Project Planning and Delivery, Inc (PPD) is a BPO provider that helps owners manage their capital building projects. In other words, they remove the stumbling blocks for the building blocks. The BPO vendor, based in Chapel Hill, North Carolina, specializes in construction projects for the biotechnology, chemical and pharmaceutical industries.
PPD, which does no building or engineering itself, hires the engineers and the construction personnel who do handle the bricks and mortar. The outsourcing vendor acts as an extension of the owners’ organizations so they don’t tie up their staffs overseeing the myriad of details in an area they know little about.
President Tim Vickers says this area of BPO is “unserved right now.” Many small and medium sized business don’t want to hire a permanent staff for a short term construction project. And there are a lot of projects on the drawing board. Biotechnology, he points out, “is one of the fastest growing industries. It’s on a wild ride right now.”
Vickers, who managed construction projects for a pharmaceutical company for 10 years, decided to found this firm when a colleague referred his first client to him. This company was struggling with the plans for erecting a $25 million biotechnology plant. The company did not have the internal resources to handle the project properly.
PPD, which currently has three clients and six employees, negotiated a fixed weekly rate so it could give this client a full time commitment. PPD completed the project on time and five percent under budget. After this plant was completed, PPD began to work on other capital projects for this pleased buyer. “Our reviews have shown that we did the job better than their internal staff could do,” Vickers reports.
Compensation Based on Shared Savings
The BPO provider does not have fixed service level agreements. Instead, the vendor aligns its own compensation with a bonus structure. Vickers says sharing savings “gives us more financial accountability.” Sharing savings also eliminates some of the risk of outsourcing for its buyers. “Our clients’ biggest fear is that we will come in and not watch their purse,” says Vickers.
The bonus, which is generated from the shared savings, is tied to completion dates marked by specific milestones. If PPD meets the budget but does not complete the project on time, the buyer pays from zero to 50 percent of the agreed upon billing rate.
The billing rates are a “modest mark up,” says Vickers. In general terms, the company multiplies each staffer’s salary by 1.8.
The BPO’s experience comes into play to generate the desired cost savings. The vendor knows when and how to buy used equipment, for example. “We show our owners we can save them money by bringing cost effective ideas to the table,” says the CEO.
In addition to shepherding the owners’ dollars, PPD also is responsible for attracting the labor required to build the project. Because of the current labor shortages, finding the requisite workers “is pretty brutal,” reports Vickers.
Vickers says his company rarely has disputes with its buyers because the provider works to “align itself with the owners.” (However, representing buyers in their disputes with construction workers is definitely included in the scope of the contract.) The vendor says the job involves close communication with the buyer because construction projects make it “impossible to nail down the scope 100 percent” before the pounding the first nail.
So the two partners have to work out the gray areas as they arise. Typically, PPD cites industry standards when a question arises. “We tell them this is what’s typically done in these circumstances,” he says. The vendor proposes a resolution and the discussions continue until they reach a solution the buyer can support.
Helping Buyers with Hiring Timelines
In some instances, the owner is building its first project. The executives often don’t have a sense of timing, of what they need to do when. In the past, PPD has finished a project, handed it over to the owner and then watched it sit empty. The reason: the owner discovered that it was difficult to find operators to run the plant, so nothing happened until the project was fully staffed. Now PPD helps its owners identify when they need to begin the search for the right people so the new plant won’t sit idle.
Vickers says most owners need four to six weeks of negotiations before they sign an outsourcing contract. PPD’s median contract size is $200,000.
The CEO says one of the best reasons to outsource a construction project is “you get rid of us when the project is over,” he adds with a laugh.
Lessons from the Outsourcing Primer:
- Basing compensation on shared savings makes a BPO vendor more accountable.
- Outsourcing the construction of biotechnology and pharmaceutical plants is a market with few vendors and a growing number of projects.
- Outsourcing a short term construction project makes sense because the owner does not have to hire a staff to oversee the project.
- Vendors and owners have to work closely together because it’s impossible to nail down the scope of the project before it begins.