Case Studies

Read “AAA, Inc.,” page 605-25-3 thru 605-25-5 in this Study Reference Guide. Thoroughly answer the following questions:

1. How could AAA have avoided the problems it experienced with Comstock?

Considering a project of this magnitude, initially, I think AAA placed itself in an unfavorable position by not slating for sufficient time to adequately complete a thorough source selection process. Furthermore, AAA placed an unnecessary restriction in its specifications by stipulating that the contractor would have to perform a majority of the work primarily in Evansville without the ability to subcontract. If Comstock had been permitted to subcontract for the talent it could not provide from within, it could have avoided many of the problems encountered. AAA could have retained control over the subcontracting process by requiring that it have final approval of subcontractors. In addition, there didn’t seem to be a clause in the contract to prevent Comstock from delaying or asking for relief from the contract provisions. AAA’s only legal recourse was to sue Comstock for breach of contract. AAA’s objective, however, was the timely completion of the modernization project, not a court victory. AAA would have been more in control had the contract specified a plan of action and key milestones for the project. The significant milestones, in turn, should have been tied to progress payments, with penalties for noncompliance. Ideally, such provisions would inspire the desired performance.

2. What are the potential implications of the type of contract AAA used? Discuss.

The terms of AAA’s contract with Comstock are cost plus a percent of cost with a cap of $3.3 million. This means that Comstock receives, as profit, a percent of what it spends. Obviously, with this type of contract there is no incentive for Comstock to control costs. In fact, there is an incentive to increase costs since profit increases as costs increase. However, in this case, low cost was not the primary...