With Large firms dominating the market place for certain products and services, collusion has become an increasingly dangerous problem. In the early 2000s collusion was identified in the Dutch Construction industry. As a response to these allegations the government moved to penalize the guilty parties but discovered that the penalized amounts would be greater than the profit generated by the colluding vendors. To maintain stability in the industry a few scapegoats were identified and penalized. The country struggled to understand the cause of this collusion and the solution.
In the midst of confusion, Dr. Dean Kashiwagi proposed that the cause of collusion was the owners and not the contractors. He went on to explain that the owners’ environment of management direction and control (MDC) was inefficient, ineffective and non-transparent. It minimized the profit margins of the contractors and forced them to collude to survive. With this simple explanation (The Best Value Approach) and the help of Dutch Visionaries, more Dutch started to understand these concepts. Dr. Kashiwagi realized that a new academic research approach would be necessary in order to more fully resolve the collusion issue in the Netherlands
The non-traditional approach includes the use of common sense and logic, test-projects, extensive literature searches, and a deductive logic methodology to make a direct impact to the industry. It could have taken years to go through the traditional academic community to make a change. With this non-traditional approach, immediate results were produced and analyzed. These results led to the chasing away of most collusion in the Dutch Construction Industry. Proving the the client was a major cause of collusion.
Performance Based Studies Research Group proliferated the Best Value Concepts resulting in Twenty-two (22) years of research testing, $16M of research funding, 1,800 tests, 98% customer satisfaction delivering $6B of services.
Dr. Kashiwagi proposed that the clients’ environment was also the cause of collusion in the ICT industry as well as every other industry. The ICT industry was very interested in improving performance and eliminating collusion in their industry. It was perceived as very low performing. Their non-performance was estimated as high as 75%.
Dr. Kashiwagi proposed to conduct some case studies to confirm his hypothesis that clients were the major cause of collusion. His steps included identifying and analyzing large ICT companies to see if they had a MDC environment that was causing collusion.
Shuberg Philis was one of the first case studies. It was a high performance ICT company that had the following performance on 47 large projects in the last six years :
- 89% on time
- 95% on budget
- 93% customers satisfied
After analyzing their company’s environment, it was identified that there was no MDC. Based on their performance metrics, it was determined that they were a high performance vendor.
The next case study was a very large traditional ICT vendor that was accused of being in collusion. For the sake of analyzing the company’s environment, five key participants on a Best value project were interviewed and surveyed. The results of the survey and interview confirmed that this large traditional ICT vendor was in the price based environment and would need to change their paradigm in order to improve their performance and cut collusion.
The final case study was another large ICT company. In the past this company had won a best value project but failed in the execution of the project. After their failure they began to be more involved in Best Value Education and create a core group that has eliminated MDC form their organization. It resulted in a 56% success rate in winning bids, 25% when BV core group is in a support role, and 18% when BV core group is not involved at any level. After eliminating MDC, they were able to improve performance and eliminate accusations of collusion.
The cause of collusion in any industry is clients managing, directing, and controlling vendors. The non-traditional approach used by Dr. Kashiwagi has proven with documented research that this is true. Changing the paradigm of a company from a price-based approach to the Best Value Approach can eliminate collusion. The ICT industry has the same collusion problem due to their price-based environment. The Cases Studies have confirmed the hypothesis that the clients’ environment is the main cause of collusion.