Iowner @ B1, B2 or B3 IBidder 1 IBidder 2 IBidder 3


Payoffs: NPV gearing

Total NPV Score Proponent A = 450 – [(NPV Proponent A / NPV Lowest – 1) * 30 *100]

Total Points Available:

• 500 Technical

• 500 Financial

• 1000 Total


Payoffs: You get what you pay for


Payoffs: Best PO requires “innovation”

▶ (PO/$ @ DBFM Innovation) > (PO/$ @ Traditional Delivery)


Proponent gaming opportunity

Owner’s Objectives

OS Require-ment

Conforming Proposal


GF

Godel’s Incompleteness Theorem


Cognitive Biases and Professional Responsibility


Professional Engineers of Ontario code of ethics

1. It is the duty of a practitioner to the public, to the practitioner’s employer, to the practitioner’s clients, to other members of the practitioner’s profession, and to the practitioner to act at all times with,

i. …ii. fidelity to public needs, iii. devotion to high ideals of personal honour and professional integrity, iv. knowledge of developments in the area of professional engineering relevant to any services

that are undertaken, and v. competence in the performance of any professional engineering services that are undertaken.

3. A practitioner shall act in professional engineering matters for the practitioner’s employer as a faithful agent ...

6. A practitioner must co-operate in working with other professionals engaged on a project.

7. A practitioner shall, i. act towards other practitioners with courtesy and good faith,


▶ Influence and Persuasion - Robert Cialdini

▶ The Organized Mind - Daniel J. Levitan

▶ Moneyball and The Big Short – Michael Lewis

▶ Thinking, Fast and Slow – Daniel Kahneman

▶ The Information: A History, a Theory, a Flood – James Gleick

▶ The Smartest Guys in the Room – Bethany McLean and Peter Elkind

▶ The Happiness Advantage – Shawn Achor

▶ Getting to Yes – Roger Fisher, William Ury, Bruce Patton

▶ Getting Past NO – William Ury

▶ Difficult Conversations – Douglas Stone, Bruce Patton, Sheila Heen

Suggested readings


crosslinxtransit.ca

aCrosstown mobile app (Apple, Android, Blackberry)

infrastructureontario.ca

metrolinx.com

thecrosstown.ca

Online Resources


Contact information

Robert Pattison

Senior Vice President, Light Rail Transit

[email protected]

mailto:[email protected]


Follow us

www.infrastructureontario.ca

output specifications, cognitive biases, and you€¦ · partnering to modernize real estate and...

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