One of the major objectives of facility owners is to get the ‘best value’ in construction, renovation or maintenance of facilities. Owners are reluctant to pay more for best value if they do not understand what the value is. Research now proposes that the use of best value procurement can actually reduce the first costs of delivering the construction. The research looks at the transaction costs or the first costs of construction. The research uses the procurement of roofing in the State of Hawaii because of the availability of data on both the low‐bid and best value procurements. The State of Hawaii used transaction cost analysis to identify the cost of best value construction. The costs considered were planning and programming, design, procurement, construction management and inspection costs. Owing to the number of projects and the access to budget figures, construction cost figures, design costs and construction times, the State was able to identify the relative transaction costs and performance for both processes. The first costs or transaction costs of the best value procurements were lower than the transaction costs of the traditional design‐bid‐build costs. The actual performances of the roofing systems procured, which included warranty period, performance of the contractor and performance of the roofing systems, were far superior. The result was an increase in value for a lower cost.
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The City of Peoria is Arizona’s ninth largest city. It covers nearly 178 square miles and is home to over 153,000 residents. The projected 10 year growth of the City is estimated to be over 204,000, which has prompted a significant expansion of the City’s municipal services and facilities. In an attempt to efficiently meet the demands of the projected growth, the City of Peoria partnered with the Performance Based Studies Research Group out of Arizona State University in 2004. The objective of the partnership was to test and implement a best value structure within the City’s construction program, specifically as applicable to capital projects. This paper presents a five year summary of the test implementation results, the evolution of the best value structure within the city, project performance, service expansion to include non-construction projects, and lessons learned from the research. The research effort has included $385,691,802 in total projects awarded and implemented under the best value structure, with documented performance increases in cost metrics, schedule metrics, and customer satisfaction.
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