THE TIDEWATER GAS AND ELECTRIC COMPANY

Customers of the Tidewater Gas and Electric Company (TG&E) were up in arms. Electric rates had gone up over 100 percent in two years. The state assembly was considering a bill to do away with the state public utility commission (PUC) and place approval of rate increases under the direct control of the assembly.

The PUC responded by conducting an extremely thorough management audit of TG&E's operation. One of the findings of this audit is quoted as follows:

Area: Contract management

Findings: The management of equipment and construction contracts ranges from poor to none at all. Cost overruns and schedule slippages on construction and equipment contracts are common occurrences. Such mismanagement causes two types of cost increases, which necessitate higher electric rates:

1. The cost of completed projects is far higher than it should be.

2. Electricity must be purchased from neighboring utilities at higher rates for unnecessarily long periods of time.

Recommendation: Policies and practices to ensure efficient contract management should be established and implemented immediately.

Savings potential: $10 million a year

1. Explain your understanding concerning the importance of contract administration or contract management. Have you noticed that in the help wanted ads of big-city newspapers there are always many ads for contract administrators?

2. When does the supply management department prepare for its expediting responsibilities?

3. Assume that you are a management consultant. Develop a list of recommendations for TG&E's supply management.