CED whitepaper by The Morse Group

Contracted Engineering Development Creating an Effective Scope of Work and a Successful Project Outcome. by DOUG LINSTEAD

Summary A vague or incomplete scope of work can set a project on a path to failure, especially when it involves complex requirements for which the solution has not been determined. Poorly-defined SOWs often cause suppliers to overlook key requirements and misinterpret project objectives. Some suppliers may also attempt to recoup excessive bid preparation costs by cutting corners or demanding multiple change orders. Contracted Engineering Development (CED), in which a company hires an engineering partner to provide guidance on key decisions early in the design process, can help customers begin their projects with detailed, accurate scope of work documents. Whether customers retain their CED partners for the design and build phases or bid later work out to other vendors, CED improves schedule performance and final outcomes, with no net increase to project budgets.

The Importance of a Strong Scope of Work When a company takes on a new project, they are actually taking on two challenges at once. In addition to the challenge posed by the project itself, the company must also contend with the less apparent, but critically important, task of defining the work to be done by suppliers whose contributions are essential to the project’s success. In most cases, these requirements are spelled out in a detailed scope of work document. A key component of any RFP or contract, the scope of work provides the information suppliers need in order to prepare bids and develop solutions: •• •• •• •• ••

A complete list of deliverables Required product or system specifications Materials or components to be included Project timelines Acceptance requirements

In cases where a project’s objectives are easily understood and the solution is already known, developing an effective scope of work may not be difficult. When a company attempts to solve a new problem, however, the project team may not know what to include in the SOW. This uncertainty can lead the project team to create a less detailed scope of work, in hopes that suppliers will be able to fill in the missing information themselves. Unfortunately, this approach leads to problems for customers and suppliers alike.

Designed for Failure The problems generated by weak scopes of work are all too familiar, though customers may not always recognize their SOW as the root cause. When a company sends out an RFP with a poorly -developed scope of work, an unfortunate but very common chain of events can begin: •• Suppliers struggle to understand the project requirements and devote extra resources to creating proposals, driving up their overhead costs. •• Suppliers respond to the RFP with unrealistically low bids, hoping to win the business and recoup their bid preparation expenses. •• In an effort to control costs, the winning supplier devotes insufficient resources to the project, resulting in a poorly developed solution. •• The customer recognizes shortcomings in the solution and requests revisions, while the supplier demands change orders for the additional work.

At best, this process results in missed deadlines and overextended budgets. At its worst, it can lead to defective solutions, abandoned projects, damaged reputations, and lengthy court cases. How, then, can a company avoid these problems and start a complex new project with a strong scope of work?

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The Solution: Contracted Engineering Development

Companies can stop scope of work problems before they start by using Contracted Engineering Development to create documents that accurately define the work to be done. Contracted Engineering Development (CED) is an increasingly popular approach for complex projects, in which a company engages a supplier to assist with preliminary engineering before getting bids for detailed design and construction.

Typically, a CED engagement begins in the early stages of a project, when a company is in the pre-design phase and working to determine the project budget. The company contracts with a trusted engineering partner to help make key engineering decisions before creating a scope of work, resulting in much more detailed and specific documentation. CED offers a number of benefits over traditional approaches: Better solutions: Customers often accept less-than-ideal solutions rather than delaying a project for a revised design. Contracted Engineering Development shifts important design tasks to an earlier phase of the project, helping ensure that the project moves toward the correct solution from the start. Increased customer input: When a supplier handles the engineering process based on weak SOW, the eventual solution may not be aligned with the customerâ&#x20AC;&#x2122;s true needs, and the customer often remains unfamiliar with key elements of the design. Contracted Engineering Development, on the other hand, is a collaborative approach, in which the customer and engineering partner work together to develop an ideal solution and determine a specific set of requirements. This deeper level of involvement leaves the customer with a wealth of product and process knowledge that will pay dividends for years to come. Flexibility: Since the engineering development partner was contracted for a specific task, the customer is still free to bid out the detailed design and construction work to any supplier they choose. In many cases, however, customers find that their engineering partner is the best choice to complete the remaining work. More accurate bids: If the customer bids out their design and construction work after a CED process, suppliers will have better information to work with, reducing the chance of intentional or unintentional underbidding. Cost control: CED does not represent an additional cost to a project, as it simply shifts the engineering development effort from a later phase of the project to an earlier phase. In fact, CED often results in significant savings by preventing schedule delays and change orders.

Contracted Engineering Development is applicable to a wide range of projects, including the development of automated systems, manufacturing equipment, control systems, assembly and test equipment, and audio/visual systems. A CED engagement can begin as early as a projectâ&#x20AC;&#x2122;s concepting phase, or as a final step before a customer releases an RFP. Contracted Engineering Development | 3

Thinking Like a Supplier A successful project requires effective communication between customers and suppliers, beginning with the bid process.

A successful project requires effective communication between customers and suppliers, beginning with the bid process. Understanding the challenges faced by suppliers can make it easier to develop effective SOWs and manage vendors throughout a project. One of the most important factors to consider is the effect of a scope of work on a supplierâ&#x20AC;&#x2122;s bid preparation process. Suppliers in any industry spend significant amounts of money preparing proposals. The time needed to review an SOW, research possible solutions, and draft a proposal can easily amount to hundreds of hours for large bids. Administrative work, travel costs, external reviews, and other expenses can add even more to the total. Suppliers who do a better job of anticipating and managing these costs typically have lower overhead and more competitive pricing. However, a poorly-developed SOW can cause confusion for any supplier during the bid process, creating a need for additional research, revised proposals, and higher bid preparation costs. As a result, the winning supplier may begin the project facing pressure to recoup their added expenses by rushing the design or build process, assigning less-qualified personnel, or requesting change orders for any additional work.

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The CED Process

While it represents a departure from traditional bidding and development approaches, Contracted Engineering Development does not involve additional effort, nor does it lock a customer into a relationship with a supplier before going to bid. Rather, CED can streamline schedules, reduce costs, and help customers create more effective RFPs.

Contracted Engineering Development Flowchart New project or requirement

Follow established development and bid process

Yes

Solution already established?

Release RFP

Gather information draft SOW

Suppliers struggle to understand SOW, incurring higer bid preparation costs

Use CED?

Yes

Gather information draft SOW

Select CED partner

Initial project review

Proceed with CED?

Select supplier

Follow traditional bid process

Solicit bids using detailed, accuarte SOW

Yes Supplier attempts to recoup excess bid preparation costs

Supplier lacks full understanding of project requirements

Inadequate staffing and rushed development

CED partner develops engineering

Retain CED partner for remaining work?

Yes

Change orders

Missed deadlines

Budget overruns

CED partner completes project based on detailed, accurate SOW

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Hereâ&#x20AC;&#x2122;s a closer look at a typical CED engagement: Initial Planning: Often, companies decide on a CED approach in the early stages of a project, especially when the project requires an innovative solution to an unfamiliar problem. Before contracting with an engineering partner, customers often create first drafts of their scope of work, machine specifications, part drawings, process requirements, or other key documentation. In some cases, the CED partner assists with these activities as well. Project Review: The customer meets with a supplier to discuss the possibility of working together on a CED engagement. This meeting consists of a review the customerâ&#x20AC;&#x2122;s initial documentation and a detailed discussion of the project. CED Proposal: After the project review, the supplier provides a proposal for Contracted Engineering Development services. Generally, CED represents a small percentage of the overall project budget. Engineering Development: If the customer decides to proceed with CED, the engineering partner completes the development work described in their proposal. The goal of engineering development is to identify key decisions and components so that the engineering phase can proceed without unforeseen difficulties. The timeframe and amount of work involved depend on the nature and complexity of the project. Design Review: Upon completion of the development work, the CED partner holds a design review meeting with the customer. Deliverables from a CED engagement might include layout drawings, component cut sheets, bills of materials, timing charts, reach studies, or a formal scope of work document. Design and Construction Quotes: If the customer approves the results of the CED process, the next step is to obtain quotes for detailed designs and for construction. The customer may choose to solicit these quotes from the CED partner, or they may use the CED deliverables in an RFP to other suppliers.

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Creating the Business Case As CED is a relatively new approach, companies occasionally need to overcome internal obstacles before contracting with an engineering partner. In some cases, it can be a challenge to obtain partial funding for CED or to reassure stakeholders that CED does not lock the company into a contract for detailed design or construction. The following points can help illustrate the value of Contracted Engineering Development to senior leadership or project team members who are unfamiliar with the concept:

Choosing an CED Partner

•• CED does not involve an additional cost. Contracting with a CED partner simply breaks the engineering development phase out of the larger design and construction budget and allows development to take place at a more advantageous stage of the project. •• Costs for CED are generally a small percentage of the overall project budget. For example, if engineering is projected to account for a third of a project’s total budget, CED costs can be estimated at 20% to 50% of the engineering budget, or 7% to 17% of the overall budget. •• CED provides an opportunity to explore a variety of design options without committing the full project budget. In the event that a project is not feasible, CED can identify the issue and help the customer avoid a large unnecessary expenditure. •• The detailed requirements produced during a CED engagement often create savings for the project by preventing change orders, schedule delays, and production delays. •• CED agreements apply only to the engineering development phase of the project, allowing the customer to choose either the CED partner or another supplier for later project phases.

Companies can choose from a variety of potential partners for Contracted Engineering Development, including specialized engineering firms and suppliers with whom the customer already has a relationship. As with any vendor selection, industry reputation and expertise should be primary considerations in finding a CED supplier. Companies should also look for CED partners with a broad range of capabilities. While CED gives customers the flexibility to choose other suppliers for detailed design and construction, the best approach is to choose an engineering development partner who can provide bids to complete the later phases of a project as well. A supplier who has completed a CED engagement will naturally have a greater familiarity with the project, and will feel more motivated to deliver an optimal solution, on time and on budget.

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DOUG LINSTEAD

Group Manager, Assembly & Test Automation Solutions of America Division