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BCD Construction Company

BCD Construction Company is a small organization with 90% of its peso volume obtained from contracts for municipal work. Management decided to submit a bid for the construction in April of a mile-long extension to the main sewer system in a nearby town that until now has used septic tanks. The bidding is expected to be competitive, because whoever gets this contract will have some advantage in obtaining a contract to be awarded by the town later in the year worth approximately P100 million. In order to submit the most competitive bid possible, the project managers of BCD decided to evaluate the alternatives of using one, two, or three work shifts. Exhibit I shows time and cost estimates of BCDs engineers. The trunk sewer extension is to be laid in a tunnel for 1/3 its length; the remaining 2/3 is to be constructed in trenches. To build the tunnel, a primary shaft must be excavated first, then the secondary shafts can be driven and the tunnel can be dug simultaneously. The trench is to be started at the same time as the primary shaft. Another crew of workers follows the trench workers, laying pipes, pouring concrete, and refilling trenches as far as they have been excavated. The excavators lose no time as a result of this follow up. A third group would be performing a similar function in the tunnel. BCDs direct labor is hired from union pools, the common practice of all construction companies in the area. There is a strong chance that the local Excavators Union will strike on the projects inception date that may seriously affect its profitability. At a meeting of the project managers, there was consensus to use 80% probability of such a strike for planning purposes. With a strike, direct costs would remain unchanged, since the issue involved was not one of wages; but indirect costs would accrue for the duration of the strike at the same daily rate as indicated in Exhibit I. General and administrative costs are put at 40% of the sum of direct and indirect costs. Normally, BCD aims at making a profit equal to 10% of total costs. There was also a recognized need to develop some kind of estimate to describe the probability of the strikes duration. With a great deal of misgiving, the project managers came up with the following guesses: Length of the strike in days Probability of a strike of n days on the condition that a strike occurs 20 0.25 30 0.25 40 0.50

Your group was assigned to spearhead the project. The president of BCD asked your group for a detailed recommendation, including the exact bid to be submitted by the company.

Exhibit I One Shift Days Cost (P) 12 12 60 300 305 50 50 46 70 60 10 6 3,000 6,950 6,250 33,700 36,150 1,000 7,500 5,500 11,400 11,000 2,000 500 Two Shifts Days Cost (P) 6 12 24 3,300 6,950 6,600 Three Shifts Days Cost (P) 4 12 12 100 105 17 17 16 25 20 6 2 3,600 6,950 6,950 44,700 40,000 2,000 8,900 6,000 11,850 11,500 3,000 1,000

A Move in machinery/equipment B Excavate primary shaft C Excavate secondary shafts D Excavate trenches E Excavate tunnel F Backfill (trenches only) G Pipe-laying in trenches H Pipe-laying in tunnel J Pour concrete in trenches K Pour concrete in tunnel L Landscape M Move out

150 42,500 155 39,100 25 25 25 1,500 8,200 5,700

35 11,650 30 11,250 8 3 2,900 750


P140 / day

P160 / day

P180 / day