Guide to Contracting ITS Projects (2006)

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5As stated earlier, the procurement of ITS is a challenging task. This guide should be consid- ered as a tool to be used to overcome this challenge. But before you begin using the guide, you should review the topics covered in the following sections: • Project planning • The procurement process • Systems engineering as it relates to contracting Project Planning Before identifying appropriate procurement options (termed procurement planning in this guide) for your ITS project, you must first establish project feasibility and then consider com- mercial off-the-shelf (COTS) versus custom system development and outsourcing. These initial considerations (termed project planning in this guide) ensure that project stake- holders achieve consensus on the functional expectations and resource requirements of the acquisition in order to facilitate a successful project. These activities should be performed before the actual procurement of services or equipment and can roughly be divided into the two major categories of project planning and procurement planning (see Figure 2). Project Feasibility Stakeholders establish project feasibility by first agreeing on the project concept of opera- tions (how the project will be used). Institutional, financial, and temporal constraints should be considered. Based on the identified concept of operations, stakeholders develop a project scope, schedule, and cost estimations. Project feasibility is established once the project scope, schedule, and cost estimations have been validated and verified against available agency resources. Establishing project feasibility will help you answer the following questions: • How much will the system cost and can you afford it? • Do you have a reasonable schedule, or are your deadlines unrealistic? • Do you have adequate personnel (both in numbers and skills) to manage and support the development? • Does everyone share the same vision for the system? Is there universal agreement regarding the manner in which the system will be used? Once the project’s feasibility has been established, you should consider the use of COTS prod- ucts (hardware and software). In addition, you should consider the possibility of outsourcing. Before We Get Started For more information on this subject, refer to the final report, NCHRP Web-Only Document 85. Project planning is further explained in NCHRP Web-Only Document 85.

6 Guide to Contracting ITS Projects COTS versus Custom System Development Frequently, the system that your stakeholders defined while establishing project feasibility has been developed and procured by another agency. This reality results in a favorable scenario for you. ITS that have been previously installed are considered COTS systems. If at all possible, you should contact peer agencies to acquire lessons learned from their experience procuring the sys- tem that your agency is interested in procuring. Additional benefits accrue with procuring COTS systems: • The system has been previously tested. • The cost for system upgrades can be shared with other agencies. • The system can be viewed in operation before system procurement. In contrast, your project stakeholders may define a system that has not previously been installed—a custom system development. In some cases, it may be best to procure a hybrid sys- tem that includes both COTS and custom components. Outsourcing Outsourcing is the process by which organizations (public or private) use external providers to manage or maintain certain aspects of their businesses. While establishing project feasibility, stake- holders may realize that the group does not have the personnel (skills or resources) to design, procure, deploy, operate and/or maintain the defined system. In this case, outsourcing may be prudent. Start Budget andSchedule OK Establishing project feasibility Consider COTS and Outsourcing Execute Decision Process including Contract Terms and Conditions No Yes Prepare WBS for contracting process Prepare Statement of Work * Prepare Selection Criteria Prepare operations & maintenance plan Prepare RFP and Execute Procurement Plan Procurement Completed Stakeholders & Management Management Contracts Legal * May also include plans and specifications as required by the selected contracting alternative Project Planning Procurement Planning Figure 2. The planning process You should look for opportunities to use COTS products wherever possible. It may be that minor adjustments to the concept of operations will permit this approach.

The Procurement Process The procurement process includes four dimensions: work distribution, method of award, contract form, and contract type. Once these key procurement decisions have been made, appro- priate terms and conditions can be identified. Work Distribution The work distribution dimension divides the project responsibilities defined by the agency for the contractor by the contract statement of work into assignments expressed in systems engi- neering terminology—concept of operations, requirements, design, implementation, and test- ing. The assignments also include the crosscutting activities of configuration management, risk management, validation and verification, and metrics. The assignments can be grouped into the following forms of work distribution: • Low-bid contractor—The selection of a contractor for systems installation using the low-bid process. The low-bid contractor is responsible for furnishing a fully operational system includ- ing all hardware, software, and construction services required to satisfy a detailed design defined by plans and specifications. • Systems manager—An organization whose responsibilities may include all project activities associated with a systems acquisition except for the provision of equipment, electrical con- tracting, and construction contracting. • Systems integrator—Similar to the systems manager, except that the integrator is not involved in the planning and design stages. The systems integrator provides all of the personal services associated with the systems implementation except for the provision of equipment, electrical contracting, and construction. • Design-build (operate and maintain) (DB [OM])—A (single) contractor or private devel- oper provides for the design and construction of improvements. The term encompasses design-build-maintain, design-build-operate-maintain, design-build-operate, design-build- finance, and other contracts that include services in addition to design and construction. The design-build contractor’s work is based on an initial design that may be prepared by a consultant. • Commodity (COTS)—Contracting for the acquisition of commodities is applicable to ITS contracting to the extent that an agency is procuring COTS products. These products may include field equipment such as variable message signs, traffic signal controllers, radios, or computers. They may also include COTS software and systems. • Consultant Services—Work provided by consultants is limited to provision of personal serv- ices. Some of the ways in which consultant contracts may be used include systems design and installation support, inspection, design, and documentation and training. • Services—Contracts for other forms of services are frequently awarded during the life cycle of an intelligent transportation system. The differentiation is made here to identify services that are outside the mainstream of system development, such as inspection, independent validation and verification (IV&V), outreach, internet service providers (ISPs), and staff supplements. Method of Award The method of award dimension of procurement defines the criteria used and steps taken to select a contractor to perform the work. As indicated below, there are distinct differences among the various methods of award. These differences should be taken into account when selecting a Before We Get Started 7

form of work distribution because the work distribution form determines the method of award. The following are the methods of award: • Low bid—Low-bid contracting, commonly referred to as sealed bidding, is a contracting method that employs competitive bids, public openings of bids, and contractor selection based on the lowest price offered. • Negotiated—Unlike formal advertising of a contract requirement, which is a precise, highly structured method of procurement with one definitive set of procedures, negotiation allows considerable flexibility, permitting the use of a number of different procedures in making awards. The negotiated selection is typically based on the evaluation of a technical approach, qualifications, and experience as represented in a technical proposal and possible subsequent presentations to the agency. • Sole source—Sole-source procurement is the direct selection of a contractor without competition. • Best value—Selection is made on a weighted combination of the technical approach, qualifi- cations, experience, and price of the offeror. Best value is, in effect, a combination of the low- bid and negotiated methods of award. Contract Form The three contract forms define the manner in which work is authorized: • Phased contracts—Phased contracts are the conventional form of contracting that is in use for the majority of projects including ITS acquisitions. Phased contracts divide the work into sets of predefined activities (or phases) with specified deliverables. • Task order (or indefinite delivery) contracts—Task order contracts are used with contracts in which the required supplies and services are unknown at the time of contract execution. They provide a mechanism for the agency to place orders for these supplies and services dur- ing the life or term of an overarching “umbrella” contract. • Purchase orders—A purchase order is a form of sole-source contracting used for relatively small procurements. Purchase orders are a simple, rapidly executed form of contract that usu- ally contains a standard set of terms and conditions (payment, insurance, cancellation clauses, etc.) and a relatively brief description of the work to be performed. Contract Type Numerous types of contracts are available for use with different types of projects and under various circumstances. Contract types may vary according to the degree and timing of respon- sibility assumed by the contractor for the costs of performance and the amount of time and nature of the profit incentive offered to the contractor for achieving or exceeding specific stan- dards or goals. Contract types include the following range of alternatives: • Firm, fixed price—The contractor assumes full responsibility for the performance costs and any profit or loss at a fixed price. • Cost reimbursable—The contractor is paid (reimbursed) for his actual costs of performing the work and the fee (profit) is fixed. • Time and materials—The contractor is paid for his actual costs of performing the work, and a percentage fee is added to all payments. • Incentives—The contractor’s responsibility for performance costs and profit and/or fee incentives are dependent upon the uncertainties associated with the desired outcomes of the procurement. Incentives are paid in addition to the three types of previously described reimbursements. 8 Guide to Contracting ITS Projects

For firm, fixed-price contracts, the contractor assumes all of the financial risk. The agency assumes all of the financial risk for time and materials contracts. Financial risks are shared in cost-reimbursable contracts. Terms and Conditions Terms and conditions are defined in Step 8 of the Decision Model process. The procurement process is defined by the Federal Acquisition Regulations (FAR). Title 48 of the Code of Federal Regulations Chapter 1 codifies the FAR. The FAR presents policies for acqui- sition of supplies and services by executive agencies. The FAR is available on the internet at www.arnet.gov/far. But the FAR is not the only source of regulations. All state and local govern- ment agencies have their own processes that also must be followed. Systems Engineering as It Relates to Contracting The “V” diagram, shown in Figure 3, has been developed by the systems engineering profes- sion to define the relationship among the phases of the system life cycle. As represented in the figure, the systems engineering process begins with the early planning activities, during which the system’s relationship with regional needs and other regional systems is defined. The central “V” shape, which begins with the systems engineering management plan and ends with opera- tions and maintenance, includes the activities specifically associated with the acquisition of the system with which these procurement guidelines are concerned. The arrow in the “V” diagram shows the time sequence of these activities. The oval shapes are known as control gates and iden- tify the points in the process at which specific documentation is required and decisions regard- ing the ongoing development must be made. As indicated in the diagram, the life cycle must consider not only the specific steps associated with the system planning, design, and development, but also the regional context for the system (on the left side of the diagram) and the need for system upgrades and enhancements as shown on the right side of the diagram. Alternative process models can be applied to the system life cycle relationships defined in the “V” diagram to systems engineering. A well-developed model also supports the project man- agement process in that it defines the system acquisition steps and helps convey to the project team and others how a project will be managed. The process model influences the selection of the Before We Get Started 9 Figure 3. “V” diagram of systems engineering.

10 Guide to Contracting ITS Projects procurement approach being used for the system acquisition. The process model must define the pro- curement approach rather than permitting the procurement approach to define the systems engi- neering process. In addition, the model helps communicate with others about the progress being made, it helps assess the risk of alternative paths, and it helps to take advantage of emerging oppor- tunities. The following models can be used as alternative systems engineering processes: • Waterfall model—Linear process used for relatively simple projects. • Evolutionary model—Incremental approach to systems engineering in which the system is implemented in small pieces. Applicable to complex systems. • Spiral model—A model characterized by extensive prototyping and planning. This model is used where a complex system includes new untested concepts and functionality.