Mountain of Iron, Mountain of Dollars

This critical incident case focuses on the special area in procurement - commercial discounts. Contract specifications contain one set of equipment data, while in actuality, a different set of data hold true of the delivered equipment. The equipment is mostly CNC tool machines. In the contract specifications, one number of grooves and their size are mentioned while those delivered are different. That is often a bone of contention between the owner and the contractor. From the project risk perspective an experienced project manager should always keep a close eye on all aspects of a project including procurement and suppliers management to address all risks and minimize them throughout the project life cycle.

IBRAHIM

Mr. Ibrahim, a tooling engineer, had a dream job. He worked for the state, meaning he had connections. He worked out of the resident engineers office, meaning he had money. He worked with foreigners, meaning he had connections and money. On the job site, he was with the maintenance department. As it was his job to inspect and maintain the equipment, he noticed that CNC tool machines, per contract specification, were delivered with a reduced number of grooves than they were contracted for. The grooves were shallow, and the total machinery weighed less. Ibrahim reported this to his boss, Abdullah - Kadir, who then ordered him to go ahead with the delivery as planned.

Ibrahim and Abdullah - Kadir represent the owners. They are also the new people in leading positions within the company. There werent any former employees who knew about the history and people working under the contractor, which left Ibrahim and Abdullah - Kadir unfamiliar with past occurrences. So, a very difficult game had to be played by the ambitious players, even though they didnt know the history.

When Ibrahim returned with the data, which included the type of tool machine, the dimensions of the groove, and the number of grooves, he learned that all the machines delivered are different from contract specification. In fact, Mr. Ibrahim realized that the contractor worked off a different machine specification. After informing his boss about these results, he was given orders to ask the contractor to change the machine specification, meaning the grooves number and size for future delivery. This resulted in a project change. This was the logic of the owner and represented how the owners viewed the issue. Since all the iron used to produce these machines was already paid for by Mr. Ibrahim s predecessor, the owner did not expect to pay any extra for this change. In fact, the owner expected to get the money back because the new specification could result in the use of less iron. Unfortunately, the contractor saw this as an attempt to introduce a new order. The contractor was not aware of the consequence of these project changes. He did not link these project changes with the cost, even though this was a significant change.

With the new specification, the contractor needed to use a better iron than the one Mr. Ibrahims predecessor had originally paid for. In fact, the new iron was the technologically better iron, and therefore, it cost more. The iron of the higher technological value was used to produce a higher quality of grooves. The people working for the contractor did not succeed in explaining this to the owner. So, these were two different views concerning the same issue. By the end of the project, the cost of the change was tremendous. The owner refused to pay the final amount. The contractors representatives were astonished.

Discussion items

What risk processes are missed in this case?

What would you do if you were a project risk manager?

What can a contractor do to prevent such a mistake in the future?