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?