Southwest Gas Living Case Study

Reducing Utility Infrastructure Damage Frequency Through Best Value Contract Deliverables

At Southwest Gas Corporation, which provides natural gas distribution and transportation services to more than two million customers in Arizona, California and Nevada, the company’s core values of “Safety, Quality, Excellence, Partnership, Stewardship and Value” are key to its success and define how it operates across every facet of its multi-jurisdictional service area—including its contracting practices to build and maintain an ever-growing utility infrastructure.

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Southwest Gas’s top priority is developing and continually enhancing a strong safety culture—starting from the very top of company leadership and management. Knowing that damage to Southwest Gas’s natural gas distribution system is a top threat to system safety, integrity and reliability, the executive leadership initiated a comprehensive and continuous improvement program approximately five years ago to actively engage the company’s primary pipeline construction and field operation contractors (collectively, “pipeline contractors”). As key allies, pipeline contractors are vital to reducing excavation damages, and achieving essential safety and quality metrics.

Highlighting these efforts is Southwest Gas’s Annual Safety and Quality Executive Leadership Summit that includes a focus on damage prevention competencies and management presentations from the pipeline contractors. The summits, as well as continued engagement with pipeline contractors, laid the foundation for implementing “best value” contracts. Best value incorporates value-added performance into the Southwest Gas bid process and standardized contracts by writing damage prevention directly into a pipeline contractor’s performance deliverables. These deliverables create meaningful financial consequences as enforcement mechanisms to incentivize the contractors to meet the safety and quality performance expectations set by Southwest Gas. Accordingly, these best value contracts can be for a single, large project; or may be applied to a multi-year duration blanket contract.

Timeline and Scope

In 2016, Southwest Gas leadership began exploring the concept of using best value contracts. After a thorough review that included feedback from industry peers, Southwest Gas implemented the first of its best value contracts two and a half years ago, starting with its line locating contractors. Then, best value principles were expanded a year later to pipeline construction contracts.

For Southwest Gas, there are three foundations to the success of the best value contract: (i) fostering and building upon direct communications and deep partnership relations with its pipeline contractors; (ii), formalizing expectations and building accountability; and (iii) collaborating with all stakeholders to improve safety and quality.

Southwest Gas used a measured approach in adopting best value contracts.

One or two years prior to an existing contract expiration: Collaborate regularly with all stakeholder management to determine key deliverables for safety and quality control and assurance; develop evaluation procedures, metrics and enforcement mechanisms with a particular focus on contractual language that will drive safety and quality (i.e., damage prevention best practices); and convey the benefits from the best value approach for each party.
Pre-bid meeting: Set the tone for a collaborative and candid working relationship with pipeline contractors at pre-bid meetings. The pre-bid meeting provides another opportunity to clearly communicate and emphasize the safety and quality deliverables, including damage prevention; the methods for evaluation; the financial enforcement mechanisms and other implications for failing to meet the deliverables; and a detailed scoping of the work contemplated under the contract. Southwest Gas also emphasizes that it can serve as a resource to the pipeline contractor(s) for training and collaborative problem-solving. The pre-bid meeting is an opportunity to emphasize that all bids should be priced to reflect the resources necessary to implement and follow these safety and quality initiatives, including damage prevention best practices.
Evaluating bids: Southwest Gas based its best value contract on 60% cost and 40% safety/quality. Safety and quality performance is evaluated with quantitative and qualitative measurements. In the case of line locating, bidding contractors provided a presentation to Southwest Gas leadership, which provided an opportunity to ask the bidding contractors about their individual safety and quality practices. Southwest Gas also required the bidding contractors to provide historical performance records on safety, quality assurance and facility damage statistics.
Over the life of the contract: In addition to routinely auditing contractor performance against deliverables, Southwest Gas maintains strong working relationships with its contractors through regular communication channels. This includes:
- Real-time access to data analytics performance metrics so all stakeholders have access to and are evaluated against the same objective data.
- Southwest Gas supervisors are in touch with the contractor field personnel two to three times per week at a minimum; and Southwest Gas managers meet with contractor management at least once a month.
- On a quarterly basis, Southwest Gas division vice presidents meet with peer leadership from the pipeline contractors to discuss safety and quality results and underscore damage prevention.
- Southwest Gas hosts its Annual Safety and Quality Executive Leadership Summit for all contractors to collaboratively and candidly discuss challenges and solutions. Having the full range of contractor leadership in the room – from line locators, to leak detection, to pipeline construction – promotes a dynamic exchange of information and valuable understanding among all stakeholders, as well as reinforces the core values of “Safety, Quality, Excellence, and Partnership.”

Defining Contractual Deliverables

Southwest Gas’ approach to best value contract deliverables focuses on providing value to its customers and accountability for outcomes. For example, the line locating contract deliverables include metrics for on-time performance of locate requests. Its best value pipeline construction contracts include deliverable language requiring the protection of facilities, and robust quality assurance and control processes. Deliverables are designed to strengthen partnerships between Southwest Gas and its pipeline contractors, and to provide a uniform evaluation process to ensure continuous alignment. Through greater transparency, provisions are mutually agreed upon prior to the start of the contract. If deliverables do not meet expectations and agreed upon metrics, then contractors may be subject to financial payment adjustments and/or additional actions to improve safety and quality.

To complement its comprehensive best value contract, Southwest Gas utilizes its regular touchpoints with contractors to reinforce the resources available to them to improve safety and quality outcomes. When damages occur, Southwest Gas provides the responsible pipeline contractor with dedicated damage prevention training and works with the contractor to secure additional resources they may need to reduce damages through improved policies and processes.

Business Case

As a result of its comprehensive damage prevention efforts, including implementation of best value contracts for line locating and pipeline construction, Southwest Gas’s damages per thousand tickets ratio has improved from 1.39 in January 2019 to 1.09 in May 2021 – a 21.6% reduction in just over two years.

The Annual Safety and Quality Executive Leadership Summits have attracted more attendees each year since their inception. These summits have become important collaborative forums that ultimately drive policy and procedural improvements aligned with the company’s core values.

Impact on Vendors

“As one of Southwest Gas’s contract locating vendors, we appreciate how the new “best value” contract structure accounts for the resources we need to meet our damage prevention deliverables. When we bid, we knew that our proposal would be evaluated with specific attention to preventing damage and risk mitigation – it is not always the case that utilities’ procurement departments have a damage prevention focus, or even a particularly solid understanding of how the damage prevention process works – this approach gave us the confidence to be realistic about our proposal. The annual contractor summits have also been an excellent venue for sharing practices and building relationships with Southwest Gas’s other contractors who depend on our locates; we’ve established a very candid, productive and efficient environment for working together.” -Josh Hinrichs, President, ELM Utility Services

“NPL partners closely with our client Southwest Gas in the Las Vegas area on damage prevention for our natural gas construction operations. We are active participants in Southwest Gas’s safety summit meetings, where we collaborate with them and their other contractors in an exchange of ideas to increase the overall safety and quality of the work on their system. A particular area of emphasis for the partnership is facilitating damages due to line locating. As a result of our collaboration, we put in place our own damage prevention specialist. This individual focuses on line locating, while mentoring our crews on best practices for line locating and safe digging techniques. To further support these efforts, we have a team of dedicated line locators who focus exclusively on just that. With these individuals in place, we are able to more effectively prevent damage to existing lines while increasing the overall knowledge of our workforce, all without disrupting the efficiency of our operations.” -Troy Ware, Director of Operations, NPL

“Arizona Pipeline Co. has been a contractor for Southwest Gas for over 42 years, and in that time there have been significant advances in how work is performed safely and with the quality required. Through each of these advances, Southwest Gas has approached its contractors as partners and has embraced a philosophy of open discussions and jointly developing best practices. Southwest Gas’s safety summits have brought contractors and suppliers together so that we can listen and learn from one another. These meetings have been instrumental in helping us develop proven best management practices that are applied throughout the company. Through formal meetings like these and on-the-job damage prevention partnerships, Southwest Gas has always demonstrated what it means to be a partner in business.” -David Syfrig, President/CEO, Arizona Pipeline Co.

“Since the start of Southwest Gas’s best value contract model, Quanta has seen nothing but positive results in both damage prevention and overall safety improvements. This has been accomplished through Southwest Gas’s commitment to engaging all contracting stakeholders to meet regularly to discuss best practices, lessons learned, and overall collaboration between all Southwest Gas’s contractors. Moving forward, we believe that this concept will continue to improve safety and reduce damages.” -Giff Ludwigsen, Senior Vice President, Quanta Services

Next Steps

With several best value contracts in place, Southwest Gas is evaluating lessons learned and discussing adjustments for future contracts. Southwest Gas is also continuing to gather contractor feedback and testimonials to better understand the impact of best value contracts on its pipeline contractors. Southwest Gas looks forward to sharing that additional information with CGA’s Next Practices Initiative.

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