BAE Business Case Study: Delays, Design Issues, and Political Pressure

Executive Summary

In order to address the immediate issue of the letter received by the City Mayor holding us responsible for the delay of the new baggage system by charging BAE a penalty of $12k/day backdated to October 29, 1993 and also requesting a charge back for the $50M tug-and-cart baggage backup system, immediate action and priority needs to be given to address this accusation.

A prompt analysis of our project plan and missed milestones with reasons and factual data is critical in defending our position. We need to prove where certain milestones outside our control were missed and the domino effect it created and where dependencies to our commitments were broken and by whom. There were many points at which we voiced our concerns on the project delays and access issues that further hindered our ability to perform but no one took responsibility or acknowledged the delay.

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In addition, the Build-Design approach has in itself created many hurdles and time delays outside our control as well as created unfavourable working conditions that were unsustainable for our teams. Our current situation is a mere symptom of a lack of a proper project management structure and qualified personnel at DIA. Also lack of sponsorship by the city Mayor has created silos and a negative effect on the project flow. The build-design approach is one of the biggest issues but with proper management it can be overcome.

Based on BAE’s experience and successful past projects, we can confidently recommend a new structure that has worked in past projects. Given that history I feel we need to propose a drastic change to DIA’s Project Management team and propose a new structure which includes a new Project Manager to oversee the entire project team, appointment of additional team members and new hires with the right skill sets.

The proposal is to continue with the new airport wide baggage system implementation only under the condition that DIA restructure their project management team and obtains sponsorship from the City Mayor and Aviation Director. A team approach must be understood by all parties involved as there are too many moving parts and it is impossible to expect BAE to independently manage all moving parts for what is out of our control especially with a Build-Design plan.

This new platform will allow BAE and DIA’s members to educate, make timely critical decisions, identify risks and critical milestones and hold members accountable for their respective roles. Assuming our proposal is accepted, the overall expected timing from initial contact to identifying risks under the new team structure is 9 weeks. With this plan, a backup system would not be required, thereby avoiding this $50M additional cost. The seriousness of this accusation would put BAE at permanent financial risk if not bankruptcy.

Promptness and priority in handling this situation is critical. Beyond the financial impact, there is also the reputation BAE has always enjoyed as being a leader in the marketplace worldwide can also have a negative effect on current and future projects with other institutions.

Main Issue and Systemic Issues

City of Denver issued a penalty request of $12k/day backdated to original start-up completion date of October 29, 1993 including a $50 M charge back for a tug-and-cart baggage backup system. This main issue is a result of the systemic issues which are listed below.

Leadership & Project Management issues Shared leadership between city of Denver & Consultant team created many inefficiencies, duplicate work and lack of real ownership. Additionally no organizational structure change at DIA was ever made to accommodate this new baggage system project. Further complicating the matter was the communication channels and roles between city, PMT and consultants were not defined or controlled. All were working in silos. Engineers are inefficiently creating piles of change documentation that are not really managed or communicated.

Waste of time just to cover their tracks. There is NO real qualified Project Manager to oversee the entire project and bridge the gap between DIA and their top Carriers United & Continental, City Council and BAE. We have been expected to manage the project with everyone working in their silos with no real support or team goal or management as a whole. In order to keep things moving along, we need a DIA counterpart to produce engineering alternatives and make quick decisions on cost, alternatives, scheduling etc.

Currently there are too many chefs in the kitchen with no real one person in charge. They had to balance project administration political and social responsibilities. The Working Area 4 Managers that was assigned to us have no experience in airport construction, baggage system technologies or new technologies, their main experience is in construction project control management. As such they don’t know how to properly support our requests and needs to keep the project going forward.

In addition to this since there is no project manager in charge and lack of proper structure we have to liaise with and to obtain feedback from each Concourse Senior manager and Main terminal manager. It is apparent that they each operate independently making any agreement difficult as we need to transcend the decisions and get agreement across all four managers. It is apparent that they each are making independant decisions and trying to tie them all together is very difficult. This creates further bottlenecks for us.

Lack of a designated project manager to oversee and manage inputs/outputs from the City, DIA and BAE created a painful process, hurt relationships and lack of accountability and control. Head of DIA project resigned and death of Chief Airport Engineer Walter Slinger (Oct. 1992), a strong proponent of the baggage system and closely involved in negotiations with us had a significant impact on the project. He was a decisive, empowered decision maker who knew how to address problems and get them resolved promptly.

His successor Gail Edmond was not successful in carrying ut the same duties as she was much less experienced and lacked the autonomy, experience and guts to make much needed quick decisions. Her hands were tied with red tape and took much longer to make any decisions. Overall we had a poor relationship with the management team who had no prior baggage handling competence or experience. The project was mainly treated as a major public works project resulting in a lack of support when we needed it for any of our complaints on timing, access etc.

There were many factors that influenced and pressured this project to a fast-track pace which had some resulting serious consequences both in delays and cost. This pushed the project into a Build-Design project which had created some major delays and cost increases.

Further delays and changes resulted from DIA’s lack of consulting with and conducting a needs assessment with their two top carriers United & Continental which accounted for more than 70% of passenger traffic prior to project start. Their needs were never incorporated into the initial design and program, as a result further changes were requested to design and software just 6 months prior to the needed opening date. We had to deal with this even though the mechanical and software designs were supposed to be frozen. Communication Breakdowns

We communicated to United we would need 1 more year to get system up and running but no one listened nor was the message passed along to DIA or the City. We also at many points tried to engage DIA about the delays, access issues and construction bottlenecks that was causing direct delays in our work and we were not given precedent or access when needed. Infact the attitude was that these construction workers were not reporting to BAE to have to listen. City Involvement (Delays) Law restrictions forcing 30% of minority-owned firms and 6% women.

This law forced us to forgo our original proposal of using our own qualified employees in lieu of external outside contractors which estimated an increased cost of approximately 60%. Some of our expertise was lost due to this fact in addition to causing further delays to our project. In Sept. 1993 we went into maintenance negotiations which lead to a 2 day strike of 300 millwrights that was joined by 200 electricians over a $8/hr delta pay dispute. We lost the maintenance contract as well as a 2 day delay. BAE Conditions on Contract Signing (April 1992)

The conditions and milestones we placed upon accepting the job was not respected by the city or adhered to, nor was there any provisions made to address issues along the way. ( i. e. freeze dates for mechanical design, software design, power requirements and the like, all around access, timely completion of certain areas, provision of permanent power, computer rooms... these were all set as milestones in our project plan. The city had agreed to these conditions with unrestricted access with priority for BAE equipment yet we didn’t even have reasonable access.

For example:

• Electricians had to leave work where concrete grinders were creating clouds of dust,
• Fumes from chemical sealants forced others to flea
• Trucks blocking and restricting

Design Freeze dates not adhered to: Airlines requested changes to system designing even though mechanical/software designs were frozen. (6 months prior to opening airport, still moving equipment around, changing controls and software design! City unable to supply “clean” electricity to the baggage system. Motors and circuitry used in system extremely sensitive to power surges and fluctuations.

Filters were purchased to correct the problem and a City Worker cancelled a contract without realising that the filters were part of it. Filters arrived several months later in March 1994. 1. Construction already begun on terminal and concourses with substantial changes needed on construction to accommodate expanded system. We wrote a letter to city (Jan, 29, 1995) to request prompt action advising of inability to complete project under these conditions with no response or support.

Environmental & Root cause Analysis

BAE is a highly qualified with a revered reputation, experienced in projects across the US, Europe and Australia in the development, design, manufacture and install and support of every project it undertook from start to finish. We established a strong position in the US accounting for about 90% of U. S. baggage sorting equipment sales. Since 1972 – 1994 we had successfully designed, manufactured and installed nearly 70 automated baggage handling systems worth almost $50M at major airports in the US, New York, Dallas-Fort Worth, Chicago, San Francisco, Miami, Newark and Pittsburgh.

We also consulted in the installation of a $550M terminal for the New Seoul Metropolitan Airport in South Korea. Given our successful history and past accomplishments, it is without a doubt that our management capabilities and expertise in handling various types of projects, with various types of people and countries, proves our commitment, capabilities and expertise in handling complex variables and situations for every project we undertake. Knowing the strategic importance and complexity of this particular project, we had agreed to take on the project only upon acceptance of certain conditions which was accepted by the City.

Many of these conditions were not honored throughout the process causing unnecessary delays, additional costs, strained relationships both with the City and DIA management and hurt our reputation Project Management Lack of communication, ownership and project management both at DIA & the City of Denver was the source of this pivotal problem. Since the contract was awarded by the City, they were responsible to enforce the compliance of the agreed upon conditions and communicate and enforce these conditions to DIA and their employees.

In turn DIA did not have a specific Project manager to oversee the entire project as a whole and to act as a liaison between us, the City and their Carriers. Instead we were forced to deal with their respective “Area” managers one on one which was counterproductive, time consuming and ineffective. We also had to deal with direct changes from the Carriers themselves which further haulted our project. We were setup for failure given the lack of direction and control at DIA’s side and the City’s dogmatic approach to making decisions.

For a project of this magnitude, there was no consideration made to employ either Key Managers or Project Manager to oversee, manage and liaise between the three concourse areas. This created some major gaps and no one was there to keep the pulse on the project itself. This was not implemented thus creating a gap in communication, a silo-type attitude amongst decision makers creating no support-system for the major role we played in this implementation. It was apparent that roles between the City, PMT at DIA and Consultants were not defined or controlled.

In addition to the management issues, our Assigned Area 4 Managers, lacked the experience in airport construction and baggage system technologies, therefore could not understand the importance and properly support our needs nonetheless handle our requests in a prompt manor. In order to keep things moving along, we needed a DIA counterpart who would be able to produce engineering alternatives and have the autonomy to make decisions.

The death of DIA’s Chief Airport Engineer, Walter Slinger created significant impact to our operations as he was decisive and addressed problems promptly. This was an important critical role required for the success of this project. His successor, Gail Edmond lacked the experience, know-how, decision making capabilities and autonomy that further haulted the process. Build-Design The Political pressure to fast-track this project lead to a Build-Design approach to this airport construction which caused many unknown risks and design issues that we had to deal with upon commencement.

We were unaware of the construction scope and details to be able to fully understand the scope of the project before undertaking. This also lead to a reactive vs. proactive planning. This posed many unknown risks, changes and modifications to our plans along the way. The instability of this process created many points of change, delays and cost additions and we did our best to manage what was in our control. The point is that many of these delays were NOT within our control, nor did we have any support from the city to enforce DIA’s construction project to meet our agreed upon milestones to meet our own obligations.

The economy in mid 1980’s was plummeting with a 37% job loss average across Stapeltons Employment Industries. The Pena administration aggressively promoted the airport relocation, marketing the new airport as a technologically advanced, state-of-the – art structure to draw businesses, import federal capital and fund the creation of new jobs with bonded debts to overcome the short-term decline in the economy. It was to become a grand project that would be the main showcase for the Public Works Department.

The relationship between BAE and the City was strained primarily because their focus was on airport project speed and bond re-payment and not on the project itself. They were motivated by their own public perception in the political realm. Their “hands-off” approach was detrimental in the success of this project and served more as a crutch and hinderance. When it came to asking for support it felt like they were working against us and not with us. Their strength was not in project management but they had the power to make key decisions which influenced and affected our overall success.

The added pressure of paying the DBO by Jan 1, 1994 forced quick management decisions, early construction without a full scope analysis and risk mitigation not just with BAE but also with DIA. Forced the Build-Design approach which inherently greatly affected our ability to succeed given the lack of adherence to the agreed conditions. Success with United Airlines Once the contract was signed with United exclusively things went smoothly. The successful implementation of the baggage system with United highlighted what was lacking in dealing with DIA and City directly.

The success highlighted and confirmed our ability to manage the project with a partner who understood the technical and project management needs.

Alternatives and/or Options

Continue with the contract for installing the baggage handling system conditional upon the following restructuring & requirements: Hiring of new qualified members at DIA.

• DIA to hire a dedicated qualified Project Manager for the baggage handling system overall project with prior project management experience. One whom understands the key tasks, key players has a strong construction and technological background with project management skills to document, track, address and facilitate the communications between all DIA parties and that of BAE and City Administration. A clear definition of this person’s role, decision-making authority and sponsorship by Senior Management is critical.
• DIA to hire a new Chief Airport Engineer with strong decision making and leadership skills with the autonomy to make decisions and propose Gail Edmond work under him/her as Chief Associate Engineer.

City to hire or appoint a qualified Liaison with construction, engineering and or technical background experience who is solely assigned to this project with no other conflicting priorities with the autonomy to make decisions.

This person’s role is to ensure that legislation doesn’t interfere or adversely cause timing risks to the project plan and expedite issues/roadblocks when they arise between DIA, BAE and the city. This proposal is supported by the fact that our design has proven it will work given the proper management setup framework as demonstrated by our successful implemention of the new baggage handling system with United Airlines. The current lack of the “right” project team members will be addressed by this new proposed structure. With the right sponsorship and roject management setup, this will encourage all to be on the same page and working towards the same goal.

The added benefit of this is that timelines will be clear and visible and will hold those truly responsible for delays in their respective areas and help them and all team members understand the domino affect and impact it can have on the entire project as a whole. This will discourage the current work “silo” mentality and will promote an integrated meeting of the minds where risks and opportunities for improvement can be quickly identified, communicated and cascaded to the right people.

This will also ensure that the right decision makers are present to make judgement calls on plan changes as they come along and not further hold up the process. This should put the plan back on target and give us a working plan going forward where all key players are informed, consulted and responsible for outcomes. The cost of setting up this new structure is by far a more economical way to get the task done without the added financial burden of creating a new “backup” system.

Pros:

• Renewed Focus on project with key roles and responsibilities outlined set’s clear goals, accountability and ownership. Address risks and enable the team to mitigate them
• Clear direction and leadership by all stakeholders and their inputs
• Expedite critical milestones and ensure we are on the path
• Maintain reputation
• No further $ investment for backup system.

Cons:

• New hires required.

Recommendations and Implementation

Based on my analysis the strategic impact of cancelling the project at this point would further create a bad reputation for BAE, especially considering the current damage already made to BAE by the unsolicited test plan executed by the mayor and the bad press that has already caused. The decision to continue with the project conditional upon a new team structure is a reasonable request given our past successful history and project management expertise.

I feel that we have a strong argument for our position backed up by facts that are undeniable and can thus prove our innocence and lack of responsibility for the delay. This will prove to be a sensitive topic as it appears that it is easier to blame us for the delays. With a mutual understanding about the current situation, I believe it will be easier to convince the Mayor and Aviation director the value the new structure would bring and that a new backup system is not the answer and would cause unnecessary further financial burden, hurt relationships and bad press which no one wants.

The success of BAE in installing United’s baggage system will be highlighted as an example of the right team structure and how we can achieve the same if we are united in the goal and agree to this plan.

Conclusion

In conclusion, the current difficulties we are experiencing with DIA and City Administration has served as a costly example of lack of poor management structure for a project of this magnitude. Our past successes can speak for itself in approaching DIA and City Mayor for their support to the new proposal based on our experience. If this new approach is accepted, this will save BAE millions of dollars in lawsuits and cost of new baggage system as charged by the City Mayor.

The optics of getting back on track, having a strong management team and continuing with the original plan will serve in favour of all, the Mayor, our shareholders, as well as redeem our own reputation as leaders in the market. We will then be positioned without a tarnished brand and enjoy further growth opportunities.

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