The legal opinions in this article are the author’s own, not WorldCC’s, and this is not legal advice.
Conventional wisdom would say that the biggest single mistake people make whether in life or in business is picking the wrong partner. Therefore, would the biggest risk companies make in business be to partner with the wrong consultant, supplier, or contractor? How could one avoid making such a mistake -- research to the nth degree or go with your gut? This article suggests that you consider using Qualifications Based Selection (QBS).
QBS is used extensively across the globe to select consultants, suppliers, and contractors, especially in public works or government funded projects. In general terms, QBS is a multi-step, multi-faceted selection process used to facilitate the acquisition of goods or services. Price is an essential component; however, it is not one of the first factors considered. The acquisition of goods may be guided by a high degree of specificity or international standards, such as American Petroleum Institute (API).1
So, why do so many projects or commercial relationships fail? After all, via QBS, the data would have been validated by a thorough and robust evaluation process and the pros and cons of the offering would have been carefully weighed. However, looking back at many less than successful projects, the selection team may have had a nagging feeling that something was not quite right.
In my oil and gas (O&G) industry, supply chains can be incredibly long and complex; generally, they tend to be highly intricate and wide ranging to include many goods and service providers. The O&G supply chains can be fragmented and global in nature, and they are often more technically demanding than a supply chain for a conventional building project. People are often reluctant to use new players given the time pressures many project managers face; and as a result, the business development professionals representing the contractors and suppliers must work incredibly hard to present their credentials and be seen as a competent or qualified bidder.
In contrast, services such as engineering design may be based on the experience, special skills, professional affiliations or the number and qualifications of the personnel employed. The cost of design comprises about 1% or less of a typical project’s construction and lifecycle operating and maintenance costs, but the quality of design determines what these other costs will be.2 Cheap design may be expensive; however, expensive design may not always fit the purpose -- so where is the balance?
Evaluation criteria and weightings should be established before the issuance of a “request for_...” (RFX) is agreed to and signed off by the project or operations teams and the commercial teams. Evaluation criteria are usually an amalgam of qualitative and quantitative data. Criteria can include:
- previous experience of similar work;
- capacity and backlog;
- organization, structure, size, facilities;
- execution plan;
- qualifications of personnel;
- equipment, availability, vintage, service records, etc.;
- quality, health, and safety management systems.
- Do the above criteria contain anything genuinely objective?
- Are referees unbiased in their recommendations? (It would be foolish to propose a referee who had a bad opinion of your company.)
- Is the stated backlog genuinely representative? Execution plans are usually bespoke, qualifications or personnel may be prejudiced based the intuition that granted the degree (s).
Interesting how we tend to choose what we know and fear the unknown. But this ironically flies in the face of the diversity platforms many organizations are promoting. Questions like these arise:
- Is the US or Canada better than India or China for example?
- Does a company have a Quality Management System (QMS) or a safety Management System (SMS)? The answer might be a yes or a no, but what is the completeness, depth, and breadth of their systems?
Perhaps everything is subjective. Maybe the answer to our ideal of perfection when selecting is to use the experience, creativity, and capabilities of a multi-disciplined team from various disciplines and backgrounds.
Why not take a balanced approach?
Gut feeling, can you trust your gut? Economics Nobel laureate Daniel Kahneman theorizes that “intuitive thinking has both advantages and disadvantages: it is faster than a rational approach but more prone to error.” In this world of fast-paced decision making, will poring over reams of data lead to clarity or obfuscation? The human brain constantly compares incoming sensory information and current experiences against stored knowledge and memories of previous experiences and then predicts what will come next. This is described as a predictive processing framework.3
When faced with highly complex problems, solving them requires intellect and logic, however “people rarely make decisions based on facts and reason. Intuition’s merit may be underappreciated, rather than being mystical, some may view it as unconscious intelligence”.4 Human beings are imperfect, so why would we expect perfection in every decision. In many organizations critical business decisions are not made by any one person but rather by teams of people. This shared accountability and ownership of decisions may go some way to improve the quality of the decision made. Progress over perfection must always be the mantra in a fast-paced business world. A definition of Decision Quality (DQ) is “the quality of a decision at the moment the decision is made, regardless of its outcome”.5
Research by Scopelliti (2015) has shown that most people exhibit decision making blind spots and are consciously unaware of their own judgmental biases and preferences.6 The World Commerce & Contracting Association7 has espoused for many years the value of Relational Contracting, where harmonized personal relationships combined with organizational alignment, produces better outcomes.
Teams organized for whatever reason are a melting pot of emotions and opinions. In many organizations, commercial professionals are usually charged with challenging technical opinions by underlining differences and common aspects of selection. This can provoke tensions with their project or technical colleagues.
Being brave is not easy, but if everyone has a voice and everyone in the team has been listened to, then agreement often follows. This balanced approach may lead to finding a technically acceptable solution that makes commercial sense from a business perspective rather than defaulting to the lowest price, or alternatively the latest high-priced cutting-edge technology or maintaining the status quo.
Data and analysis always play a part in the decision-making process. Years of experience, the opinions of subject matter experts and your intuition or gut will always count for something. Nine times out of ten, lead with your gut, but make sure the appropriate level of analysis supports it!
- American Petroleum Institute (API)
- Qualifications Baes Selection Centre Resource Center. American Council of Engineering Companies http://www.acec.org/advocacy/qbs/ (Accessed August 5, 2021)
- Can We Rely on Our Intuition? Scientific American Laura Kutsch on August 15, 2019, https://www.scientificamerican.com/article/can-we-rely-on-our-intuition/ (Accessed August 16, 2021)
- I Think, Therefore I Err Gerd Gigerenzer Social Research: An International Quarterly, Johns Hopkins University Press Volume 72, Number 1, Spring 2005pp. 195-218 https://pure.mpg.de/rest/items/item_2101040_7/component/file_2562283/content ( Accessed August 8, 2021)
- Decision Quality Definition Wikipedia https://en.wikipedia.org/wiki/Decision_quality
- Scopelliti, I.,Morewedge,C.,E.,Min, Lebrecht,S., & Kassom,K.(2015) Bias blind spot: Structure , Measurement, and consequences. Management Science 61,2468-
- The World Commerce & Contracting Association
ABOUT THE AUTHOR
Gary M Crag, I.Eng., MSc.,CCME,CCE is the Manager of Contracts and Procurement for Pembina Pipeline Corporation a leading energy transportation and midstream service provider that has been serving North America's energy industry for more than 65 years. Gary is a career professional within the Energy industry, has been a member of WCC (formerly IACCM) for over 10 years, gained his CCME designation in 2011 and was the recipient of WCC’s Excellence in Contract Management Award in 2017.
Content reflects views and opinions of the author and do not necessarily reflect the views and opinions of World Commerce & Contracting.