Case 5

Construction Project Management - NDQS- UNIVOTEC Case Study (07/07/2013)
Camden Construction Corporation "For five years I've heard nothing but flimsy excuses from you people as to why the competition was beating us out in the downtown industrial building construction business," remarked Joseph Camden, president. "Excuses, excuses, excuses; that's all I ever hear! Only 15 percent of our business over the past five years has been in this area, and virtually all of that was with our established customers. Our growth rate is terrible. Everyone seems to just barely outbid us. Maybe our bidding process leaves something to be desired. If you three vice presidents don't come up with the answers then we'll have three positions to fill by midyear."We have a proposal request coming in next week, and I want to win it. Do you guys understand that?" BACKGROUND Camden Construction Corporation matured from a $1 million to a $26 million construction company between 1969 and 1979. Camden's strength was in its ability to work well with the customer. Its reputation for quality work far exceeded the local competitor's reputation. Most of Camden's contracts in the early 1970s were with long-time customers who were willing to go sole-source procurement and pay the extra price for quality and service. With the recession of 1975, Camden found that, unless it penetrated the competitive bidding market, its business base would decline. In 1976, Camden was "forced" to go union in order to bid government projects. Unionization drastically reduced Camden's profit margin, but offered a greater promise for increased business. Camden had avoided the major downtown industrial construction market. But with the availability of multimillion-dollar skyscraper projects, Camden wanted its share of the pot of gold at the base of the rainbow. MEETING OF THE MINDS On January 17, 1979, the three vice presidents met to consider ways of improving Camden's bidding technique. Finance: "You know, fellas, I hate to say it, but we haven't done a good job in developing a bid. I don't think that we've been paying enough attention to the competition. Now's the time to begin." Operations: "What we really need is a list of who our competitors have been on each project over the last five years. Perhaps we can find some bidding trends." Engineering: "I think the big number we need is to find out the overhead rates of each of the companies. After all, union contracts specify the rate at which the employees will work.
Senarath Bandara Bsc. Ceng- MIESL, MBA (Project. Management) Diploma in Arbitration
Therefore, except for the engineering design packages, all of the companies should be almost identical in direct labor man-hours and union labor wages for similar jobs." Finance: "I think I can hunt down past bids by our competitors. Many of them are in public records. That'll get us started." Operations: "What good will it do? The past is past. Why not just look toward the future?" Finance: "What we want to do is to maximize our chances for success and maximize profits at the same time. Unfortunately, these two cannot be met at the same time. We must find a compromise." Engineering: "Do you think that the competition looks at our past bids?" Finance: "They're stupid if they don't. What we have to do is to determine their target profit and target cost. I know many of the competitors personally and have a good feel for what their target profits are. We'll have to assume that their target direct costs equal ours; otherwise we will have a difficult time making a comparison." Engineering: "What can we do to help you?" VP: Finance: "You'll have to tell me how long it takes to develop the engineering design packages, and how our personnel in engineering design stack up against the competition's salary structure. See if you can make some contacts and find out how much money the competition put into some of their proposals for engineering design activities. That'll be a big help. "We'll also need good estimates from engineering and operations for this new project we're suppose to bid. Let me pull my data together, and we'll meet again in two days, if that's all right with you two."
REVIEWING THE DATA The executives met two days later to review the data. The vice president for finance presented the data on the three most likely competitors (see Exhibit I). These companies were Ajax, Acme, and Pioneer. The vice president for finance made the following comments: 1. In 1973, Acme was contract-rich and had a difficult time staffing all of its projects. 2. In 1970, Pioneer was in danger of bankruptcy. It was estimated that it needed to win one or two in order to hold its organization together. 3. Two of the 1972 companies were probably buy-ins based on the potential for follow-on work. 4. The 1974 contract was for an advanced state-of-the-art project. It is estimated that Ajax bought in so that it could break into a new field.
The vice presidents for engineering and operations presented data indicating that the total project cost (fully burdened) was approximately $5 million. "Well, thought the vice president of finance, "I wonder what we should bid so it we will have at least a reasonable chance of winning the contract? Exhibit I. Proposal data summary (cost in tens of thousands) Year Acme Ajax Pioneer 1970 270 244 250 340 830 288 560 260 233 280 838 286 540 378 180 883 320 182 307 433 342 800 880 380 158 188 760 Camden Bid Camden Cost 283 243 355 866 281 547 362 188 866 312 175 316 449 333 81 1 904 376 153 200 744 260 220 300 800 240 500 322 160 800 280 151 283 400 300 700 800 325 130 165 640
1970 260 1970 355 1971 836 1971 300 1971 570 1972
240* 375 190 874 318 170 300 300* 330 808 884 385 148 193 763
1972 l00* 1972 880 1973 410 1973 220 1973 400 1974 408 1975 338 1975 817
1975 886 1976 384 1976 1977 140 197
1977 750
*Buy-in contracts

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Construction Project Management - NDQS- UNIVOTEC Case Study (07/07/2013)

Construction Project Management - NDQS- UNIVOTEC Case Study (07/07/2013)

Construction Project Management - NDQS- UNIVOTEC Case Study (07/07/2013)

1975 886 1976 384 1976 1977 140 197

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