Assignment
Case: AAA, INC.
On March 1, 2002, All American Aluminum (AAA) authorized the expenditure of $81 million to modernize its sheet mill facility located in Evansville, Indiana. Because of this modernization's strategic importance, a very tight timetable was established-2½ years for completion of the project. Top managers within the company stated that the schedule, not cost, was to be given top priority. Marketing projections estimated that $1.2 million in lost opportunity would be incurred for every month this project went beyond its scheduled completion date. Senior management indicated that additional funding was available if needed to keep the project on schedule.
The company did not have in-house engineering resources to complete a project of this magnitude within the allotted timeframe. A project team of twelve AAA engineers was established to provide key technical direction and overall management, while the bulk of the design work was to be contracted out. Of these twelve engineers, ten were located at the plant site in Evansville and two were located at the company headquarters in Steubenville, Ohio.
In early April, a group consisting of two engineers and a senior facilities supply manager visited prospective engineering companies to determine which firm was most capable of handling this project. Each firm was evaluated on three major points:
1. Quality of engineering expertise
2. Number of engineers that could be made available for the project (subcontracting would not be allowed)
3. Ability to coordinate with the AAA project team (located primarily in Evansville)
Each company visited was given an outline of the project, including scope of work, conceptual design requirements, and the project team's engineering man-hour estimate. Each firm was requested to submit a proposal outlining how it would handle the project.
Four firms appeared to have the quantity and quality of engineering capability required. Consequently, the final decision was based on which firm AAA felt could best coordinate with its project team in Evansville.
Comstock Engineering was selected to do the job. Although its price and quality were only average, Comstock was considered the best choice because it had offices in both Steubenville and Evansville. It was thought that offices in both locations would reduce the potential for coordination problems.
Comstock maintained that the project could be best handled by its larger office in Steubenville, with Evansville providing only those services that required work at the plant site. AAA disagreed, and stated that any contract award would be contingent on the following conditions:
1. All engineering services were to be managed out of the Evansville office. This would require Comstock to relocate a project manager and two project engineers to the Evansville office.
2. All project management services (planning, scheduling, material control) were to be done out of the Evansville office.
3. The engineering design services (electrical, mechanical, and civil) for certain portions of the project must be done out of the Evansville office. This constituted approximately 60 percent of the design required for the entire project.
4. Prior to placement of the order, Comstock must identify key personnel-the project manager and three project engineers (electrical, mechanical, and civil).
These conditions required the addition of fifteen people to the thirty people already in Comstock's Evansville office. Comstock agreed and submitted the names of the key personnel, which in turn were accepted by AAA. An order, including the noted conditions, was issued to Comstock on a cost plus percentage basis with a cap of $3.3 million. The order was dated April 18.
A chronological sequence of subsequent events is noted below.
• May 1-Comstock communicated to AAA that three of the four key personnel would not agree to transfer to the Evansville area.
• May 15-Comstock suggested that since the key personnel would not transfer to Evansville, the project should be managed from its Steubenville office.
• May 20-AAA rejected Comstock's offer. It was learned that Comstock had just finished a very large project in its Steubenville office and would have to lay off personnel if no work could be found. AAA believed this to be the motivation for Comstock's suggestion.
• May 25-Comstock suggested that the project be managed with personnel currently located in the Evansville office.
• June 15-AAA accepted Evansville personnel as temporary management only and applied pressure to Comstock to resolve the issue.
• July 1-As the scope of work became more defined, it became apparent that electrical engineering man-hours would be double the number estimated by the AAA project team.
• August 1-Comstock submitted the names of three people to fill the vacant management slots. AAA accepted one, but rejected the other two as unqualified. The most important position, project manager, was still unfilled.
• August 15-AAA was unsatisfied with the scheduler assigned to the project and requested that he be removed. Comstock agreed and replaced him with its best scheduler. The new scheduler was located in Evansville on a temporary basis. Comstock asked that AAA pay for his temporary living expenses.
• September 1-It was determined that the civil engineering man-hours required would only be one-third the number estimated by the AAA project team. Comstock claimed that it had adjusted its schedule to accommodate this work and hence was overstaffed with civil engineers.
• September 1-Comstock communicated to AAA that it was having difficulty staffing the Evansville office with a sufficient number of electrical engineers. The people within the company were refusing to transfer, and outside recruiting efforts were unsuccessful.
• September 7-Comstock requested that the bulk of the electrical engineering work be transferred to its Steubenville office. AAA rejected this request.
• September 15-Although the Evansville office was understaffed and overloaded, Comstock was forced to lay people off in its Steubenville office.
• September 17-Comstock was still unable to staff its Evansville office with sufficient electrical engineers. It requested that the electrical engineering schedule be extended. AAA did not agree to this.
• September 21-AAA verified that Comstock was actively trying to recruit electrical engineers for its Evansville office. However, AAA also discovered that Comstock had submitted a bid for another electrical engineering job, which would conflict with the AAA project.
• October 1-By this time, five months had passed without a project manager, and the electrical engineering schedule was slipping badly. Comstock claimed that transferring the bulk of the engineering work to its Steubenville office could eliminate these problems. AAA claimed that these conditions were made very clear in the contract and must be adhered to.
AAA has scheduled an internal meeting for October 2 to determine whether to cancel the contract with Comstock.
1. How could AAA have avoided the problems it experienced with Comstock?
2. What are the potential implications of the type of contract AAA used? Discuss.
3. How could AAA have improved its approach to sourcing in this case?
4. What should AAA do now? Discuss.
This case was modified from an earlier case developed by Pat Craychee, Tim Murphy, Peter Andrade, David Kraylow, and Bruce Gray under the direction of Professor David N. Burt.
Attachment:- MANDATORY-OUTLINE-FOR-CASE-ANALYSIS.rar