Case Information: A contract was let in September 2010, to Performance Computer

Question

Case Information:

A contract was let in September 2010, to Performance Computer Corporation (PCC) for new software and software upgrades to an existing system that was undergoing major modifications.

When it issued the Request for Proposal (RFP), the Agency identified a need for software, but was still in the initial stages of system modification. User requirements and system specifications were not fully developed for any of the proposed modifications. However, the Agency and its technical representatives, feeling confident about what had been developed, elected to proceed since current year money was expiring and need to be committed, and the senior manager was eager to complete the upgrade effort.

The Agency did not advertise, but gave RFPs to three firms who had had contracts in the past. Since PCC had performed other work on the system being modified, it was selected and awarded a fixed price contract for $445,150, with a delivery schedule of fifteen months. The contract required phased delivery of the new software. However, there were no Agency approvals contained in the contract terms, which precluded the contractor from starting a new phase of the project, even though a previous phase may not be complete. Procedures were written to control changes in the scope of work and the programming language was specified in the statement of work. Satisfactory performance by the contractor was described in the contract terms as “the system must demonstrate effectiveness, be automated wherever possible and be flexible…” No acceptance testing procedures were included. In addition, no quality criteria were defined for the required system performance or software documentation.

Contract delivery dates, scope of work and costs were revised several times, but the contractor was still unable to meet the revised schedule or deliver an acceptable product to the Agency. The contractor claimed that its inability to meet the delivery schedule was due to:

Extensive changes from the negotiated baseline requested by the Agency

Inexcusable delays and performance interference caused by the Agency technical personnel

Delays by Agency personnel in reviewing products for approval

In response to these allegations, the Agency admitted some of the changes were not clearly identified in the contract and others were clearly outside the scope of work. The Agency also admitted that the reviews were not timely, but maintained that poor quality of the documentation delivered by PCC was the cause. The Agency denied that its technical personnel interfered with PCC’s performance.

The contractor also claimed difficulty in understanding the software systems desired because of undefined system requirements and poorly described performance criteria in the contract, and that user requirements were never adequately defined or frozen. In addition, the contractor provided system concepts for two of the systems, and working with current system users, reviewed available system documentation and developed user requirements based on responses to user questionnaires. The contractor then used this information to develop the general design criteria, which the Agency rejected several times for not meeting its requirements. At the same time the Agency rejected the proposed designs, it also added some new requirements to the specifications and some clarifications to the existing descriptions and specifications. These changes delayed the completion schedules, increased contract costs and caused the Agency and the contractor to disagree about whether the new requirements were included in the original scope of work.

Two years, thirteen contract modifications and an additional $560,000 later, the Agency was faced with a very weighty program management decision. The contract value was now $1,105,150, the contract was several months away from any sort of delivery and the contractor was requesting additional funds to continue. The contracting officer, who had grown intensely frustrated with PCC’s lack of progress, maintained that the only solution was to terminate the fixed-price contract for default and assess a penalty against PCC for failure to deliver a usable software package.

Questions:

Given the difficult situation identified in this case, describe what you see as factors that contributed to the problems encountered by both parties.

Also identify the phase(s) in the contracting process where these factors originated and describe what actions could have been taken in each of the phases identified to prevent these problems from occurring.

What kind of claims and/or equitable adjustments is the Agency open to? What kind of case does the contractor have?

What sort of solution do you recommend to solve the issues – is termination the only solution?

Explanation / Answer

The contract encountered several difficult situations due to essential factors which needed clarity being ignored right at the initial stages before the contract was issued itself.

The agency was wanting to acquire new software for a system which was itself undergoing major modifications. Acquiring new software upgradation to existing software while the very system on which the software needs to be run is itself undergoing several major modifications is extremely bad business policy. It is highly improbable to define accurately software requirements for any system which is itself not clearly defined. This leads to ambiguity in the work allotted as agency itself as no clear idea of the true requirement. Agency should have upgraded the systems entirely then drawn up a specific and clear requirement on the software required to be done on the system through adequate involvement of users and feedback from them which should be implemented within the required software design before awarding the contract.

Agency proceeded to award a contract not because it had a clear cut requirement and was prepared with all user requirements and system specifications but on the basis of utilisation of funds before the end of the financial year in fear of losing the allotted funds provided for upgradation. Clear analysis of the requirement of the system and the users is much more important as a clear cut requirement and plan can go a long way in saving cost for the company.

The agency did not follow the norm for providing such a contract by issuing an advertisement and thereby, availing of the best services at the most economical prices comma instead electing to provide rfps to the three firms which had worked with the agency in the past. To ensure optimal pricing is received along with the best quality of performance for the given pricing it is essential that an advertisement be placed to avail of the best possible services for the given price. The company should have advertised RFP.

The contract provided required phased delivery of the software, but the very idea behind a phased delivery is to ensure suitability and conformity to requirement of the software, which was ignored as mandatory for the development to move to the next phase. Therefore even though the previous face was not as per requirement and complete a verified the next phase was already started. The contract should have clearly specified that until and unless anyways delivery has been cleared for quality and tested and found suitable the contractor cannot move on to the next phase of software design.

Satisfactory performance is a major criteria which could render the contract as satisfactorily completed and not breached or voidable, therefore it requires accurate and clear description of what factors define the performance to be satisfactory and not be general in description or ambigous. The agency by describing satisfactory performance as the system demonstrating effectiveness of being automated wherever possible and flexible provided terms which could be applicable to absolutely any software provided. Another major flowers that absolutely no quality criteria was specified or testing procedures required for acceptance and quality check and clearance of the software. Satisfactory performance criteria should be clearly Defined by outlining the exact requirements of the software to be implemented within the software and that every criteria should be met and clear the quality check up on testing by the agency.

Due to the scope of work being inadequate,, non descriptive and ambigous because of major modifications being consecutively undertaken for the systems the scope of work had to be constantly revised and redefine along with revision of schedule and requirements of the end product. The confusion was considerable upon the requirement of the software and it resulted in the agency requiring the contractor to analyse the user requirements on the basis of responses from user questionnaire, thereby, requiring the contractor to specify the work to be done. When the contractor provided the requirement as per their opinion it was constantly rejected by the agency with demand for further modifications leading to numerous such attempts. This led to extensive bloating of the initial budget causing the contract value to more than double, and no sign of a completion of the software and delivery even after 2 years and 13 modifications to the contract. Agency should have ensured that the scope of work is clear and unambiguous to enable the contractor 2 clearly follow specifications and me to the given requirement without constant inputs from the agency and interference within the work allotted. The inflation in the cost and the inability of a contractor to meet the terms of the contract mostly caused due to in aptitude on the part of the agency and lack of clarity on the scope of work within the contract.

The Agency is open to submit a claim which is written demand assertion by one of the contracting parties seeking as a matter of right the payment of money in the certain sum, adjustment interpretation of contract terms or another relieg arising under or relating to the contract. Agency can file for request for equitable adjustment under termination for convenience and suspension of work.

The contractor can admit request for equitable adjustment under the clause of variation and estimated quantity and fixed price changes. We can also file a claim on the basis of adjustment or interpretation of contract terms.

Termination is definitely not the only solution former and the issues can be sorted out by the agency sitting at the drawing board and presenting a clear requirement with a clear deadline for delivery and require the delivered software to be tested and run for quality check. PCC definitely deserves a chance to prove the ability given the fact that, most of the problems which occurred within the contract because due to ineptitude and lack of planning on the part of the agency.

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