THE WELCH COMPANY
440 Davis Court #1602
San Francisco, CA 94111-2496
415 781 5700
S U M M A R Y
DIARY: September 19, 1996 01:48 PM Thursday;
Discussion with Tom Benero re meeting with Dutra tomorrow.
2...Communication 90% of Time Managing Daily Work
3...USACE History with Dutra May Contribute to Current Issues
4...Early Release of Demobilization Payment
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0201 - Corps of Engineers, SFD
020101 - Mr. Thomas Benero; Chief
Not Enough Time to Write Notes, Executives
Communication Meetings People Retain only
Meetings Unproductive, Need Time to Figure
90% Time Communication Main Factor Management Productivity Success 90
70% Day Wasted Unproductive Meetings
90% Management Communication People Retain Only 2% Metrics Improve Me
Desk Piled High with Paper, Put in Computer
Bonero, Tom Contracting Officer USACE 90% of Time Consumed in Meeting
90% of Time Consumed in Meetings Calls No Time for Analysis Planning
Communication 90% of Time Consumed in Meetings Calls No Time for Ana
1512 - ..
1513 - Summary/Objective
151401 - Follow up ref SDS 11 0000, ref SDS 10 0000.
151403 - Tom requested a private meeting following the Claim Team meeting. He
151404 - mentioned various concerns and initiatives with respect to the Port of
151405 - Oakland's contract with Dutra, and indicated some of these may warrant
151406 - support under the Communication Metrics contract scope, which is
151407 - currently managed by Tom Keesling.
151409 - ..
151410 - Developed preliminary grasp of issue arising from front loading the
151411 - bid and then encountering huge losses from quantity increases on pay
151412 - items underbid to accomplish the front loading.
151414 - [See follow up review with Tom Keesling, ref SDS 12 0000.]
151416 - [On 961015 met with District Counsel. ref SDS 19 0000]
151419 - ..
1517 - Discussion
151801 - Communication 90% of Time Managing Daily Work
151803 - Tom said constant meetings and calls take up about 90% of his time,
151804 - which aligns with report on 890809 that communication takes up 80% of
151805 - the time for an executive in high technology. ref SDS 2 8812 Tom
151806 - advised that email is beginning to take more time. The Corps of
151807 - Engineers, like other government agencies, requires a lot of
151808 - paperwork.
151810 - ..
151811 - [On 020504 study shows professional standards for communication
151812 - practices and requirements on good management specified in FAR,
151813 - ISO, Health Care, Covey, Drucker, law, contract notice provisions,
151814 - and 2,000 years of literacy for contemporaneous documentation for
151815 - alignment and feedback to work intelligently, quickly, and
151816 - accurately are ignored in government, business, health care, every
151817 - sector. ref SDS 25 NS6F
151819 - ..
151820 - Tom looked at his desk and commented how it is piled high with papers
151821 - that need his attention, which takes time from attending meetings and
151822 - making calls. When he attends meetings, more papers are delivered.
151823 - While we met today, 3 or 4 people came into the office for Tom's
151824 - signature on various matters.
151826 - ..
151827 - We reviewed the meeting with Tom Keesling on 960418, discussing the
151828 - role of SDS implementing Communication Metrics by shoving all that
151829 - paper piled high on his desk into the computer for command and control
151830 - of the work using efficiencies of electronic records management
151831 - applying paperless office model, ref SDS 5 8840, originally discussed
151832 - with Tom on 960208. ref SDS 4 8908
151834 - ..
151835 - Tom explained today, his sense that most of the time in meetings and
151836 - calls is solving problems caused by prior communications being
151837 - incomplete, unclear, or erroneous. People try to expedite by having
151838 - more meetings, but it is a huge struggle.
151840 - ..
151841 - We reviewed former Secretary of State Henry Kissinger's concern that
151842 - too much information makes management an "Alice in Wonderland" of
151843 - continual bumbling. ref SDS 3 4238
151845 - [On 960920 discussion with Tom Keesling and Max. ref SDS 13 4261]
151847 - [On 970910 executives do not have time to think. ref SDS 23 3479
151849 - ..
151850 - Communication Metrics is designed to improve productivity of meetings,
151851 - calls and documents. Discussed briefly the meeting with Tom Keesling
151852 - on 960418 that planned a seminar where General Hatch would participate
151853 - in a moch meeting to demonstrate this new capability. ref SDS 5 8840
Corps of Engineers, SFD, Scope
190401 - ..
190402 - USACE History with Dutra May Contribute to Current Issues
190404 - Tom reviewed background of relationships between Tom Keesling and the
190405 - Dutra firm. Discussed briefly a prior meeting which COE called
190406 - because Dutra had not been performing work for several weeks/months.
190407 - At this meeting, COE was suprised by Dutra's demand for approval of
190408 - extra payment of its claim, as condition to continue work. There was
190409 - evidently a heated exchange between Dutra and the District Engineer
190410 - that occurred in a separate room.
190412 - ..
190413 - Tom indicated that Dutra does most of the major dredging work on the
190414 - West coast. This indicates a very experienced, savvy firm that is
190415 - used to presenting claims and pursuing them through the government.
190417 - ..
190418 - Some COE inspectors on Dutra's job did not keep adequate records.
190420 - ..
190421 - He feels Dutra may need money because they have a lot of cash flow
190422 - tied up in new equipment.
190426 - ..
190427 - Early Release of Demobilization Payment
190429 - Dutra is seeking early release of payment for mobilization. They have
190430 - been paid 80% of $11M to mobilize, but are now seeking early release
190431 - of the remaining 20% for demobilization. He showed a letter from
190432 - Dutra indicating they incurred a $1M+ expense for insurance to
190433 - mobilize their new dredge at the project, ref DRT 1 line 37. This
190434 - appears to be the matter Tom raised in the just completed Claim Team
190435 - meeting, ref SDS 11 9666.
190437 - [See follow up at meeting with Dutra, ref SDS 14 0055; and
190438 - drawings submitted to Max at ref SDS 13 9001; received
190439 - Contractor's letter at ref SDS 16 7006.]
190441 - ..
190442 - We considered whether there have been indications that Dutra is in
190443 - financial trouble, such as requests for joint checks or other
190444 - inquiries by vendors. A concern would be to ensure that money paid by
190445 - COE is applied to performing the Port of Oakland project. Tom
190446 - indicated he is friends with Dutra's account/bookkeeper/controller,
190447 - and is getting constant calls saying they need money. It is unclear
190448 - from this discussion today whether Dutra's bonding company has been
190449 - notified by COE of Dutra's possible inability and/or refusal to
190450 - perform. Generally the bonding company would be required to put up any
190451 - monies needed to complete the work, assuming Dutra's claim is
190452 - substantially invalid.
190454 - [See follow up where the president of the Dutra firm has taken
190455 - over direct daily project management of job. ref SDS 16 7793]
190457 - ..
190458 - There is a general feeling that Dutra significantly front loaded its
190459 - bid for mobilization.
190461 - ..
190462 - Tom has a memo from his legal expert that does not support early
190463 - release of demobilization funds requested by Dutra. Discussions with
190464 - Max and others indicate COE policy is to pay for demobilization at the
190465 - completion of the work. So far Tom has been unable to find a
190466 - published policy that addresses this point. The contract language as
190467 - Tom related it, however, may render policy considerations moot.
190469 - ..
190470 - Tom is considering offering early release of some mobilization funds
190471 - in exchange for settlement with respect to aspects of Dutra's claims
190472 - discussed earlier in the claim team meeting.
190474 - ..
190475 - Tom indicated the original estimated quantities showed about 6.5M
190476 - yards to dredge. An amendment prior to bid time reduced the quantity
190477 - to about 5.5M yards. Actual yardage now seems to be closer to the
190478 - original estimate of 6.5M yards, ordinarily constituting a significant
190479 - benefit to the contractor.
190481 - [On 960921 reviewed contract provisions. ref SDS 15 8333.]
190483 - ..
190484 - This indicates that Dutra's front loading of mobilization may mean
190485 - they significantly underbid pay quantities that are now forcing them
190486 - to perform work at a loss. Every extra yard that should be additional
190487 - payment is actually a loss.
190489 - ..
190490 - Tom indicated that Dutra is emotional and pointed in meetings, which
190491 - seems understandable in light of their situation.
190493 - ..
190494 - We considered how COE might approach the meeting tomorrow from the
190495 - perspective of seeking Dutra's support for its claim, rather than
190496 - presenting an outright "rejection." Tom Keeslings' analysis discussed
190497 - at the claim team meeting today, can be presented to Dutra as COE's
190498 - understanding of the evidence Dutra has offered so far.
190501 - ..
1908 - Analysis
190901 - The considerable change in the pay quantities from the origial bid,
190902 - comprises a management challenge.
190904 - ..
190905 - If Dutra's bid prices reflect the cost to perform the work with a
190906 - profit, then Dutra should be anxious to perform the work as quickly as
190907 - possible, since every yard they excavate above the pay quantity
190908 - increases their cash flow. Their conduct, however, does not show they
190909 - are anxious to perform.
190911 - [On 960930 discussed again with Tom Benero, ref SDS 17 8304]
190913 - ..
190914 - Alternatively, if Dutra front loaded its bid, then the money may have
190915 - come from pay items on which the actual quantities have greatly
190916 - exceeded the estimated quantities in the orginal bid. It had to come
190917 - from somewhere. Typically, a contractor would seek to protect itself,
190918 - by unbalancing from fixed price pay items. Possibly Dutra did not
190919 - follow that practice here. The result is that increased quantities for
190920 - work being paid at less than the cost to perform, causes a huge loss
190921 - for Dutra, that should otherwise be a huge bonus. This is the risk of
190922 - excessively unbalancing a bid, as reflected by various authorities
190923 - that frown on the practice.
190925 - ..
190926 - Did Dutra rely on the government's revised estimate and front load in
190927 - good faith, and are they now seeking reasonable relief from a changed
190928 - condition of increased quantities, in the guise of encountering
190929 - increased quantities of hard material, which Tom Keesling has shown
190930 - may be unjustified.
190932 - ..
190933 - Or, did Dutra deliberately front load their bid expecting to be forced
190934 - to perform the work at a loss, placing the government in the position
190935 - of having to bail them out, and are they offering the rationale of
190936 - differing conditions with respect the character of the material (i.e.,
190937 - more hard, than represented by the bid documents), in order to give
190938 - the government a basis to approve a change on grounds other than
190939 - having to acknowledge the bid quantities were incorrect? That was the
190940 - Macavillian strategy of Healy Tibbits on the Pier 11 project.
190942 - ..
190943 - If Dutra truly expected pay quantities to be 1M yards more than bid,
190944 - it seems the rational course would have been to unbalance on those
190945 - items. This would have optimized their windfall. They may not have
190946 - been able to know with sufficient certainty which pay items were
190947 - subject to excessive increase. Without analysis of the bid documents
190948 - this matter cannot be fully considered. Are the quantity increases
190949 - evenly distributed among the many pay items, or do they mainly occur
190950 - on only a few? Need to compare the original bid quantities with the
190951 - the amended quantities which comprise the Dutra contract.
190953 - [On 960921 reviewed contract provisions. ref SDS 15 8333]
190955 - ..
190956 - [On 961004 discussed measurement procedures with Dutra staff at
190957 - job site. ref SDS 18 0403]
190959 - ..
190960 - [On 961115 Action Item review meeting, need spreadsheet to
190961 - reconcile quantities. ref SDS 20 9502]
190963 - ..
190964 - [On 970202 reviewed Dutra's spreadsheet of quantites, errors
190965 - reported to USACE. ref SDS 21 0000]
190967 - ..
190968 - Actually, if the area to be dredged is constant, then increased
190969 - quantity reflects deeper cuts, and that should mean more excavation
190970 - per move, improving the efficiency of the dredging operation, and
190971 - therefore lowering the unit cost.
190973 - ..
190974 - Dutra seeks to increase its unit costs, and so seems to be citing
190975 - harder material. That issue has not yet been analysed.
190977 - ..
190978 - One strategy to solve the thing, might be to convert the contract to
190979 - time and material on the grounds that excessive quantity overruns
190980 - constitute a materially different contract from what the contractor
190981 - could reasonably have anticipated performing. This would avoid paying
190982 - the contractor a windfall where they are seeking increases in unit
190983 - costs of 200% - 400%.
190985 - ..
190986 - The reasoning would be that Dutra's bid to perform scope "A" has been
190987 - stymied because they are forced to perform scope "B." The basic
190988 - question is to accomplish the work at a fair price for the government.
190989 - If Dutra is the best dredging outfit on the West coast, there does not
190990 - seem to be a good alternative, i.e, a way to get the work done cheaper
190991 - than by sticking with Dutra.
190993 - [On 970703 submitted this analysis after Dutra filed bankruptcy
190994 - and its claims escalated. ref SDS 22 1728]
190996 - ..
190997 - [On 981027 $30M paid above contract price. ref SDS 24 9152]
190999 - ..
191000 - There are problems with this method of managing the work to retain
191001 - incentives for timely, cost effective performance. In effect COE
191002 - becomes a partner with the contractor. Once you convert to T&M, the
191003 - whole thing becomes just a game to spend money.
191004 - ..
191005 - There does not seem to be a promising alternative.
191007 - ..
191008 - Do the other bidders have the ability to replace Dutra on T&M?
191010 - ..
191011 - The problem is that Dutra's best people are spending time figuring out
191012 - how to submit a claim, rather than how to accomplish the work. COE's
191013 - challenge is how to direct that focus and energy into getting the work
191014 - done.
191016 - ..
191017 - Might consider a cost, plus incentive approach. Needs more thought.
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