Case 6-2 Moren Corporation (B) Moren Corporation was building three additional gen- erating stations to serve the rapidly expanding energy market. To link these stations with the total area grid, a new method of carrying the power lines using ornamental tubular poles instead of towers had been adopted. Moren lacked experience with poles and decided to subcontract the design engineering, fabrication, and erection of the new line. [For company background and line projection. information and the selection of engineering consultants see Moren (A) case.] Having selected its consultants for its first 345 kV transmission line and placed its order for the fabrication of the poles and hardware, Moren was ready to locate a suitable contractor to do the foundation work, erect the poles, and string the lines. Purchasing and engineering had been pursuing this concurrently with the search for a fabricator, because Moren wanted to get started on the line by the fall. Gordon Yarrow, supervisor of materials purchasing, was responsible to the vice president of supply, John Carter, for this contract. CONSTRUCTION SELECTION One company, T.D. Rapier, had done almost all Moren's transmission work for over the last five years, but, with the consultant's help, a good cross section of qualified line builders had been invited to bid. In addition, several foun- dation companies were asked to quote on the subgrade work. This helped to test the market to determine whether foundation contractors could build foundations cheaper than line builders. Mr. Carter reserved the right to award separate contracts for above- and below-grade work. Two meetings were held with the bidders, one for the line builders and another for the foundation contractors, at which all aspects of the job were fully discussed. The unit prices were based on current wage rates and working conditions and were subject to adjustment by a percentage equal to 0.80 times the percentage change in the average wage rates. By September, the consulting engineers were able to provide purchasing with an evaluation of the bidding and computation, enabling the attached summary to be com- piled (see Exhibit 1). Notes 1. Two line contractors and one foundation contractor declined to bid. 2. The two lowest line constructors, Rapier and McTaggart, were evaluated, plus the possibility of a split award to (L) for foundations and () for CONSTRUCTION SELECTION One company, T.D. Rapier, had done almost all Moren's transmission work for over the last five years, but, with the EXHIBIT 1 Moren Corporation 345 kV Transmission Line Addison- Smithfield- Mesa Valley Bidder Line contractors (D) (E) (F) (G) T.D. Rapier (H) McTaggart Construction (1) Consulting engineer's prior estimate Foundation contractors: (J) (K) (L) 162 Purchasing and Supply Management above-grade work. However, McTaggart is recom- mended for the following reason: a. Offers lowest bid. b. Highly experienced. Built thousands of miles of line in mountain, desert, and swamp. Experience included 230, 345, 500, and 750 kV construction. 2. The two lowest line constructors, Rapier and McTaggart, were evaluated, plus the possibility of a split award to (L) for foundations and (7) for Line Construction Comparison of Bids Foundation Installation $47,103,840 $53,079,648 38,117,804 44,617,110 41,390,640 37.778,478 37,485,360. 37,993,872 43,433,700 27,672,804 36,192,072 No bid 47,750,400 30,612,400 73,775,574 38,966,364 35,201,376 Total $100,183,488 82.734.914 79,169,118 75,479,232 71,106,504 78,362,800 c. Presently working for several other power companies. d. Recommended by our design engineers and consultants. e. Has done considerable work in this state through a subsidiary, although not for Moren. BIDDER-LINE CONTRACTORS D E F G-T.D. Rapier H-McTappart I Mean Meda High Low Consulting Engineer's prior Estimate Line Construction%TOTAL LINE $47,103,840 47.00% $38,117,804 46.67% $41,300,640 52.29% $37,405,300 $43,433,700 $36,192,072 $40,620,569 $38,754,222 $47,103,840 $3.192.072 STRINGING $47,750,400 49.66% GLORN MOREN CORP (3) FOUNDATIONS AND LINE STRINGING /Decrecis/Decre Foundation Installation% TOTAL from Est from FOUNDATIONS Medan $440,560 17,349,018 $0.637.50 $1,636.418 16.350,700 $1.836,418 $10.265.040 $2.244.2 $4.316.700 $3,678478 $11.356.328 $3.562,150 $53,079,64 52.99% $44,617,110 53.93% $37,778,478 47.72% $37.993.872 50.34% $27,672.004 38.02% NO 410 540.226.362 537,993.872 $53,079.048 127,672,804 $30,412,400 Medan cs/Decrease froma/Decrease From TOTAL-BOTH /Dec/Decre COMPONENTS afrom Est se from Median $15.085,776 $100,183,408 121,820,889 16.623.238 -$215,394 $82,734,914 $4,372,114 $79,109,118 $80631 $75,479,232 42.863.500 $71,108,504 $7.255.254 $22.467 248 $14,004,710 $7.104.07 17381472 $7.939.594 NA 10 $10.321.068 NA Nil 381,734,65 $79,189,118 $100,183,400 $77,106.504 $76,342.000 NA $21.014,370 23.045.796 10 $3.000.000 -$8.002,014 $100 1.000.000 1700 MU BLUSA CASE 2 MORENG $10010 * Conduction 120 LA S TOTAL BOTH COMPONENTS PLANE SOLAR WWW. NEED IDENTIFICATION AND SPECIFICATION ISSUES: (A) What are the major considerations in splitting a contract into different phases? (B) What is the role of the purchasing manager in reviewing the work of his subordinates? CHALLENGE: No. 1: To whom should the foundation and erection contracts be awarded? No. 2: If you were in the position of Mr. Carter: Which contractor would you select for the foundation and erection work? SOLUTION AND RECOMMENDATION QUESTIONS TO ADDRESS Q1. Would you separate these two (2) phases and award them to different bidders? Q2. Why do think there is such a wide range of bids for the foundation installations ($4 million between the lowest and second lowest bids; $30 million between the lowest and highest bids)? Q3. How does the selection of a line and foundation installation contractor compare with the selection of a pole manufacturer as far as difficulty of choice is concerned? Q4. What are the advantages and disadvantages of splitting the erection and foundation contracts? Q5. What additional information would you request from your subordinates if you were Mr. Carter? Q6. On the basis of the available information which decision would you make?