Authors: Joseph Wujek
Suggested Courses: Intro to Engineering
Level: Freshman & Sophomore
You are a Project Engineer employed by Hotshot Engineers, Inc. (HEI). The company has
just been selected, but the contract not yet signed, for doing the detail design and
engineering and construction management for a new water supply system for the City of
Cesspool, USA. The system will serve about 50 thousand residences. This is a
"turnkey" job with an estimated constructed value of between $10M - $15M.
HEI profits for the preceding year were $1.59M. It is likely that the City of Cesspool
job is the only large (for HEI) job to be booked by the company in the current fiscal year
(FY). About 80% of profits from the job are collectible in the current FY.
Your company and the competition each submitted a comprehensive proposal and sealed
(secret) bid. The selection was based strictly on low bid and the proposed design meeting
technical requirements. All bids are public record after opening. HEI bid $12.88M. The two
competitors' bids were: Company A at $13.38M; Company B at $14.11M. (Bids shown to only
four significant figures.)
The events below occur after a public announcement of selection of HEI.
(a) In routinely going over the submitted proposal and drawings in preparation for a
press conference, you and the Chief Engineer discover that an important part of the
purification system has been underestimated in cost. This occurred because part of
the preliminary design concept was done without adequate analysis. To construct as
indicated by the bid HEI submitted would result in the output water not meeting EPA
Regulations. To "do it right" (and meet EPA Standards) would add cost. A summary
of the HEI costs/profit is tabulated below, showing the corrected values in <angle
brackets>. (Figures are rounded for our convenience here.)
Hotshot Engineers, Inc.
Bid Summary: City of Cesspool Water Works Job
|Engineering & Management
|Support, Overhead, etc.
|Performance Bonds, Insurance, etc.
|Environmental Impact Study
|Contingencies at 4.8% of subtotal
|| 0.536 <0.599>
|Profit at 10.0% of total
True (not submitted) BID
II. Numerical and Ethical Questions
Question 1. What is the net profit or loss in dollars to HEI to do the job
"right" per the (erroneous) submitted bid?
Question 2. Based on the information above, what is your recommendation to your boss,
the Chief Engineer?
Question 3. Suppose, independent of your answer in (a2), the Chief Engineer tells you:
"Let's keep this to ourselves. Once we get the job we'll slip in some change orders
to get our true cost plus a reasonable profit. After all, we disclosed all they asked for
in our submitted design. If they didn't catch it thatís their problem. It's caveat
emptor ("let the buyer beware") in the good ole USA!"
What is your response to the Chief Engineer?
Question 4. Now suppose that (3) did not occur and that it was decided by HEI
management to proceed "normally" until there is an opportunity to "sort
out" matters. You attend a combined public hearing and press conference in the City
Hall of Cesspool. You are part of a small panel of HEI engineers and managers asked to
tell about the design and answer questions from the floor.
At the public meeting should you mention voluntarily the design shortcoming and
associated costing error? Explain the rationale for your answer.
Question 5. Suppose a person in the audience asks the entire panel: "How was HEI
able to underbid the competition? Your bid seems awfully low to me...but then I'm not an
engineer." Nobody mentions the design shortcoming and cost error. What do you do?
Question 6. Suppose YOU are asked the question of part (5). State your response.
Question 7. Suppose the events in (5) and (6) did not occur, but now an engineer
employed by one of the competitors underbid by HEI asks you: "How was HEI able to
underbid the competition?" What do you do?
III. Solutions to Numerical and Ethical Questions
1. The true estimated cost, including contingency, is $13.07M. Subtracting this amount
from the $12.88M bid yields a net LOSS to HEI of $0.190M. Although not all costs can be
determined precisely, the variability cannot be assumed to work in favor of HEI.
Therefore, it is highly probable that the company will suffer a loss for the fiscal year
that could be ruinous, dependent upon corporate reserves, etc.
2. Withdrawing the bid appears the only alternative. Not enough information is given in
the problem statement to discuss other options.
3. The Chief is proposing a variant of "low-balling," an unethical, and
possibly illegal, practice. Evidently, low-balling was not a deliberate scheme in this
case because an ìhonestî mistake occurred. However, "sloppy" engineering is
evident, and this violates professional principles.
The Chief's proposed action is not permissible. If HEI accepts the Chiefís scheme, the
engineer is culpable and could be prosecuted in both criminal and civil courts. Of course
the engineer is placed in an extremely difficult position, but he cannot agree to be a
party to the scheme. If a P.E., the engineer could appeal to the state entity having
jurisdiction over licensure. However, it may be very difficult (impossible?) to
"prove" that the Chief advocated this action. If not resolvable inside HEI, the
engineer may have to contact the client and disclose the mistake before the contract is
signed. As Project Engineer, the engineer would be acting within the scope of the job, and
more importantly, would be acting professionally, i.e. ethically.
4. Because HEI has not yet had opportunity to discuss the error it is arguable that
voluntary disclosure is not appropriate. No contract has been executed.
5. Again, voluntary disclosure would be premature and unwarranted.
6. and 7. Consider responding, "Until we have had a chance to discuss our bid and
compare it to the competitorís bids, it would be inappropriate to comment." Is this