A federal agency signed a 15-month contract for $445,158 for a human resources/payroll system. After 28 months and no usable software, the agency canceled the contract and withheld payment for poor performance. A negotiated settlement price of $970,000 was agreed on. The project experienced the following problems:

• The contractor did not understand what software was desired. The RFP did not have fully developed user requirements or system specifications, and user requirements were never adequately defined and frozen. Changes delayed completion schedules and caused disagreements about whether new requirements were included in the original scope of work.

• The contract did not specify systems requirements or performance criteria, and the terminology was vague. The contract was amended 13 times to add or delete requirements and to reimburse the contractor for the extra costs resulting from agency-caused delays. The amendments increased the cost of the contract to $1,037,448.

• The contractor complained of inexcusable agency delays, such as taking too much time to review items submitted for approval. The agency blamed the delays on the poor quality of the documentation under review.

• The agency did not require each separate development phase to be approved before work continued. When the agency rejected the general system design, the contractor had to scrap work already completed.

Required

a. What caused the problems? How could the agency have better managed the systems development project? What could the contractor have done differently?

b. Can we conclude from this case that organizations should not have custom software written for them? Explain your answer.