How would you handle this situation on a longer -duration

Reference no: EM133383610

Toronto business school had decided to respond to a government RFP for the R&D phase on a new project. The statement of work specified that the project must be completed with in ninety days after go- ahead , and that the contract would be at a fixed cost and fee.
the majority of the work would be accomplished by the development lab. According to goveregulations, the estimated cost must be based on the average cost of the entire department, which was $19.50 per hour ( unburdened) . Toronto business college won the contract for a total package ( cost plus fee) of $320,000. After the first weekly labor report was analyzed, it became evident that the development lab was spending $28.60 per hour.
The project manager decided to discuss the problem with the manager of the development lab. Project manager: Obviously you know why I' m here . at the rate that you are spending money we'll overrun our budget by 50 percent .
Lab manager: thats your problem not mine . When I estimate the cost to the job, I submit only the hours necessary based on the historical standards. The pricing department converts the hours to dollars based on the department averages.
project manager: 'well , why are we using the most expensive people? Obviously, there must be lower- salaried people capable of performing the work".
Lab manager: "Yes, I do have lower salaried people, but none who can complete the job within the two or three months required by the contract . I must use people high on the learning curve, abd they are not cheap . You should have told the pricing department to increase the average cost for the department.
Project manager: "I wish I could , but government regulations forbid this . If we were ever audited, or if this proposal were completed to the other salary structure in other proposals we would be in deep trouble. The only legal way to accomplish this would be to set up a new department for those higher-Paid employees working on this project. Then the average department salary would be correct.
unfortunately the administrative costs of setting up a temporary unit for only two month is prohibitive . for long-duration project, this technique is often employed.

How can this situation be corrected?

Is there any way this situacan be prevented from recurring?
how would you handle this situation on a longer -duration project , say one year assuming that multiple departments are involved and that no new department were established other than possibly the project office?

Reference no: EM133383610

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