Reference no: EM133564304

Case Study: We were doing a mooring system project for an offshore oil rig in the Gulf of Mexico. It was a fixed price contract, but the specifications were sprinkled with a lot of TBDs (to be determined) items. As the project manager, the TBDs required a lot of attention and caused tremendous headaches between the customer's project manager and myself. I had to watch theseTBDs like a hawk. When a TBD specification was finalized by the customer, I had to ensure that the clarified specification was doable and that it did not affect my project's cost and time constraints.

Out of a dozen TBD specifications, one was for the smoothness of a stainless steel surface. I had to negotiate this TBD specification rigorously with the customer's project manager. I did not want to accept a tight specification that would have required extra fine machining of stainless steel surfaces of our system. We first agreed on the smoothness measurement technique and then the measurement sampling location and measurement length for traces.

Then we agreed on the maximum Ra value, maximum value of the arithmetic average of absolute values of vertical deviations of the roughness profile from the mean line. I sent my customer's project manager an e-mail outlining the agreed upon smoothness specification in detail and asked him to send me his approval note for this TBD specification. After I received his approval note, I initiated an engineering change order for the project specifications in our document control system. I distributed the final smoothness specification to all the engineers and manufacturing people who were involved with the stainless steel surfaces. I also sent a copy of the released project specification to my customer's project manager.

One by one, we negotiated and agreed on all the TBD specifications. One of these specifications was the interface drawings that were supposed to be delivered to us after four weeks from the start of the project. It took them six weeks to deliver the interface drawings to us. We were lucky to receive them in six weeks and fortunately, they did not affect the progress of my project. So I did not raise any ruckus with my customer about this crucial delay. I kept their delay as an ace in my pocket to exchange it with a future project delay that could have happened on our side. We finished all our stress calculations and system component designs on time. We as a team were ready for the mooring system design review.

We had a two-day meeting at our facilities. During the meeting, the customer's chief engineer told us that the slots that were designed into the mooring system were good for the chain passage, but they were not sized appropriately for the passage of the chain connectors. My team and I were quite surprised by this announcement by our customer because the project specifications clearly identified the chain size and dimensions and also identified that there would be no chain connectors in this mooring system. I showed them their specifications. My customer's team was embarrassed to realize their slip in project specifications.

My customer's project manager emphasized that we had to redesign the mooring system for the chain connector passage. The only solution was to evaluate the impact of this major change to our project on manpower, cost, and schedule. I asked my customer's project manager to give me two days to analyze the effects of this major change and to provide him with a written revised proposal. He accepted my offer and they left our facilities after throwing a major twist into the project. We had to redo all of our stress calculations and change our design drawings. On top of it all, I was not even sure if all the designers on my team were available for the expanding project. I had a meeting with my team to get their time estimates for the customer's new change order. I estimated the time and cost impact of the engineering change order on the project. I met
with the managers of each member of my team regarding their availability for the extended project.

After I had all the facts, I collected my upper management team for a meeting and showed them the impact of our customer's change order. They made some minor changes to my cost estimates. I got the upper management's blessing for the change order. Then I wrote a formal response to my customer's project manager for their proposed change. The project was delayed by two months and this major slip in my customer's specifications cost them 20% extra. My customer's project manager discussed my schedule and cost impact on the project to their change order with his upper management. They had no negotiation leverage but to accept my proposal. The surprising change order was a major slip on their part. My team finished the project two weeks earlier than promised. My team's efforts to finish the project two weeks early received excellent reviews from my customer's project manager.

QUESTION: The case study project was riddled with uncertainties of the project costs. Appraise the various types of contracts. Identify and recommend the types that may be most appropriate for the case study project and ensure that you justify your choice.