Case Study #2: The Case of the Unidentified Risks
This project takes place in South Australia. In September 2000, ACME Fabricators advised its staff that their new factory and offices out in semi-rural Angle Vale would be ready for completion by the end of April 2002. ACME was a responsible company and liked to keep their premises clean and tidy and their staff happy. The new premises at Angle Vale were developed on a 4.5-hectare site, previously used for grain crops. Consequently, ACME decided that significant landscaping would be required to enhance the amenity of the otherwise bare land.
The senior executive group pictured some land contouring with an attractive green lawn, and trees and shrubs to soften the impact of otherwise stark commercial buildings. Accordingly, they notionally allocated $232,000 for the project, and developed a tender document that called for the work to be completed by the time they moved to the new premises. They then invited proposals for landscaping and quotes for the work.
A company called Arbor Industries submitted an artist's sketch for the ACME evaluation team to picture what the landscaping would look like. Arbor was selected with a bid of $175,000, substantially lower than any other submission. Arbor then prepared a detailed landscaping plan based on existing drawings of the site provided in the tender. Arbor met with the ACME senior executives to agree project start date, access and security of plant and equipment, and a fixed price contract. A contract was duly signed.
The project was scoped and planned by Arbor, with specific milestones for site works, irrigation, turf laying, and tree and shrub planting. Arbor had undertaken many similar jobs on city sites in the past and based on the knowledge and skills of the project team, they did not think that a formal project management plan would be needed. All they wanted was agreement on the scope of the project and the key deliverable dates. From experience, they wanted to deal with only one person from ACME and it was agreed that the finance manager, a senior executive, would be responsible for the project.
Arbor commenced work on the 16th of November 2000 with site preparation including weed eradication. Work progressed smoothly until 20th of January 2001, when heavy vehicles delivering machinery, plant and equipment to the site significantly damaged the newly prepared and leveled ground for the lawn.
The Arbor project manager arranged his first meeting with the ACME finance manager to complain that he would have to re-do the site for the lawn which would take an extra 3-5 days. The finance manager agreed that it was not Arbor's fault and that work would have to be re-done, but as there was no more funding available he suggested that the project manager make the savings somewhere else from within the project. This was agreed but not documented.
By the end of January the landscaping site works were finished and the irrigation system was installed. Planting was to be done in three phases – shrubs, bushes and small trees first, then larger trees and finally the lawn. Shrub planting would take approximately 4 days, trees 7 days and the lawn would be laid in three separate operations over 2 days.
On the first day after the planting commenced, some of the project team noticed a few small plants seemed to be missing or broken off. These were quickly replaced. Within the first 3 days after the last planting, however, it was noted that around 35% of the plantings had been destroyed by rabbits or hares (as it was later determined. Remember, this is in Australia.) The Project Manager was very concerned and called another meeting with the ACME finance manager. Although sympathetic, the finance manager agreed that tree guards needed to be placed around trees but that was a contingency that the Arbor Company should have considered. The Arbor project manager indicated that pests were ACME's problem and again the finance manager indicated that Arbor should make savings elsewhere within its contract.
The Arbor project manager reviewed his budget and costs and determined that the only way to re-coup the losses from having to replant the shrubs and protect them, was to plant fewer plants and smaller trees which came at a much lower cost. Another way to make some savings was to try and re-design the irrigation system using fewer sprinklers.
Instant lawn was tentatively ordered for around the middle of March 2001 so that delivery would miss the hottest part of the year. Unfortunately, the commercial lawn growers had heavy demand at that time and advised that the last shipment could only be made by mid-February 2001. This was necessary to allow them time to plant new lawn ready for winter and spring clients. Arbor had no choice but to accepted delivery in mid February 2001. As it turned out, it was particularly hot when the lawn delivery was made over the 2 days, with hot gusty northerly winds.
By the third week of February 2001, the project was ahead of schedule by about three weeks due to the early delivery of the lawn, although the larger trees and plants had yet to be been planted. Unfortunately, water coverage of the lawn proved to be barely enough in windy conditions and, with the sprinkler head reduction, did not fully water all areas. By this time Arbor was over-budget by about $24,000.
Since the original project was scoped and started, the original finance manager had secured a new position with another company and was set to leave in the third week of February 2001, just as the lawn started to brown off and die in patches. The new finance manager, who started one week later, was asked by the company to continue in the role of her predecessor on the project.
The Arbor project manager, spotting an opportunity, advised the new finance manager that about $25,000-$30,000 more was needed for the project to be completed, as was agreed by the previous finance manager. The new ACME finance manager was not sure how to deal with this, having no background information on the project. She tried to contact the original finance manager but he was off on holiday prior to taking up his new position.
The new ACME finance manager reviewed the budget for the project and finding that there existed a fixed price contract with no contingency amounts, notified the Arbor project manager accordingly. The Arbor project manager informed her of the problems caused by the heavy vehicles earlier in the project and the devastation by wild animals. Because of the refusal to provide more money, the Arbor project manager had reduced significantly the size of the larger trees that were to be planted later in March-April 2001 to try and contain the budget deficit and make savings.
The project concluded with Arbor being three weeks ahead of schedule, but $25,100 (14.3%) over budget. The executives of ACME were not happy with the project at its conclusion. Through the finance manager, they indicate that the lawn was dead in patches, the plants were small and that as a result it was not like the drawing that they had been provided at tender stage. They insisted that either these issues be rectified or the contracted amount be reduced.
Arbor responded that a number of verbal agreements had been reached and that Arbor had fulfilled its obligations, indeed had lost money on the contract. The dispute was then referred to the respective legal representatives of each company for resolution, but the antagonism between the parties meant that the dispute could well end up in court.