Question

Orleans Construction Company Case (adapted from Meredith and Mantel)

The Orleans Construction Company, a small construction company in North Carolina, has been awarded a contract for the construction of a new 25,000 soccer stadium at Greensboro. The City is hoping to use this facility to attract a new soccer franchise. The construction cannot start earlier than March 2, 2020 (because of the availability of bond funds) and must be completed within 1 year (52 weeks). A penalty clause of $13,000 per week of delay beyond the 52 weeks is written into the contract.

Ms. Ashley Hunt, the president of the company, called a planning meeting. In the meeting she expressed great satisfaction at obtaining the contract and revealed that the company could net as much as $300,000 on the project. She was confident that the project could be completed on time with an allowance made for the usual delays anticipated in such a relatively large project.

Ms Lauren Phillips, the director of personnel, agreed that in a normal year only slight delays might develop from labor shortages and weather conditions. However, she reminded the president that for such a relatively large project the company would have to use only unionized employees and that the construction industry labor agreements were due to expire after midnight on November 29, 2020. The company operates on a Monday-Friday work week. Past experience indicates a 50-50 chance of a strike if there is no agreement with the union. Ms. Hunt agreed that a strike might cause a problem. Unfortunately, there was no way to change the contract. She inquired about the prospective length of a strike, if a strike occurs. Lauren figured such a strike could last 8 weeks (70 percent chance) or possibly 12 weeks (30 percent chance).

Ms. Phillips was not too pleased with these prospects. However, before she had a chance to discuss contingency plans, she was interrupted by Richard Smith, the vice president for Engineering. Richard commented that an extremely cold December is being predicted for 2020. This factor had not been taken into consideration during earlier estimates since previous forecasts called for milder weather. In the event that December is cold, all activities requiring the pouring of concrete during that time period would require special heating that cost $700 per week. But the probability that heating will be needed is only 33.3% (depending on the temperature).

This additional information did not please Ms. Hunt at all. The chances for delay were mounting. And an internal overhead expense of $1000 per week would be incurred in the event of any delay beyond the anticipated completion date (note, this is different from the due date).

The technical details of the project are given in the appendix to this case. The management team was asked to consider alternatives for coping with the situation. At the end of the week four proposals were submitted.

Proposal 1. Do not take any special action at all; leave the original plan as it is and hope and pray that there is no strike and that there is also no cold December. Hint: this does not mean there are no consequences in the event of a strike or a cold December. 2

Proposal 2. The roof is very important since it precedes several activities. Use three shifts and some overtime to cut six weeks off the roofing at an additional cost of $10,200.

Proposal 3. Expedite the pouring of seat gallery supports. This would cost $18,000 and cut the duration of that activity to six weeks.

Proposal 4. This is the same as Proposal 3 but in addition put a double shift on the filling of the field for an additional cost of $7,500. The duration of that activity will be cut to 5 weeks.

Questions (read the case analysis guidelines on how to prepare your report)

1. Analyze the four proposals and make recommendations on which proposal should be selected based on expected costs (and profitability). For each proposal you may want to consider (where appropriate) the cost of the expediting activity, penalty costs, overhead costs, cost of heating, cost of no strike, cost of an 8 week strike, and cost of a 12 week strike and the associated probabilities.

2. What other factors (besides expected costs) should Ms. Hunt consider before making a decision? What then might the decision be?

3. What other factors might enter into the decision such as behavioral, organizational and political?

4. What recommendation would you make as the president of Orleans Construction Company?

Appendix: Technical Details of the Stadium

The stadium is an indoor structure with a seating capacity of 25,000. The project begins with clearing the site, an activity that lasts eight weeks. Once the site is clear, work can start simultaneously on the structure itself, and also on the field.

The work on the field involves subsurface drainage which lasts eight weeks, followed by filling for the playing field and track. Only with the completion of the filling (14 weeks) can the installation of the artificial playing turf take place, an activity that consumes 12 weeks.

The work on the structure itself starts with the excavation followed by the pouring of concrete footings. Each of these activities takes four weeks. Next comes the pouring of supports for seat galleries (12 weeks), followed by erecting pre-cast galleries (13 weeks). The seats can then be poured (4 weeks) and are ready for painting. However, the painting (3 weeks) cannot begin until the dressing rooms are completed (4 weeks). The dressing rooms can be started only after the roof is completed (8 weeks). The roof must be erected on a steel structure which takes 4 weeks to install. This activity can only start after the concrete footings are poured.

Once the roof is erected, work can start simultaneously on the lights (5 weeks) and on the scoreboard and other facilities (4 weeks).

Answer 1

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Answer:

1) Proposal 2

2)The president of the company Ms. John should take into consideration other costs which will arise due to labor shortages due to labor strikes which will cause serious delays and increase costs of the project.

3)The behavioral factors such as like delegation of authority, responsibility and accountability of the upper management,The behavioral factor refers to the type of control the organisation has on its employees and the political factors include the policies of the current government where the stadium will be built.

4) The revision of project according to present scenario and current projections taking into consideration all contingencies such as delays and additional costs.

Explanation:

1)

As the stadium is an indoor facility so after clearing the site the roof should be constructed on an urgent basis to speed up the construction process which takes 4 weeks to install and three shifts and overtime of labor can be used to cut costs of $ 10,200.

2)

The president of the company Ms. John should take into consideration other costs which will arise due to labor shortages due to labor strikes which will cause serious delays and increase costs of the project. The month of December is tipped to have a cold weather situation which involves the probability of heating cement and raw materials which may incur additional costs to the enterprise. The labor agreement is due to expire on November 29,2020 and only unionized labor is delegated with work so extra shifts and overtime will also incur additional costs. In addition, the site is to be cleared which takes up to 8 weeks and also involves labor movements. So, the cost of the project will be more than $300,000

The President of the company should make an informed decision taking into consideration the above contingencies.

3)

The other factors such as the organizational factors like delegation of authority, responsibility and accountability of the upper management to review and accept the ongoing contract and prevent company from any impending fines.

The behavioral factor refers to the type of control the organisation has on its employees. The major indication shows how the company's management controls or how efficiently the worker is doing his work. All controls of management should be working in an efficient manner to optimize better results for the organisation as whole.

The political factors include the policies of the current government where the stadium will be built. The Present scenario is that the enterprise uses only unionized labor and the agreement runs only till November 29,2020 which would entice the organisation to use labor outside the union which might lead to higher risk of strikes and delays in the construction process.

4)  

As the president of the Fred construction company Am aware that with this project completed in the city of Detroit, it will attract a major soccer franchise in the region which will surely boost the goodwill of the company.

The company plans to complete the project in the required time i.e 52 weeks beyond that the company is imposed fine of 13,000 per week of any delays. The labor agreement should be revised to speed up the construction process by utilizing labor force in multiple shifts and overtime which will incur costs but will speed up the construction process.

The engineering department should also be taken into consideration because of the forecast of the cold month of December. The other technicalities in the contract should be followed with slight revision of project costs.

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