HYDROSUB’S UNFLOATABLE AMPHIBIOUS ASSAULT VEHICLE Kathleen Johnson started her new job as chief buyer at Hydrosub in San Francisco. Her day was without incident until she received the following telephone call. Voice on phone: Good afternoon, Ms. Johnson. I am Burt Lauderas, project supervisor at Bolger Shipyards in Tacoma. The design changes for the A.A.V. are not part of our current contract. We need to renegotiate the contract before instituting the changes. Completion of the A.A.V. will be delayed an additional four weeks. Kathleen Johnson (mildly concerned): Is it really necessary to renegotiate the current contract before beginning the work? Voice on phone: Yes, Ms. Johnson, the contract states that every design change must be renegotiated. Kathleen Johnson (more concerned): Why will it take four additional weeks to complete the project? Voice on phone: It will take time to renegotiate the contract and hire replacement welders, and approximately two weeks to do the rework. Kathleen Johnson (completely bewildered): Thank you for calling, Mr. Lauderas. I’ll contact you tomorrow. After recovering her composure, she opened the A.A.V. file and started the formation of her first ulcer. Status reports showed that progress toward completion had been slow. The last chief buyer had been “retired” when costs exceeded the original estimate of $9 million. Revised cost estimates revealed expected expenditures to exceed $23 million. Particularly despairing was the fact that the completion date had already been revised four times and the current completion date was listed as “unknown. After hours of reviewing the A.A.V. project file, Kathleen understood Burt Lauderas’s concerns. The project involved building a prototype amphibious assault vehicle for the U.S. government. It had been Hydrosub’s intent to build a premium product, without concern for cost. If Hydrosub received the subsequent production contract, the company’s financial stability would be greatly enhanced. However, due to in-house capacity problems, Bolger Shipyards had been contracted to build the prototype. Hydrosub engineers designed the prints and specifications for the prototype. These specifications incorporated the latest in high tech design and utilized the best materials available. Design specifications had changed innumerable times over the project’s life. Continual rework and time delays had hampered progress. Bolger had reported design errors that necessitated the refitting of complex equipment and rework of the aluminum welding. Materials requirements included the use of welded aluminum. Bolger normally employed only steel welders; aluminum welders were in short supply and impatient during work stoppages. On the A.A.V. project, Bolger Shipyards currently employed 150 people on two shifts. Often Bolger required overtime work. The Bolger contract was cost-based plus a fixed fee. A particularly disturbing problem was Bolger’s cost reporting system. Bolger contract negotiators waited for up to three weeks for cost data. Weekly time cards, bimonthly reporting, and periodic analysis greatly hindered preparation for the contract talks. As Kathleen Johnson reflected on the facts, her phone rang again. Voice on phone: Hello, Ms. Johnson, welcome to Hydrosub. This is George Rope, president of Hydrosub. Kathleen Johnson: Thank you, Mr. Rope. 205 George Rope: Mr. Johnson, I feel uneasy burdening you with the Bolger Shipyards problem, but I haven’t any other choice. Your hiring was based on your tremendous qualifications. We had hoped to acclimate you to your responsibilities; unfortunately, there is no time. The A.A.V. project must be concluded soon. Over 100 Hydrosub employees are currently working on this project; they are discouraged. The government is very anxious, and we are competing for the future sales of this product. Utilize all your expertise and finish the prototype. 1. Who is responsible for the poor performance of the Bolger contract? 2. What caused the production delays and cost miscalculations? 3. What can Kathleen Johnson do now to ensure completion of the project and prevent further problems? 4. How should Hydrosub’s staff have prepared for negotiations with suppliers on this contract?

1. Primarily, the design team of Hydrosub is responsible for poor performance of Bolger Contract. Knowing the fact that every design changes will require renegotiations of contract and a lot of rework, the Hydrosub team should have frozen the design, right at the start of the project, with the collaboration of Bolger team. This way rework & renegotiation time & cost would have been saved. Also, the team at Bolger is also responsible for poor performance of the contract because of their huge inefficiency in handling cost data which hampered renegotiations. This has been highlighted by the fact that out of 4 weeks that is being asked for completion of AAV, 2 weeks are for contract negotiations only.
2. Frequent design change by the Hydrosub team & high inefficiency by Bolger team in handling cost data led to production delays & cost miscalculations.
3. Kathleen Johnson needs to take the following steps in order to ensure the project completion and prevent further problems:
He needs to call a joint meeting of Bolger team and Hydrosub design team, the outcome of which will be a final design for the prototype.
Amendment of contract, if possible, to remove the renegotiation clause.
Weekly review of project progress & cost impact together with Bolger team & Hydrosub team.
4. The Hydrosub’s staff should have done the following:
A firm budget for the project would have been declared instead of declaring zero concern for cost.
A minimum number of design changes by Hydrosub team should have been included in the contract. This way, the problem of renegotiating the contract for every design changes would have been done away with.
 
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