Contract Mismanagement by Assumptions
A multi-million dollar ship conversion project had gone considerably over budget and over schedule, with the shipyard and ship owner each alleging the other to be responsible. The project involved significant participation by several specialized subcontractors, who also provided key elements of new equipment, all working under the direction of a small contracting shipyard whose general manager was also the project manager.
The work that primarily caused cost and schedule overruns was the integration of the subcontractor-supplied equipment, as well as the last-minute development of electrical, electronic, and mechanical interfaces between the new items of equipment. The existence of the problem was realized late in the project when the subcontractors complained that they were being asked to perform greater workscopes than what was included in their bid proposals.
The shipyard originally issued purchase orders in response to the subcontractors’ bid proposals, which in turn were based on the prime contract specifications. The subcontractors’ bid proposals, adopted verbatim by purchase orders, did not adequately address the equipment integration process, including the supply of interfaces with other equipment. In other words, the sum of the parts (from the subcontractors) did not equal the whole requirement of the prime contract — but the shipyard did not otherwise plan for that shortfall.
Upon analysis it was observed that the fundamental cause of the problem was that, during the bidding stage, the shipyard assumed that the subcontractors were bidding on the entirety of the workscope related to the equipment they were to supply. Instead, the subcontractors’ bid proposals addressed only those elements that were independent of the work of other subcontractors.
Component and system integration, installation and testing are often found to be areas that have been partially overlooked or incompletely addressed, especially when subcontractors and vendors are involved. To avoid such problems, Fisher Maritime’s pre-contract reviews on behalf of shipyards ensures that the entirety of the prime contract’s workscope is addressed and bid by the shipyard itself or its subcontractors. If your organization is bidding on a complex contract requiring multiple subcontracts, a pre-bid review by Fisher Maritime can minimize the likelihood of errors in the bid due to such oversights.