THE BATHTUB PERIOD

The award of the Scott contract on January 3, 1987, left ParkIndustries elated. The Scott Project, if managed correctly, offeredtremendous opportunities for follow-on work over the next severalyears. Park's management considered the Scott Project as strategicin nature.

The Scott Project was a ten-month endeavor to develop a newproduct for Scott Corporation. Scott informed Park Industries thatsole-source production contracts would follow, for at least fiveyears, assuming that the initial R&D effort provedsatisfactory. All follow-on contracts were to be negotiated on ayear-to-year basis.

Jerry Dunlap was selected as project manager. Although he wasyoung and eager, he understood the importance of the effort forfuture growth of the company. Dunlap was given some of the bestemployees to fill out his project office as part of Park's matrixorganization. The Scott Project maintained a project office ofseven full-time people, including Dunlap, throughout the durationof the project. In addition, eight people from the functionaldepartment were selected for representation as functional projectteam members, four full-time and four half-time.

Although the workload fluctuated, the manpower level for theproject office and team members was constant for the duration ofthe project at 2,080 hours per month. The company assumed that eachhour worked incurred a cost of $60.00 per person, fullyburdened.

At the end of June, with four months remaining on the project,Scott Corporation informed Park Industries that, owing to aprojected cash flow problem, follow-on work would not be awardeduntil the first week in March (1988). This posed a tremendousproblem for Jerry Dunlap because he did not wish to break up theproject office. If he permitted his key people to be assigned toother projects, there would be no guarantee that he could get themback at the beginning of the follow-on work. Good project officepersonnel are always in demand.

Jerry estimated that he needed $40,000 per month during the“bathtub” period to support and maintain his key people.Fortunately, the bathtub period fell over Christmas and New Year's,a time when the plant would be shut down for seventeen days.Between the vacation days that his key employees would be taking,and the small special projects that his people could be temporarilyassigned to on other programs, Jerry revised his estimate to$125,000 for the entire bathtub period.

At the weekly team meeting, Jerry told the program team membersthat they would have to “tighten their belts” in order to establisha management reserve of $125,000. The project team understood thenecessity for this action and began rescheduling and replanninguntil a management reserve of this size could be realized. Becausethe contract was firm-fixed-price, all schedules for administrativesupport (i.e., project office and project team members) wereextended through February 28 on the supposition that thisadditional time was needed for final cost data accountability andprogram report documentation.

Jerry informed his boss, Frank Howard, the division head forproject management, as to the problems with the bathtub period.Frank was the intermediary between Jerry and the general manager.Frank agreed with Jerry's approach to the problem and requested tobe kept informed.

On September 15, Frank told Jerry that he wanted to “book” themanagement reserve of $125,000 as excess profit since it wouldinfluence his (Frank's) Christmas bonus. Frank and Jerry argued fora while, with Frank constantly saying, “Don't worry! You'll getyour key people back. I'll see to that. But I want thoseuncommitted funds recorded as profit and the program closed out byNovember 1.”

Jerry was furious with Frank's lack of interest in maintainingthe current organizational membership.

Case Study Questions:

Should Jerry go to the General Manager? Why or why not? Thinkback to what is expected of a project manager and the projectcharter.

Should the key people be supported on overhead? Why or whynot?

If this were a cost-plus program, would you consider approachingthe customer with your problem in hopes of relief? Why or whynot?

If you were the customer of this cost-plus program, what wouldyour response be for additional funds for the bathtub period,assuming cost overrun? Why or why not?

Would your previous answer change if the program had the moneyavailable as a result of being under budget? Why or why not?

How do you prevent this situation from recurring on all yearlyfollow-on contracts?