TITULIZACION DE CARTERA DE CREDITOS HIPOTECARIOS

I was assigned to a yearlong project to build automated heavy equipment movement systems for a Norwegian customer. Final testing and acceptance of the systems were to be in California. Then the systems were to be surface shipped to Malaysia for installation and usage. I had several critical subcontractors in the project. These subcontractors were controlled by our purchasing agents on a part- time basis and these purchasing agents reported to me for the project on a dotted line. A Dutch subcontractor had six months to complete 20 high- pressure hydraulic cylinders for the project and surface ship them to California. This Dutch subcontractor also had a good track record with our company for on-time and quality product delivery.

I let our purchasing agent control this subcontractor by calling them every two weeks and getting updates on the progress of the project. At the end of the second month, we learned that the spe- cial steel provider from Germany for the casings of the hydraulic cylinders would delay their delivery by a month. Our subcontrac- tor assured us that even with this material delay he would com- plete the project on time. We accepted the one- month delay for the special steel delivery and the fabrication start-up. Our subcon- tractor had all other components and materials in house to start the fabrication.

Another month passed. We got devastating news from our subcontractor that their special steel supplier in Germany delayed the delivery another four months due to a large order from China.

The whole steel factory capacity was dedicated to China for several months and our subcontractor’s small order was pushed out another four months. This push out of raw material was totally unaccept- able. After several telephone conversations with our subcontrac- tor, the best he could do was to deliver the completed and tested hydraulic cylinders by airfreight three months late to our facilities in California. This would delay the delivery of assembled, tested, customer- accepted, and airfreighted systems to our customer in Malaysia by two months. A two- month delay in the project would cause heavy liquidated damages and a black eye to my company. I raised the emergency flag immediately. I called an emergency upper management meeting to discuss the grim situation and to take the necessary steps to remedy the issue. I also invited the pres- ident of our subcontractor to join the meeting by teleconferencing. I depended totally on this subcontractor who had an excel- lent track record and I did not put in more rigorous controls to monitor their progress and to understand in detail the risks they were taking. I prepared for the emergency upper management/ subcontractor meeting the next day. I put together several options to remedy the issue. I prepared a risk analysis and cost benefit analysis for each option.

The first order of business was to take full control of the situation and not depend on the subcontractor. I was given full responsibility to establish such control over this subcontractor. The company provided the purchasing agent in charge of the sub- contractor to report to me on a full- time basis. I also requested a full- time quality engineer by name. I sent him to the Netherlands after getting the Dutch subcontractor’s permission to monitor the subcontractor on location.

One option was to find another hydraulic cylinder manufacturer who had the special steel material in stock and cancel the contract with the Dutch subcontractor. This option was dropped during the meeting because the hydraulic cylinder design was already com- pleted by the Dutch subcontractor and it was approved by us, by our customer, and by the regulatory agency. To start everything from scratch after three months into the project was not acceptable.

Another option was to find the special steel at a distributor at a premium price and airfreight it to California for manufactur- ing and testing per the Dutch contractor’s design drawings. This option was also dropped since it was going to strain our manu- facturing department and this new load on our manufacturing would delay other projects.

Another option was to go to the German steel mill with our subcontractor and negotiate for overtime work and extra funding for faster delivery. This option was also dropped since our special steel order was a small dent in their total steel production scheme. Our subcontractor had dealt with them face to face many times and the German steel producer would not budge.

A good option that everyone agreed upon was to search the world for this special steel during the next week to see if we could find it at a premium price. The steel had to be manufactured in a customer- qualified country. The steel had to have material test cer- tificates for the regulatory agency. We agreed that we would share the premium price for the purchase of this special steel with our subcontractor and also share airfreight costs to the Netherlands with them. My company assigned me three full- time purchasing agents to search for this material all over the world.

After the emergency meeting, I called my customer in Norway and explained the unfortunate delays in the special steel delivery. I outlined the steps that we are taking along with our subcontrac- tor to remedy the issue. Our customer was very upbeat with our proactive steps. The project manager at my customer informed me first verbally and then in writing that they would accept a month delay in the delivery of the completed systems in Malaysia with- out applying any liquidated damages to my company. This was great news for my company.

It took us three days to find the special steel with all the required test certificates at a secondhand supplier in Houston, Texas, at a premium price. We split the extra cost of the material with our subcontractor and we airfreighted 30 tons of mate- rial to the Netherlands. My quality engineer on-site, the Dutch subcontractor, and I worked on a modified fabrication, test, and acceptance schedule for the hydraulic cylinders. The Dutch sub- contractor worked very diligently and overtime, when necessary, with my quality engineer watching over every step of the way. They completed the hydraulic cylinders one month late per the new schedule and airfreighted them to California for final assem- bly and testing. We were exactly a month late in the project when the completed systems were ready for customer acceptance. When my customer came to our facilities to accept the final systems, they informed us that the overall project had been delayed so we did not have to airfreight the completed assemblies to Malaysia. I wished I knew about this project delay a little earlier. However, we completed the systems one month late and they were accepted

by our customer without a hitch. Acceptance sign off was a big milestone payday for my company.

As the project manager, I learned a lot from this special steel sourcing fiasco by our subcontractor. Even if my subcontractor was a very dependable one, I should have implanted my own engi- neer at their site and gotten daily updates on this critical item. I should have asked my subcontractor to line up a backup source for the special steel if the German one failed to deliver. Also, I should have required our purchasing department to include late penalty clauses for critical milestones such as the special steel delivery date to our subcontractor’s contract.

On the positive side, the issue was solved by working very closely with the subcontractor. I helped them all I could to remedy the issue. My company was generous enough to share the extra costs for the material and shipping. One thing I did not allow was for my company to squeeze the subcontractor into a corner and beat him up to get the job done. Subcontractors are crucial parts of the project team. Working together and helping them in all aspects of their portion of the project is a must for a healthy project conclusion.

LESSONS LEARNED FROM THIS PROJECT EVENT

• Follow your subcontractor’s progress very closely. • Always implant your people at your crucial subcontrac-

tors to monitor on- site progress of your project.

• If your purchased items are a small fish in a big pond, per- sistently make sure that your items are not pushed aside. • Always consider several feasible options in order to get

out of a bind in a project.