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MEGATECH INTERNATIONAL INC.1 Mr. Victor delos Reyes, President
of Megatech International Inc., stood quietly looking out the
window at his 20th floor office in Makati. He was wondering what
actually went wrong with his Cytel design and construction
management contract which was threatening to get out of control. A
few minutes ago, he adjourned an emergency meeting with his design
engineering team and his cooperating group of outside engineering
consultants. They politely requested that if possible, they all
wanted out of the Cytel project citing imperious and over bearing
attitude of the clients expatriate technical staff. They stressed
that they were also professionals entitled to some degree of
respect and that there was no place for abusive language in formal
meetings of collegial peers. The day before in a meeting at the
construction site, the Cytel project manager and his technical
staff walked out of the coordination meeting intended to resolve
critical issues on some design problems encountered during the
project construction stage. The Cytel project manager was heard
saying; "There is no use meeting with you people. We are tired of
beating a dead horse". Then he left and carried away with him the
entire CyteI's technical staff without saying a word further. The
Company Megatech International Inc. (MII) is a firm of consulting
and project management engineers affiliated with an
Australian-based group of companies. Megatech provided engineering
design and construction management services to local industrial and
government clients. The company was organized in 1990 starting with
tive (5) engineers and since then had gradually expanded its
operation eventually employing BG people in 1997. Please see its
organizational chart in Annex A and its financial reports for year
1997 in Annex B. As an engineering services company, Megatech did
not engage ln actual construction itself, but rather acted for and
in behalf of the owner doing the engineering design for its plant
facilities, bidding out various working contracts and sub-contracts
of the project, overseeing the construction works and reporting
regularly to the owner. For its services, the owner paid Megatech a
fee based on a percentage of the total cost of the project or a
lump sum amount agreed prior. to the engagement of the company. In
a typical project, Megatech was usually required to design the
facilities of the industrial plant covering its architectural,
structural, mechanical, electrical and other engineering works.
Further, the company translated the design into bidding documents,
conducted and awarded the various bid packages, oversaw the works
of the contractors to monitor adherence to engineering designs and
specifications; and managed schedules, cost and quality control,
and changes in work orders. Cytel Philippines Cytel was a
multinational company operating manufacturing facilities for
semiconductors and other computer components in the province of
Cavite. The products were produced for international distribution.
The companys philosophy of performance demanded the highest
standard of complete and comprehensive engineering, design,
procurement, materials and construction management for all of its
engineering projects. lt used a manual of performance
1 This case was written by PROF. GERARDO LIPARDO for class
discussion purposes only. Cases
are not meant to illustrate correct or incorrect handling of
management problems. ATENEO GRADUATE SCHOOL OF BUSINESS, Copyright
1998.
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standards detailing guidelines in environmental and safety,
project control, cost codes, materials management, procurement
standards, document control, and security. The head office of Cytel
is located in New York and the company has a centralized
engineering staff who participated in every major project involving
Cytel plants around the world. ln addition, the company has
retained engineering consultants who assisted the companys
engineering staff on every critical issue arising from project
design and implementation. Since the company had other
manufacturing plants in various continents in the world, it
practiced benchmarking in all its project and operational
performance so that it was not uncommon for visiting engineers from
other regions to help in the local projects. The Cavite plants
necessarily had their own engineering team to handle the local
activities. ` Project Background Cytel was expanding in 1997 and it
undertook the building of modular warehouses in its various
manufacturing plants all over the world. Cavite was one of the
sites selected for these facilities. The project required the
construction of a modular distribution center with a total area of
7000 sq. meters, fully air-conditioned, and to be provided with
processing equipment. shop facilities, and conveying systems as
required. Some construction materials and equipment, shop
facilities, and conveying systems as required. Some construction
materials and equipment were to be supplied by Cytel by their
contractors in the United States and other parts of the world. The
budget for this project was fixed at P280 million pesos. Cytel
claimed that the design of their modular warehouse was 65%
completed in their headquarters in New York. Accordingly, their
approach was to recruit a local engineering firm to complete or
revise the design of the building facilities seeing to it that site
specific requirements, i.e., local terrain, layout and soil bearing
capacities, typhoon wind load, etc. were satisfied and local
building codes and regulations were likewise properly considered.
For those services, Megatech was awarded the contract to provide
professional services in accordance with the agreed scope of
services specified ln an agreement, the applicable technical
standards and Cytel's manual of performance standards. The project
starting date was scheduled on the second week of July 1997 and the
targeted completion date was the second week of February 1998. This
timetable provided about eight (8) months of design and
construction works and was considered tight in terms of the local
industry standards. Please see the GANTT chart as ANNEX C. In terms
of work load, MEGATECI-l needed to complete the submission of about
124 engineering contract drawings summarized as follows ln terms of
engineering disciplines: Table 1
Schedule of Engineering Drawings Cytel Modular Warehouse
Project
Architectural Drawings 31 Structural Engineering Drawings 18
Electrical Engineering Drawings 33 Mechanical Engineering Drawings
15 Fire Protection Drawings 9 Civil, Sanitary & Plumbing 18
Total 124
These design drawings had to be completed in two (2) months time
since the bidding schedule was slated to be conducted on the third
week of September 1997. It was also understood that
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the preparation of specifications of work packages, equipment,
materials and supplies In two (2) bid volumes would have to be
completed at the same time to be able to submit complete bid
documents to the pre-qualified contractors. Project Organization
When Megatech accepted this project, there were already preliminary
agreements with Cytel on how the project implementation was to be
carried out. Although the building site and its conceptual design
were already set, there were still a lot of unresolved issues to be
discussed with the local design engineers. The following tasks were
clearly identified:
Review the plans and drawings of the 65% completed drawings in
York and identify items to be revised and list out drawings to be
made to complete the 100% design.
Organize weekly teleconference to review work progress and for
all participants to introduce inputs and make comments on the
preliminary works of megatech's engineers. Participants to the
conference were Cytel's engineers in New York, Costa Rica, Malaysia
and Singapore. Drawings and specifications were to be provided
through Emails. on a well organized distribution table.
Coordinate with Cytel's purchasing organization in Singapore to
check on materials specification and supply and timetable of
deliveries.
Make weekly visits to the construction site and confer with
Cytel's project engineers to resolve various issues arising from
the works in progress.
Assist Cytel's project technical staff in preparing price
estimates. Megatech to strictly follow change orders and design
modifications policies of Cytel. . Megatech to follow Cytel's
procedures for such items as bidding, material selection,
submittals, request for information, progress payments, etc.
Since time was of the essence, the management of Megatech drew an
organization chart which it deemed appropriate to complete the
project on schedule and to comply with the standard of performance
of Cytel. Please see Annex D. The Design Work Problems To kick off
the design work activities, Cytel organized a conference on the
first week of July attended by people who were participants to the
project. Victor was very much surprised that 37 people attended the
meeting coming from various parts of the world. There were
consultants from New York, foreign engineers from Singapore and
Malaysia, and the local Cytel staff in Cavite also with expatriates
of various nationalities. The Megatech engineering staff expected
only a small group of 8 to 12 people from the project Owners which
was the common working staff for local projects of this
magnitude.
Immediately, the Megatech engineers noticed a potential problem
with this kind of project meeting. There were so many inputs coming
from the Cytel group, some of them conflicting and design
parameters were left hanging after the meeting for further studies.
Megatech engineers were used to small groups from clients where
immediate agreements were made alter consensus decision making.
Victor promptly advised the Cytel project manager that
schedules
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cannot be met if no decisions were made on many design issues.
The Cytel people made assurances that everything would be resolved
through E-mail communications.
Design works immediately started after that meeting but drawings
could not be completed because of open issues. The weekly
teleconference was of little help since the same conflicts of ideas
arose from the participants always delaying critical decisions. A
typical minutes of weekly meeting is given as ANNEX E. The Megatech
engineers suggested to Victor for the Cytel people to meet among
themselves and make final decisions to enable them to proceed
smoothly in their work.
On the other hand, Victor began to notice other emerging
problems in the execution of the design works. The local E-mail
systems always bogged down especially on large volume of drawings
`and specification transmittals, the computer-aided-design
facilities were found inadequate, and the hired outside consultant
engineers were difficult to gather during coordination meetings.
All those problems continued to hound the project resulting in
gradual slippage on the work timetables.
The delay in the completion of critical design drawings came to
a head two weeks before the deadline middle of September. The head
office of Cytel in New York was getting furious on the design
problems and bombarded the local staff with daily follow up
communications. Megatech engineers worked overtime to remedy late
submissions but continued to claim that those problems were not
their making but that of the Cytel people. The relationships
between Megatech and the client staff members deteriorated and
nerves began to flare out.
Vlctor and his engineering team decided to meet more often and
kept on asking the questions what indeed went wrong. This project
was very simple and ordinary compared to the complicated process
chemical and electronic plants Megatech designed and constructed in
the past yet this undertaking had become so troublesome In
comparison.
The design works finally got finished two (2) weeks after the
deadline and the bidding to contractors likewise re-scheduled two
(2) weeks after the original target date. Cytel claimed to be very
unhappy with the results.
The Construction Work Upheaval To avoid similar delays in the
construction of the project, both Cytel and Megatech engineers
moved quickly to award the project to the winning contractor - in
the project bidding. The contractor was considered very respectable
and well recognized in the engineering community.
The construction activities mobilized into a good start until a
new development came about a Cytel. The head office appointed a
foreign project engineering tjrm to monitor the construction on a
move to assure the completion of the project on time. The foreign
engineering firm was very demanding in its monitoring activities.
Many design changes and verifications were used as reasons for the
gradual delay in the construction and Megatech engineers were
called to the site to carry out design corrections and changes.
Some of the corrections were very minor and
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Megatech engineers claimed that in the other projects with the
same contractor, these corrections were promptly made even without
their presence. Megatech engineers felt that they were being used
as a potential excuse in case the project got delayed. ` _
Moreover, the project engineering firm insisted on making design
changes which were not included in the original scope of work of
Megatech. The design engineers demanded that Cytel issue change
orders and pay additional engineering fees. Cytel refused
explaining that the changes were made only to attain the original
budget of the project which at the time was now about to be
exceeded. The Megatech engineers dragged their feet in protest.
The climax of the conflict came when a major change in the
sewage disposal design works cropped up. Cytel claimed and
supported by the new project engineering team that an error was
made by the civil works and sanitary , engineering designers which
could cause a substantial increase in project costs. The Megatech
engineers concerned claimed that the error was actually originated
by Cytel people when they gave their design data input at the start
of the project. They supported their stand by producing
documentations to that effect.
During this confrontation meeting, the Cytel engineers and their
project engineering staff walked out in disgust.
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MEGATECH INTL 4 dist -AMegatech annexes