Bae Hbr

Harvard Business School 9-396-311 Rev. November 6, 1996 BAE machine-controlled dodgings (A) capital of cobalt world(prenominal) behaviordrome baggage-Handling System No aerodrome or so(prenominal)place in the world is as technologic completelyy advanced as the capital of Colorado worldwide Airport. 1 Its dramatic. If your bulk got on the course, your bag was in pieces. 2 In November 1989 understanding was broken to strain the capital of Colorado planetary Airport (DIA). Located 25 miles from pigt confess capital of Colorado, Colorado, it was the first take out major(ip) aerodrome to be build in the united States since the cave ining of the D distri neverthelessivelyas-Fort Worth Airport in 1974.In 1992, dickens familys into manifestation, the upchucks top passenger cars recommended inclusion body of an airdrome-wide corporate luggage-treatment strategy of rules that could dramatic eithery improve the efficiency of luggage obstetrical deli genuinely. so aner m different(a)ed by unify Airlines to cover its operations, the frame was to be spread out to dole out the entire aerodrome. It was expected that the coordinated brass would improve ground metre efficiency, reduce close-out time for hub operations, and decrease long manual baggage sorting and handling. on that purpose were, how eer, a number of risks inherent in the endeavor the photographic plate of the large stray size the enormous complexity of the grow organisation the newness of the calculateing the large number of resident entities to be served by the compar subject body the high degree of technical and tramp definition dubiety and the short(p) time span for completion. Due to its signifi stinkert assure implementing baggage-handling technology on a littler scale, BAE tilt Systems Inc. , an engineering consulting and manufacturing comp whatever(prenominal) base in Carollton, Texas, was awarded the contract. twisting problems kept the new aird rome from fount on the earlier pland opening duration in October 1993. Subsequently, problems with the implementation of the baggage brass forced delays in the opening of the airdrome a nonher tierce measure in seven months. In whitethorn 1994, under growing ram from sh arholders, the profession community, capital of Colorado residents, Federal 1Fred Isaac, Federal Aviation Administration personaal administrator, quoted in Denver clam up Working Out Kinks as Its scratch Birthday Arrives, USA at once (February 28, 1996), p. 4b. Fred Renville, get together Airlines employee quoted in Denver Still Working Out Kinks as Its First Birthday Arrives, USA Today (February 28, 1996), p. 4b. garter Professor Ramiro Montealegre and Research Associate H. James Nelson of the University of Colorado at Boulder, Research Associate Carin Isabel Knoop, and Professor Lynda M. Applegate prep ard this case as the cornerstone for class discussion rather than to illustrate either effective o r ineffective handling of an administrative situation. Some names pee-pee been disguised. right of first publication 1996 by the President and Fellows of Harvard College.To order copies or request permission to make hooeys, c tout ensemble 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No section of this publication may be reproduced, stored in a retrieval transcription, accustomd in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or other thanwithout the permission of Harvard Business School. 1 Purchased by Ashley Matcheck (email& one hundred hexadtyprotected com) on April 11, 2012 396-311 BAE alter Systems (A) Denver global Airport Baggage-Handling SystemAviation Administration (FAA) commissioners, and the tenant airlines and concessionaires, Denver mayor Wellington Webb announced that he was hiring the German firm Logbroadcast to help value the business of the machine-driven ba ggage frame. In July, Logplan issued an 11-page report to the urban center of Denver that characterized BAEs transcription as highly advanced and theoretic everyy assailable of living up to its send ford capacities, services and performances, but ac have it awayledged mechanical and galvanising problems that make it most improbable to achieve a stable and reliable operation. Logplan suggested that it would take approximately fin months to doctor the complete BAE organization shiting(a) reliably. It also suggested that a backup administration of tugs, carts, and transporter belts could be constructed in slight than five months. In dreadful 1994, urban center manager Webb approved the grammatical construction of a backup baggage system. At the same time, he nonified BAE of a $12,000-a-day penalty for not polishing the baggage system by DIAs pilot film October 29, 1993 completion date. Webb also demanded that BAE hire for the $50 one one thousand cardinal one thousand million constituted tug-and-cart baggage system.Gene Di Fonso, President of BAE, knew that his company could demonstrate that flaws in the over all heading of the airport and an unsystematic approach to jump changes had affected implementation of the unified baggage system. He wondered whether he should hardly cancel the contract and box his losses, or attempt to negotiate with the urban center for the run inevitable to finish the system as specified, despite the severe deterioration in parley and rising hostility. Could the problems with the machine-driven system be overcome with the dedication of extra resources?Given that the system represended a significant de positionure from unoriginal technology, would reducing its size and complexity facilitate resolution of the problems that plagued it? And, if the urban center could be persuaded to accept a simplified system, would the tenant airlines, particularly those with hubbing operations that had been pro mised to a greater extent advanced functionality and better performance, be likely to sue? Building the virtually Efficient Airport in the World Until round 1970, Denvers Stapleton Airport had managed to accommodate an ever-growing number of airplanes and passengers.Its lend oneselfable dexterity was severely contain by runway layout Stapleton had deuce analog north-south run ways and two additional parallel east-west runways that accommodated precisely commuter air carriers. Denvers scrimping grew and expanded greatly in the primal 1980s, consequent to booms in the oil, real e evince, and touristry industries. An aging and saturated Stapleton Airport was increasingly seen as a obligation that limited the invitingness of the region to the umpteen an(prenominal) business sectores that were flocking to it. Delays had become chronic.Neither the north-south nor east-west parallel runways had capable lateral musical interval to accommodate simultaneous parallel arrival streams during abject stick out conditions when instrument flight rules were in effect. This lack of runway separation and the layout of Stapletons taxiways tended to cause delays during high-traffic periods, even when weather conditions were vertical. Denvers geographical location and the growing size of its population and commerce made it an attractive location for airline hubbing operations. At one point, Stapleton had ho employ four airline hubs, more than any other airport in the join States.In poor weather and during periods of hightraffic volume, however, its limitations disrupted connection schedules that were important to of importtaining these operations. A local storm could salutary congest air traffic across the entire united States. 3 3 concord to James Barnes 1993, By 1994, Stapleton was one of the top five most strained airports in the US. There were over 50,000 hours of delay in 1988 and by 1997 the FAA had fox that Stapleton would experience over 100,00 0 hours of delay per year. 2 Purchased by Ashley Matcheck (email& one hundred sixtyprotected com) on April 11, 2012BAE machine-controlled Systems (A) Denver International Airport Baggage-Handling System 396-311 The urban center and County of Denver had determined in the mid-1970s that Stapleton International Airport was in ingest of blowup or replacement. In July 1979, a athletic field to assess the airports needs was accredited by the urban center of Denver to the Denver Regional Council of Governments. Upon completion of the study in 1983, a report was issued saying that, due to its size and geographic location, and strong commitments by coupled and Continental Airlines, Denver would remain a significant hub for at least one major U. S. arrier. The study recommended intricacy of Stapletons capacity. Political Situation4 The City of Denvers 1983 mayoral ply precipitated initiatives to improve the field of force infra social organisation. Three candidates were vying for mayor Monte Pascoe, Dale Tooley, and Frederico Pena. Pascoe, a grownup Denver attorney and former State Democratic Party co-chair, seized upon the airport issue, forcing other candidates to adopt stronger positions on airport expansion than they might agree otherwise. 5 Pena and Tooley, however, drew the highest numbers of takes in the widely distributed election, and were forced into a runoff.At the persistent urging of the Colorado Forum (a collection of 50 of the states top business executives), Pena and Tooley signed a joint instruction committing themselves to airport expansion. Pena won the runoff. Committed by a public promise that could have been enforced, if necessary, by the most highly motivated members of the regions business lead, Pena immediately restated his intent to expand Stapleton. The City of Denver and neighbour Adams County began to arise plans for long-term airport development in 1984. In 1985, a new site northeast of Denver was chosen.Consummation o f the airport siting issue, however, was left to Adams County voters, which had to vote to permit the City of Denver to annex property therein. The city chartered a consulting firm to help organize its resources and its efforts to be given done the ratified physical process. The data that was gathered through the master supply and environmental sagaciousness later proved useful for public education. An Annexation Agreement amongst Adams County and the City of Denver was reached on April 21, 1988. Adams Country voters approved a plan to let Denver annex 43. 3 square miles for the aspect of an airport.In a special election on May 16, 1989, voters of Denver endorsed a in the raw Airport by a margin of 62. 7% to 37. 3%. According to Edmond, Those two referendums passed largely on the merits of the economic benefits jobs and trades tax revenues. economic Considerations A number of trends and events in the mid-1980s alarmed bank economists and other of the regions business lea ders in the mid-1980s. The collapse of oil shale ventures in the midst of 1982 and 1986 saw mining employment chance from 42,000 to 26,000 jobs, while service support jobs fell from 25,300 jobs to 13,700. eddy jobs fell from 50,700 to 36,600 jobs, and the value of private construction plummeted from $24 billion to $9. 5 billion. 7 A lackluster economy led many disposal officials in counties and municipalities as well as in Denver to figure upon an unprecedented policy of massive public construction to save the region from what was regarded in 1987 as an economic free-fall. A $180 million-plus municipal confederation was issued for public improvements, including a new rectifytown library, neighborhood and major roadway improvements, and a host of overdue infrastructure investments.During the same period, 4Extracted from Moore, S. T. Between proceeds Machine and Garbage Can Determining Whether to Expand the Denver Airport, 1982-1988, annual Meeting of the southwestern Pol itical Science Association, Atlanta, Georgia, November 4, 1994. 5Ibid. 6 7 Colorado Business Outlook Forum, University of Colorado School of Business, 1990. Small bailiwick battle Estimates Construction Review, U. S. Department of Commerce, 1990 3 Purchased by Ashley Matcheck (email& one hundred sixtyprotected com) on April 11, 2012 396-311 BAE automatise Systems (A) Denver International Airport Baggage-Handling System he Pena establishment go decisively to confront an increasingly aggressive Chamber of Commerce leadership that was promoting airport relocation. The determination of the pro-New-Airport clan was growing. The project was being marketed as a technologically advanced, state-of-the-art structure to draw businesses, import federal capital, and stock certificate the creation of new jobs with link uped debts to overcome the short-term decline in the economy. The airport was to become a frightfuliose project to revive the Colorado economy and a master showcase for the Public Works Department. The entire business community, recalled a member of the Mayors administrative police squad The Chamber of Commerce, members of the city council, the mayor, and state legislators, enrolld in informational discussions with other cities that had recently built airports. This enabled everybody to understand the magnitude of the project. So we studied the other two airports that had been built in the United States in the last 50 years and said, Tell us every issue that you went through and all the places you appreciate there testament be problems. We were not passing into it blindly.Forecasts of strain activity at Stapleton by the Airport Consultant team, the FAA, and others, however, did not rest events such as a new phase of post-deregulation consolidation, the acquisition in 1986 of Frontier Airlines by Texas Air (the owner of Continental), significant increases in air fares for flights in and out of Stapleton, and the failure of Continental. Conseque ntly, the level of aviation activity in Denver was overestimated. Instead of rising, Stapletons share of total U. S. domestic passenger enplanements fell 4% per year from 1986 through 1989. 8 The Master PlanThe City of Denvers approach to preparing a master plan for the airport was typical. One hires the outstrip consultants on airfield layout, noise furbish ups, storehouse layout, on-site roadways, off-site roadways, court estimating, monetary analysis, and forecasting, observed DIA administrator Gail Edmond. They brainstorm and generate as many alternate layouts as possible. Alternatives were discussed and eliminated at periodic joint dallying sessions, and a technical subcommittee was organized to gather input from the eventual airport users, airlines, pilots, and the FAA. Everybody knows how to scram an airport master plan, Edmond added.Following a bid, the consulting contract was awarded to the joint venture of Greiner, Inc. and Morrison-Knudsen locomotive engineers f or their feature expertise in the fields of transportation and construction. The consulting team, bating under the flush of the DIA Director of Aviation, focused first on four elements site excerption the master plan the environmental appraisal and developing support by educating the public on economic benefit. The final master plan presented to the city by the team in the fall of 1987 called for the construction of the worlds most efficient airport.It was to be created from the ground up with no fascinate limitations. The plan was to take into account the airport to grow and expand without compromising efficiency. in two ways the size of Manhattan at 53 square miles, the nations largest airport was to be knowing for steady traffic flow in all weather conditions. It was to control a terminal with east and west buildings joined by an atrium structure, three hoi pollois, an automated underground people transportr, and five parallel 12,000-foot-long runways on which as many as 1,750 planes could take off and land daily.Its flow-through traffic patterns would allow planes to land, taxi to assembly gates, and take 8 Furthermore, when selling the project to voters, planners at one point forecast up to 36 weekly flights to atomic number 63 by 1993. The number recorded in 1993, however, was four. The number of passengers departing form Denver was to rise from 16 million in 1985 to some 26 million by 1995. The 1994 figure, however, was about the same as the number of passengers in 1985, or half of Stapletons capacity. 4 Purchased by Ashley Matcheck (email&160protected om) on April 11, 2012 BAE automate Systems (A) Denver International Airport Baggage-Handling System 396-311 off again all in one direction. The ultimate buildout, communicate for the year 2020, was to include up to 12 full service runways, more than cc gates, and a capacity of 110 million passengers annually. Estimated cost (excluding land acquisition and pre-1990 planning cost) was $2 bill ion. By the end of 1991, the estimated cost had increased to $2. 66 billion. Plans called for the projects completion by the fall of 1993.In September 1989, Federal officials signed a $60 million grant agreement for the new airport, which was to be financed in multiple waysby issuing revenue bonds and securing federal grants supplemented by a respectable investment by the city county of Denver 1991. Estimated federal grants for the new airport originally totaled $501 million. Portions of these were forthcoming from the FAA, for federal fiscal year 1990 in the amount of $90 million and for federal fiscal year 1991 in the amount of $25 million. The remainder of the $501 million letter of intent was to be received on an annual basis through fiscal year 1997.The revenue bonds assumed the Date of Beneficial Occupancy (DBO) to be January 1, 1994, with bond repayments to begin on that date. At that time, the city determined that DIA would meet the DBO no later than October 31, 1993. A mem ber of the Mayors administrative team described the approach. What we did was plan the DBO date and then we planned an extra vi months just in case there was a lag in the opening, which, in essence, allowed us to create st might in the market. The other thing we did was that we conservatively financed and filled every reserve account to the maximum.So we borrowed as lots money as we could at the lower interest rate and were able to average the debt cost down, not up, as we thought it would be. A Build- cast hurtle By the time construction began at DIA in November 1989, a canalize of authority was pickings place in the City of Denver. Wellington Webb was elected the new mayor. According to one of his assistants, the Pena governance had announced that the airport would be operational in October 1993. This was a build-design project, which means that we were building the airport while we were blueprint it, he explained. Because of the delays early on in the project, we had to acce lerate construction immediately. There was a lot of pressure and as well as many players. This was an airport built by committee. We had regular meetings to straighten things out, but it didnt always work. Although the Webb administration inherited the airport project without a commitment on the part of the major carriers, the support and input of concerned airlines were absolutely key, not lonesome(prenominal) fiscally but also in harm of input on overall airport layout, scope, and capacity, and supporting systems such as fueling and baggage handling.Denver launched the DIA program without specific commitments from either of Stapleton airports two major tenant airlines, United and Continental, which together accounted for more than 70% of existing passenger traffic. Continental perpetrate to the new airport in February 1990, United in December 1991. implicit in(p) changes were made to the airport layout plan and facilities (some already under construction) to accommodate the operational needs of these carriers. The Webb administration followed the predecessor administrations emphasis on assuring that the projects grea bear witness beneficiaries would be local businesses.The liking was to involve as many individual firms as practicable and to use Denver area talent. It was reasoned that local talent was easily affectionate to the program management team (PMT), knew Denver building codes and practices, and had available the necessary professional labor pool to accomplish the design in pact with the demanding schedule. In addition, existing law stated that 30% minority-owned firms and 6% women-owned firms had to participate in a public whole kit and caboodle program. The result was a contracting philosophy that maximized opportunities for regional businesses and the local workforce to compete for the work.At least five of 60 contracts awarded for the design of DIA went to Denverarea firms. These 60 design contracts generated 110 construction contracts . lxxxviii professional service contracts also had to be coordinated. Many local firms had to be hired and the program was 5 Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 396-311 BAE Automated Systems (A) Denver International Airport Baggage-Handling System chopped up into many small projects. Involvement totaled 200 to 300 firms and reached four hundred during the construction phase. Five distinguishable firms knowing the runways, four the terminal.The citys emphasis on support everyone to compete and up to now be part of the project increased the authority for interface and coordination problems. Denvers flat economy led the administration to keep construction money deep down the city. Although this benefited the city, it introduced an additional burden on administration. As many as 40-50 concurrent contracts involved many interconnected milestones and contiguous or intersectionping operational areas. The estimated daily on-site work force populati on exceeded 2,500 workers for a 15 to 18-month period beginning in mid-1991 and peaked at between 9,000 and 10,000 in mid-1992.Adding to the human resource coordination problems was a forecasted 4,000 deliveries daily. Construction volume for six months in mid-1992 exceeded $100 million per month. The elongate period of assessment and negotiation prior to final approval of the project, and the financial plan selected (which required that bond repayments begin on January 1, 1994), pressured the PMT to push the project ahead at all cost. Because the project had to assume the characteristics of a fast-track project early in the construction startup, the compressed design period precipitated a more dynamic construction effort han might be anticipate for a competitively bid, fixed price program. Reliance on a design/build method for the project was, according to one DIA official, unusual because projects this complex normally happen during separate stages. For example, you need to fi nish up the site selection before you begin the master planning. Moreover, communication carry between the city, project management team, and consultants were neither well defined or controlled. If a contractor fell behind, a resident engineer who inform to one of the area omnibuss said, the resident engineer would alert the contractor and register this.The resident engineer would document what would have to be done and what additional resources were necessary to get back on schedule and finish the contract on time. As a public agency it was enormous, the amount of musical accompaniment that we did. I dont know how many trees we cut down just for this project. The resident engineer had about five to eight 12-drawer file cabinets of documentation and this was nothing compared to what the area handler had. It was just incredible. There were at least four to six copies of everything. The scheduling manager described the organic evolution of the tracking system that was used.One of the biggest problems we had was memory track of all the changes. So we real a database system that was installed at each one of the resident engineers trailers and each contract administrator was then charged with keeping that system up to date and feeding us disks, which we would then blend in together periodically to produce an integrated report. besides every company had developed their own tracking system before the start of the project. That worked well for each group, but there was no way to take each one of these divergent systems and combine it into one, comprehensive report.So when we introduced the change tracking system everybody said, fine, thats wonderful, and Ill update it when I get to it and when I get time. It took three years to implement the tracking system. leap out Management In a fast-moving, ever-ever-changing environment such as the development of a new airport, the management structure must be able to speedily produce engineering alternatives and the supporting 6 Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 BAE Automated Systems (A) Denver International Airport Baggage-Handling System 396-311 ost and schedule data. 9 But because DIA was financed by many sources and was a public works program, project administrators had to balance administrative, political, and social imperatives. 10 The City of Denver round and consultant team shared leadership of the project and coordinated the sign facets of DIA design. The initial thought, reflected one stave member, was that the city staff would do their thing and the consulting staff do theirs and later we would coordinate. It became evident inside a very short time that we were doing duplicate duties, which was inefficient.Finally the city decided to coordinate resources. The city selected a team of city employees and consultants and drafted a work scope document that intelligibly separated the citys from the consultants responsibilities. The elements the city did not delegate to consultants include ultimate policy and facility decisions, approval of payments, negotiation and execution of contracts, facilitation of FAA approvals, approbatory action, settlement of contractor claims and disputes, selection of consultants, and utility agreements.The city delegated some elements such as value engineering, construction market analysis, claim management, on-site staff and organization, and state-of-the-art project control ( calculatorized management of budget and schedule). Exhibit 1 depicts the DIA management structure. The program management team became the organization dedicated to overseeing planning and development for the new airport. Headed by the associate director of aviation, the team was partly staffed by city career service employees.To add experience and capability, the city augmented the PMT with personnel from the joint venture of Greiner applied science and MorrisonKnudsen Engineers, the consulting team. Observed one pr ogram management team member, This working partnership of the City of Denver and consulting joint venture team developed into a fully integrated single organization, capitalizing on the best to be offered by all participants, and optimizing the use of personnel resources. DIAs operational project structure comprised five different areas subdivided into smaller units.The working areas were site development (earthmoving, grading, and drainage) roadways and on-grade parking (service roads, on-airport roads, and off-airport roads connecting to highways) airfield paving building design (people-mover/baggage-handler, tunnel, concourses, passenger tide over, terminal, and parking) and utility/special systems and other facilities (electrical transmission, oil, and gas line removal and relocation). An area manager controlled construction within each area. field of operations managers were responsible for the administration of all assigned contracts and, in coordination with other area mana gers, for management of the packet of the overall site in which their work took place. United Airlines Baggage System From the publics perspective, the friendliness of any airport is measured by time. No matter how architecturally touch on a new airport structure, the perception of business or void travelers is often registered in terms of efficiency in checking luggage at the departure area or hold to claim a bag in the arrival area.The larger the airport, the more critical the efficient handling of baggage. Remote concourses connected by underground tunnels present special problems for airport planners and operators because of the great distances passengers and baggage must travel. The purpose of an airport being to move passengers as efficiently as possible, moving bags as quickly is 9 The DIA project used the so-called fast-tracking method, which made it possible to compress some activities along the critical path and manage the construction project as a series of overlappin g tasks. 0 These included considerations such as affirmative action, local participation, neighborhood concerns, civic pride, input from the disabled community, art, supplementary employment benefits of contract packaging, concern for the environment, and political interest. 7 Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 396-311 BAE Automated Systems (A) Denver International Airport Baggage-Handling System part and parcel of that responsibility. Rapid transport of frequent flyers accomplishes very little if bags are left behind.DIAs multitude A, which was to house Continental Airlines, was situated some 400 meters, and United Airlines throng B just about 1,000 meters, north of the main terminal. meeting C, home to other carriers including American, Delta, Northwest, America West, and TWA, sat parallel to the other two concourses more than 1,600 meters north of the main terminal. The initial project design did not incorporate an airport-wide baggage sy stem the airport expected the individual airlines to build their own systems as in most other American airports. 1 United Airlines, which in June 1991 signed on to use DIA as its second-largest hub airport, proceeded to do just that. Needing an automated baggage handling system if it was to turn aircraft some in less than 30 narrow-mindeds, United, in December 1991, commissioned BAE reflexive Systems, Inc. , a world leader in the design and implementation of material handling systems, to develop an automated baggage handling system for its B Concourse at DIA. The contract, which included engineering and early parts procural only, was valued at $20 million and the task was estimated to be terminate in two and one-half years. We began working at DIA under a contract directly with United Airlines, recalled Di Fonso. Obviously, United Airlines has experience with airports. They concluded that the schedule had gotten totally out of control from the standpoint of baggage and they acte d to serve their own needs, basically to protect themselves. We contracted with United and were already designing their portion of the system before the city went out for competitive bidding. BAE was founded as a division of Docutel Corporation in 1968.Docutel, which had developed the Telecar (a track-mounted automated baggage system), constructed an automated baggage system for United Airlines at San Francisco airport in 1978. When Docutel ran into financial difficulties during this installation, United asked Boeing, a major supplier of its aircraft, to take over the company. Boeing agree and the new company, a wholly-owned subsidiary dubbed Boeing Airport Equipment, completed the San Francisco installation. In 1982, Boeing interchange the company to its major(postnominal) management, which renamed it BAE Automated Systems.In August 1985, BAE became an operating unit of Clarkson Industries, a wholly-owned subsidiary of London-based BTR plc. BTR plc (formerly British Tire and Rub ber), was a $10 billion heap up with global interests in building, paper and printing products, and agricultural and aircraft equipment. In 1994, BAEs 365 employees worked on projects across the United States and in Europe and Australia. In-house engineering, manufacturing, and field support capabilities enabled BAE to develop, design, manufacture, install, and support every project it undertook from start to finish.BAE also provided consulting, engineering, and management services for airport projects and a variety of material handling applications. With sales of $100 million in 1994, up from approximately $40 million in 1991, BAE accounted for 90% of U. S. baggage sorting equipment sales. Between 1972 and 1994, the company had successfully designed, manufactured, and installed nearly 70 automated baggage handling systems (worth almost $500 million dollars) at major airports in the United States, in New York, Dallas-Fort Worth, Chicago, San Francisco, Atlanta, Miami, Newark, and P ittsburgh.It had also installed systems in Vancouver and London and was selected, in 1992, as a consultant to the $550 million main terminal for the New Seoul Metropolitan Airport in South Korea. BAE was a very self-contained, integrated company organize along two business lines manufacturing and engineering. Its approximately 200,000 square foot manufacturing facility was capable of producing nearly all of the components required by BAE systems save motors, gearboxes, and bearings. The engineering department was structured according to major projects. Each project was assigned a project manager who reported directly to the company president. 1 Rifkin, G. What Really Happened at Denvers Airport, Forbes, SAP Supplement, August 29, 1994. 8 Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 BAE Automated Systems (A) Denver International Airport Baggage-Handling System 396-311 Implementing an integrate Baggage-Handling System BAE had already commenced work on Uni teds baggage system when the PMT know the potential benefits of an airport-wide integrated baggage system. Moreover, as one DIA sr. manager explained, airlines other than United simply were not coming forward with plans to develop their own baggage systems. Airport planners and consultants began to draw up specifications and the city sent out a request for bids. Of 16 companies contacted, both in the United States and abroad, only three responded. A consulting firm recommended against the submitted designs, on the grounds that the configurations would not meet the airports needs. BAE was among the companies that had decided not to bid for the job. BAE had installed the Telecar system at a number of other airports and the basic technologies of the Telecar, laser barcode readers, and conveyor belt systems were not new. What was new was the size and complexity of the system. A autocratic airport like DIA needs a complex baggage system, explained Di Fonso, accordingly the type of te chnology to be used for such a system is the kind of decision that must be made very early in a project. If there is a surprise like no bidders there is still time to react. At DIA, this never happened. Working with United Airlines, we had concluded that destination-coded vehicles moving at high speed was the technology needed. But quite honestly, although we had that technology developed, its implementation in a complex project like this would have required significantly greater time than the city had left available.A United project manager concurred BAE told them from the beginning that they were issue to need at least one more year to get the system up and running, but no one precious to hear that. The City of Denver was getting the same story from the technical advisers to the Franz Josef Strauss Airport in Munich. The Munich Airport had an automated baggage system, but one far less complex than DIAs. Nevertheless, Munichs technical advisors had spent two years exam the syste m and the system had been running 24 hours a day for six months before the airport opened. Formulating IntentionsAs BAE was already working on Uniteds automated baggage handling system and enjoyed a world-wide reputation as a superior baggage system builder, Denver approached the company. BAE was asked to study how the United concept could be expanded into an integrated airport system that could serve the other carriers in the various concourses. BAE presented the City of Denver with a design to develop the most complex automated baggage system ever built, according to Di Fonso. It was to be effective in delivering bags to and from passengers, and efficient in terms of operating reliability, maintainability, and future flexibility.The system was to be capable of directing bags (including suitcases of all sizes, skis, and golf clubs) from the main terminal through a tunnel into a remote concourse and directly to a gate. Such efficient delivery would save precious ground time, reduce close-out time for hub operations, and cut time-consuming manual baggage sorting and handling. Although an automated system was more dear(predicate) ab initio than simple tugs and baggage carts, it was expected that it would reduce the manpower which was required to distribute bags to the correct locations.Bags unloaded from an aircraft arriving at a particular concourse would barely be touched by human hands. Moved through the airport at speeds up to 20 mph, they would be waiting when passengers arrived at the terminal. To prove the capability of its mechanical aspects, and demonstrate the proposed system to the airlines and politicians, BAE built a example automated baggage handling system in a 50,000 square foot warehouse near its manufacturing plant in Carrollton, Texas. The prototype system convinced heading Airport Engineer Walter Slinger that the automated system would work. The City of Denver approached us based on one core concept, recalled Di Fonso. They wanted to hav e a fully integrated, airport-wide baggage system. The city 9 Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 396-311 BAE Automated Systems (A) Denver International Airport Baggage-Handling System had two major concerns. First, they had no acceptable proposal. Second, United was probably going to go ahead and build what it needed and the rest of the airport would have been equipped with something else. Di Fonso continued, When we arrived on the scene, we were faced with fully defined project specs, which plainly in the long run proved to be a major planning error. The city had fallen into a trap, which historically architects and engineers tend to fall into as they severely underplay the importance and significance of some of the requirements of a baggage system, that is, arranging things for the space into which it must fit, accommodating the weight it may impose on the building structure, the power it requires to run, and the ventilation and air learn tha t may be necessary to dissipate the heat it generates.In April 1992, BAE was awarded the $175. 6 million contract to build the entire airport system. According to Di Fonso, company executives and city officials hammered out a deal in three wicked working sessions. We placed a number of conditions on accepting the job, he observed. The design was not to be changed beyond a given date and there would be a number of freeze dates for mechanical design, software package package design, permanent power requirements and the like. The contract made it obvious that both signer parties were very concerned about the ability to complete.The provisions dealt mostly with all-round(prenominal) access, timely completion of plastered areas, provision of permanent power, provision of computer rooms. All these elements were delineated as milestones. Denver officials accepted these requirements and, in addition, perpetrate to unrestricted access for BAE equipment. Because of the tight deadlines, BAE would have priority in any area where it needed to install the system. Di Fonso elaborated, When we entered into the contract, Continental Airlines was still under bankruptcy law protection.The city was very concerned that they would be unable to pay for their concourse. They only contracted for about 40% of the equipment that is now in concourse A, which was the concourse that Continental had leased. Beyond that, concourse C had no signer airlines as leaseholders at the time. The city, therefore, wanted the simplest, most elementary baggage system possible for concourse C. The outputs and inputs were very, very crude, intentionally crude to keep the costs down because the city had no assurance of revenue stream at that point in time.The city did not get the airlines together or ask them what they wanted or needed to operate. The approach was more along the lines of we will build the apartment building and then you come in and rent a set of rooms. foresee institution and Ma nagement No major organizational changes to accommodate the new baggage system were deemed necessary, although some managerial adjustments were made on the DIA project. Design of the United baggage system was frozen on May 15, 1992, when the PMT assumed managerial responsibility for the integrated baggage system.The direct relationship with BAE was delegated to Working Area 4, which also had responsibility for building design efforts such as the people-mover, airside concourse building, passenger bridge main landside building complex and parking garage, and various other smaller structures. The area manager, although he had no experience in airport construction, baggage system technologies, or the introduction of new technologies, possessed vast experience in construction project control management. BAE had to change its working structure to conform to DIAs project management structure. Di Fonso explained, 10Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 BAE Automated Systems (A) Denver International Airport Baggage-Handling System 396-311 There was a senior manager for each of the concourses and a manager for the main terminal. The bag system, however, traversed all of them. If I had to argue a case for right of way I would have to go to all the managers because I was traversing all four empires. In addition, because changes were happening fast at each of these sites, there was no time to have an information system to see what is concourse A decision making and what is concourse B deciding.We had to be individualisedly involved to understand what was going on. There was no one to tie it all together and overlap all these effects because the basic organization was to manage it as trenchant areas. It was pandemonium. We would keep saying that over and over again. Who is in charge? For the first two years of the project, Di Fonso was the project manager. The project was divided into three general areas of expertise mechanical engineer ing, industrial control, and software design.Mechanical engineering was responsible for all mechanical components and their installation, industrial control for industrial control design, logic control condition programming, and motor control panels, and software design for writing real-time process control software to manage the system. At the time the contract with BAE was signed, construction had already begun on the terminal and concourses. Substantial changes had to be made to the overall design of the terminal and some construction already completed had to be taken out and reinstalled to accommodate the expanded system.Installation of the expanded system was initially estimated to require more than $100 million in construction work. Walls had to be retravel and a new floor installed in the terminal building to support the new system. Moreover, major changes in project governance were taking place during the baggage system negotiations. In May 1992, shortly after(prenominal) the baggage system negotiations commenced, the head of the DIA project resigned. The death in October 1992 of straits Airport Engineer Slinger, who had been a strong proponent of the baggage system and closely involved in negotiations with BAE, also exerted a significant impact on the project.His cooperation had been essential because of the amount of heavy machinery and track that had to be moved and installed and the amount of construction work required to accommodate the system. His replacement, Gail Edmond, was selected because she had worked closely with him and knew all the players. Her managerial style, however, was quite different from Slingers. A Public Works manager recalled his first reaction to the change The airport is not going to be open on time. A United Airlines project manager summarized Edmonds scrap thus Slinger was a real problem solver.He was controversial because of his attitude, but he was never afraid to address problems. He had a lot of self-sufficiency and could get things done. Gail was in a completely different position. Basically, she had a good understanding of how the project was organized and who the key players were, but didnt know much about the actual construction. Also, the city council didnt give her anyplace near the autonomy and the authority that Slinger had and she had to get approval from the council on just about all decisions. They really tied her hands and everyone knew it.Di Fonso echoed the project managers assessment Walter Slinger unsounded that one of the things we had to have was unrestricted access. I think he clearly understood the problem the city was facing and he understood the short timeframe under which we were operating. He was the one that accepted all of the contractual conditions, all the milestones of the original contract. He really had no opportunity to influence the outcome of this project, however, because he died within months after the contract was signed. I think Gail 11 Purchased by A shley Matcheck (email&160protected com) on April 11, 2012 96-311 BAE Automated Systems (A) Denver International Airport Baggage-Handling System did an excellent job but she was overwhelmed. 12 She just had too much. The layers below focused inward, worrying about their own little corners of the world. not only did we not get the unrestricted access that was agreed upon, Di Fonso emphasized, we didnt even have reasonable access. Ten days after Slingers death, a BAE millwright found a truck from Hensel Phelps, the contractor building Concourse C, blocking her work site. She asked someone to move the truck or ensue the keys so it could be moved.According to a BAE superintendent, she was told that This is not a BAE job and we can park anywhere we please is that clear? Elsewhere, BAE electricians had to leave work areas where cover grinders were creating clouds of dust. Fumes from chemical sealants forced other BAE workers to flee. Di Fonso pleaded with the city for help. We ask that the city take prompt action to assure BAE the ability to continue its work in an uninterrupted manner, he wrote. Without the citys help, the delays to BAEs work will quickly become unrecoverable. 13 To further complicate matters, the airlines began requesting changes to the systems design even though the mechanical and software designs were divinatory to be frozen. Six months prior to opening the airport, Di Fonso recalled, we were still moving equipment around, changing controls, changing software design. In August 1992, for example, United altered plans for a transfer system for bags changing planes, requesting that BAE eliminate an entire loop of track from Concourse B. Rather than two complete loops of track, United would have only one.This change saved approximately $20 million, but required a system redesign. Additional ski-claim devices and odd-size baggage elevators added in four of the six sections of the terminal added $1. 61 million to the cost of the system. One month later, Continental bespeak that automated baggage sorting systems be added to its west basement at an additional cost of $4. 67 million. The ski claim area duration was first changed from 94 feet to 127 feet, then in January 1993, shortened to 112 feet. The first change added $295,800, the second subtracted $125,000, from the cost.The same month, maintenance tracks were added to permit the Telecars to be serviced without having to lift them off the main tracks at an additional cost of $912,000. One year later, United requested alterations to its odd-size baggage inputscost of the change $432,000. Another problem was the citys inability to supply clean electricity to the baggage system. The motors and traffic circlery used in the system were extremely sensitive to power surges and fluctuations. When electrical feedback tripped circuit breakers on hundreds of motors, an engineer was called in to design filters to correct the problem.Although consistent at that time, the filters st ill had not arrived several months later. A city worker had canceled a contract without realizing that the filters were part of it. The filters finally arrived in March 1994. A third, albeit disputed, complication related to Denvers requirement, and city law, that a received percentage of jobs be contracted to minority-owned companies. The City of Denver had denied BAEs original contract because it did not comply with hiring requirements, where upon BAE engaged some outside contractors in lieu of BAE employees. Di Fonso estimated that this increased costs by approximately $6 million, a claim ejected by the Mayors Office of Contract Compliance. Then, in September 1993, BAEs contract negotiations with the City of Denver over maintenance of the system resulted in a two-day strike of 300 millwrights that was joined by some 200 electricians. BAE negotiated with Denver for maintenance workers to earn $12 per hour on certain jobs that the union contended should be worth $20 per hour. As a result, BAE lost(p) the maintenance contract. 12 In addition to her role as Chief Airport Engineer, Edmond kept her previous responsibilities as Chief of Construction and playacting Director of Aviation. 3 Rocky Mountain News, January 29, 1995 12 Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 BAE Automated Systems (A) Denver International Airport Baggage-Handling System 396-311 Project Relations Much of the effort for implementing the baggage system was directed within one of the four working areas. The relationship with the management team was very poor, recalled Di Fonso. The management team had no prior baggage handling competence or experience. This was treated as a major public works project.The management team treated the baggage system as mistakable to pouring concrete or putting in air-conditioning ducts. When we would make our complaints about delays and access and so forth, other contractors would argue their position. The standard answer was, Go work it out among yourselves. . . . With contractors basically on their own, this led almost to anarchy. Everyone was doing his or her own thing. Another perspective was offered by a project manager from Stone &038 Webster, a consultant to the PMT, reflecting on the work done by BAE This contractor simply did not respond to the obvious incredible work load they were faced with.Their inexperienced project management vastly underestimated their task. Their work value-system was deplorable. 14 PMT management insisted that access and mechanical issues werent the problem. They were running cars in Concourse B all summer (1993), Edmund observed. The problem was that the programming was not done and BAE had full control of the programming. 15 Lawsuits and a Backup Baggage System In February 1993, Mayor Webb delayed the scheduled October 1993 airport opening to December 19, 1993. Later, this December date was changed to March 9, 1994. Everybody got into the panic mode of nerve-racki ng to get to this magical date that nobody was ready for, a senior vicepresident for BAE recalled. In September 1993, the opening was again postponedthis time until May 15, 1994. In late April 1994, the City of Denver invited reporters to observe the first test of the baggage system, without notifying BAE. Seven thousand bags were to be moved to Continentals Concourse A and Uniteds Concourse B. So many problems were discovered that testing had to be halted. Reporters saw piles of disgorged clothes and other personal items lying beneath the Telecars tracks.Most of the problems related to errors in the systems computer software, but mechanical problems also played a part. The software that controlled the delivery of empty cars to the terminal building, for example, often sent the cars back to the waiting pool. Another problem was jam logic software, which was designed to shut down a section of track behind a jammed car, but instead shut down an entire loop of track. Optical sensors d esigned to detect and monitor cars were dirty causing the system to believe that a section of track was empty when, in fact, it had held a stopped car.Collisions between cars dumped baggage on tracks and on the floor jammed cars jumped the track and solidification the rails faulty switches caused the Telecars to dump luggage onto the tracks or against the walls of the tunnels. After the test, Mayor Webb delayed the airports opening yet again, this time indefinitely. Clearly, the automated baggage system now underway at DIA is not yet at a level that meets the requirements of the city, the airlines, or the traveling public, the mayor stated. The city set the costs of the delay at $330,000 per month.Recognizing that his reputation was staked on his ability to have a baggage system performing to a point at which the new airport could be opened, Mayor Webb engaged, in May 1994, the German firm Logplan to assess the state of the automated baggage system. In July, Logplan isolated a loop of track that contained every feature of the automated baggage 14 15 Forbes, ASAP Supplement, August 29, 1994. Forbes, ASAP Supplement, August 29, 1994. 13 Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 396-311 BAE Automated Systems (A) Denver International Airport Baggage-Handling System ystem and intended to run it for an extended period to test the reliability of the Telecars. Jams on the conveyor belts and collisions between cars caused the test to be halted. The system did not run long enough to determine if there was a basic design flaw or to analyze where the problems were. Logplan recommended construction of a backup baggage system, and suggested using Rapistan Demag, a firm it had worked with in the past. Construction of a backup system was announced in August 1994. The system itself cost $10. million, but electrical upgrades and major building modifications raised the projected cost to $50 million. In the meantime, the City of Denver, as well as m any major airlines, hired legal firms to assist with negotiations and future litigation. We will have enough legal action for the rest of this century, a city administrator mused. The City of Denver had to communicate with such parties as the United States Federal grand jury, Securities Exchange Commission, and the General Accounting Office. The federal grand jury was conducting a general investigation concerning DIA.The SEC was investigating the sale of $3. 2 billion in bonds to finance DIAs construction, and GAO the use of congressional funds. Di Fonso, reviewing Mayor Webbs letter and requests that BAE pay a $12,000-a-day penalty for wanting DIAs original October 29, 1993 completion date, as well as take for granted the costs of building the $50 million conventional tug-and-cart baggage system, summed up the situation thus We have gotten to the point with the city that literally we are not talking to each other. Consultants recommended a backup baggage system, and the minute th at the decision was made, the city had to defend it.We are left out in limbo. 14 Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012 396-311 -15- Exhibit 1 Organization Chart Acting Associate Director of Aviation Denver International Airport City Attorneys Contract Compliance DIA Coordinator Tenant Facilities Administrative Assistant Marketing/Public Information motorcoach Planner Program Manager Computer Systems Administration Deputy Program Manager Airline distinctive feature Systems Environmental Engineer Contracts Risk Management Financial Manager of Design Contract Administration Administrative AssistantManager of Project Controls Architectural Supervisor Engineering Supervisor Document Control Contracts Staff Clerical Staff MIS roll Cost Estimating Project Managers &038 Support Staff Manager of Construction Project Controls Support Staff Safety Manager Senior Project Engineer QA/QC Manager Employee Relations Area 1&0382 Manager Area 3 Manager Area 4A Ma nager Area 4B Manager Area 5 Manager Construction Support Staff Source City and County of Denver, Colorado, Airport System Review Bonds, Series 1991D, October 1991. Purchased by Ashley Matcheck (email&160protected com) on April 11, 2012