This IT procurement involved replacing the existing integrated control system (ICS) and its computer components for the Montreal metro lines. The audit report argues that replacing the computer components was justified by their obsolescence. It would, from a risk point of view, be interesting to know what the supplier’s contractual obligations were for component obsolescence and the circumstances for withdrawing support.
In the meantime, let us feast our eyes on the ‘financials.’
A public call for tenders to award a lump-sum contract for the replacement of the ICS, was issued. Bids were required to include a technical proposal for software and a technical proposal for equipment. Prices quoted had to be firm and include all direct and indirect costs built into the contract. The statement of work included design, manufacture, delivery, installation and integration of equipment and systems. The contract was awarded on June 3, 2003 to the company that had achieved the highest point score. The price totalled $36,100,000, i.e. a maximum of $32,819,714 and a contingency provision of $3,281,971 equal to 10% of the value of the contract.
The audit report stated that,
‘since awarding the contract, costs and delays have steadily increased.’
The report says that at December 31, 2010, the project was still in the development and testing stage. The final cost had risen to almost $200,000,000. Of this figure, $63,700,000 is in-house costs. Also, $12,800,000 is provided as a contingency.
You will note the elapsed time of 7.5 years.
The planned completion was originally set at 31 months from the date of awarding the contract.
In summary the supplier costs have quadrupled from $32,800,000 to $120,300,000.
There is, unfortunately, a familiar ring to this story. There are many questions, here’s seven to get us started:
- Was there a planned programme of work with the tender?
- If so, who conducted due diligence?
- Who checked if the appointed supplier had the skills and resources?
- How did project management permit 7.5 years to elapse without decisive action?
- How were costs allowed to escalate and what was the charge process adopted?
- Why wasn’t the contract terminated?
- Who managed the contingency fund?
We’ll come back to how to better address IT Procurement in our next piece.
Meantime, what other questions are you thinking need answering?
Thanks
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Interested in insight on managing supplier performance? We recommend reading: “Contract Management failures again?”
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