Case Study: Business Crises

Six Weeks to Live

CRK Corp. is an R&D company born and based in Huntsville, AL. The company’s senior management team is led by a PhD chemist with technical gifts and entrepreneurial instincts. After years of successful developing and selling or licensing technologies, CRK spots a Defense Department (DOD) contract for which it is sure it has the optimum solution. The company wins the contract for $42 million. Six months into the contract, the senior engineer on the DOD side of the table stuns the company by announcing that CRK’s solution does not comply with the Statement of Work of the contract. An intense and often bitter negotiation ensues.

Five Negotiating Problems

CRK now has five business problems in this negotiation:

  1. Representing the DOD is a Contracting Officer and a Project Engineer.
  3. CRK does not have a contracting officer, so representing CRK is its CEO.
  5. The CEO is not well versed in the protections afforded small companies by the Federal Acquisition Regulation, (FAR).
  7. The CEO is reasonable.
  9. The DOD Contract Officer and Engineer are neither reasonable nor straight dealing.

Reinventing Technology Burns Cash Reserves

Business Crises Managent Case Study ASiQA year after yielding to the DOD Contract Officer and the engineer, CRK has spent over $5.750 million reinventing its technology to the DOD engineer’s specification. CRK has burned up its cash reserves. CRK actually does have functional technology that it can manufacture and deliver. The retooled technology is no better than the first solution, but it is certainly more expensive. CRK is poised for success, yet due to its cash position, it is also on the brink of failure. The company’s lawyer leads CRK to ASiQ, LLC.

Six Weeks to Live

The lawyer lays out the facts concerning the contract having gone awry. The CFO states that the company has six weeks to live based on its cash flow forecast and fully drawn credit lines. The CEO states that he cannot fix what is broke.

Serious Crisis Meeting

ASiQ contracts its founder into CRK as the company’s new Contracts Officer (CO). The new CO sets up a Program Review Meeting at the DOD office in Alabama. He uses this fact finding meeting as his introduction to DOD as CRK's new Contracts Officer to assess the Contract Officer and the Engineer as well as the Program Manager in the comfort zone of their offices. He spends one on one time with each individual and likes them each well enough. He sets a meeting for 10 days after the program Review with the Program Manager, the Contract Officer, and the Engineer. He defines it as Serious Crisis Meeting.

Negotiation Strategy

Preparing for the meeting, the new Contracts Officer confers with a lawyer expert in the FAR. He develops a financial plan with the CFO for completing the contract. He then lays out his proposed negotiation strategy to CRK’s CEO and his team. The CEO smiles ruefully and says this approach will never work, but please go ahead and try.

Engineering Success

Day 19: CRK’s new Contracting Officer opens the meeting using an unusual stratagem: to the best of his ability he tells the senior Program Manager, the Contract Officer, and the Engineer the truth. He calmly and quietly asserts that they have some real successes that are now precipitating serious failures that are about to occur.

Finding the Win–Win

Win-Win Business Contract RenegotiationDOD has a success in picking a capable company to do the work. The engineer with unwittingly support from a Contract Officer who did not understand the technical issues under debate has succeeded in hammering a reasonable man to make unnecessary but very costly changes in the technology. DOD has succeeded in having equipment under design that will work. DOD has accidentally succeeded in forcing the small company to brink of bankruptcy. In less than a month the company will fold unless DOD can now succeed in doing some new things right. If DOD stonewalls, the Agency and its responsible personnel will have a major performance embarrassment on their hands due to claims against the contract, they will no product available when they need it, and they will have a loss on their hands due to having to start the contract all over again. However, win –win is still available.

Modifying the Contract

The new Contract Officer then shares the CFO’s completion plan with the DOD team. He lays out how with some non-controversial contract modifications work can continue. He demonstrates how with a mutually fair system of progress payments, the company can financially complete the work. Since time is of the essence, he sets up a return meeting for the following week.

Bridge Financing from Bank

Next, returning to CRK, the new Contracts Officer meets with the CEO, the CFO, and the Bank. Fortunately the Bank and CRK's new Contracts Officer have worked on other crisis management problems for other companies. The Bank agrees to extend bridge financing if necessary to give the new Contracts Officer’s negotiation time to succeed.

Successful Resolution

After an exchange of technical papers, two more meetings at DOD, and a number of phone calls, the DOD team agrees to the new Contract Officer’s terms. DOD and CRK’s Contract Officer negotiate a Contract Modification.

Day 44: CRK’s CEO executes the Contract Modification in final and submits the first progress payment invoice for 10 day payment.

The survival crisis is over. The Bank’s bridge loan is unnecessary. CRK’s Contracts Officer launches a claim preparation process designed to recover the funds spent redesigning the technology to the DOD’s engineer’s altered specifications.