Value of Knowledge Management and Contract Deliverables

 

Recently I was asked to estimate the cost of the various deliverables that are contractually required from Sellers to Buyers.   The estimate included the Seller’s material cost, software cost, labor and administrative effort to prepare, publish and deliver multiple copies of knowledge deliverables, labor for knowledge transfer services, and administrative costs for post contract liabilities.   The knowledge deliverables consisted of As-Built drawings and Operation and Maintenance Manuals.   The knowledge transfer services consisted of training and organized handover of project records.   The post-contract liabilities consisted of Warranty services. 

From previous contract experience in the rail transit domain, the contract deliverables are usually covered in the Buyer/Seller agreement and the value is covered by the retainage withheld by the Buyer from the Seller’s approved progress payments.   The retainage is typically 5% and it’s released from the Buyer to the Seller at the completion of Final Payment, which is dependent on the Seller meeting the contract requirements.  

What the preliminary estimate showed was the cost to produce the end-of-contract deliverables expected by the Buyer from the Seller was within the 5% retainage amount.   As a result, the historical use of 5% retainage in contract payment transactions provided high confidence that the Seller would fulfill the requirements or in theory, risk the Buyer using the retainage to fund another professional service contract for completing the deliverables.   

After further review, the estimate did not though, account for the value of the knowledge and services to the Buyer’s operation.  Most of the end-of-contract deliverables will outlast the initial Buyer’s use and continue to provide knowledge for the operation and maintenance of the contract product.    For contract producing sophisticated systems or cutting edge technology and services, the value to the operations may be far more that the 5% retainage.   

Long after the Seller’s contract is closed out, the knowledge created will help the Buyer in training new employees on operating the system, conducting preventive, predictive and routine maintenance and in coordinating as-built conditions for future projects.  As a result, the Buyer will need to secure the knowledge for safe storage and quick retrieval and provide all resources needed for an operational asset. 

In order to assure the continued value of the end-of-contract deliverables, the Buyer will need to protect these legacy documents and establish knowledge management processes and resources.   Deliverables such as As-Built drawings, O&M Manuals and training lesson plans and materials will continue to provide the Buyer with critical knowledge to share with employees for years to come while the product continues through its use-life cycle.

What was once a paper exchange is now being replaced by paperless alternatives that are environmentally conscientious and take up less space and cost less.  Digital libraries on off-properties are replacing storage and retrieval of paper documents.  However, this transition is not yet complete and many companies still require a combination of paper and digital copies of project and contract documents.  

Like the intangible value of a Warranty, the value of the knowledge from the end-of-contract is hard to quantify.   And its true value will only be appreciated when needed and usually at an inconvenient time.    But the qualitative value to a typical railroad organization includes:

• Engineering design for as-built conditions of the parent project that are essential to support future child projects
• Engineering construction for instructions on preventive and routine maintenance and life cycle overhauls on the project products
• Engineering construction for Warranty plans for monitoring and executing repairs on project products
• Engineering design and construction for troubleshooting PLC and microprocessor  operating and application hardware and software
• Procurement for ordering information of consumable and maintenance materials for the project products
• Stores for storing and maintaining inventory of spare parts to support maintenance and repair of project products
• Asset management for comprehensive data and information on constructed products from the project to support maintenance and future modifications
• Human Resources for  lesson plans and documentation for training personnel on operation and maintenance of the project products

TIP:   Most projects funded by the US government are required to retain project records for a defined period, and thereafter can determine the disposition of the records, including disposal.   Buyer’s should have a plan for selecting the records and the medium for longer term storage and retrieval of project knowledge.

TIP:   Buyer’s should review contract requirements to assess if the paper focused deliverables are more cost effective than a digital approach for the scope of the project.  For smaller, lower budget projects, paper may still be the best medium for contract deliverables.  For larger, high budget projects, digital software and licenses may be a more effective solution, which can be accessed and searched by the Buyer from any computer location 24 X 7. 

Feedback to Comments 

A.  On estimated cost:  The evaluation of estimated cost for deliverables was favorable because it was a Design-Build contract, where the value of the design allowed for a buffer.     The estimate relative to a fixed bid/lump sum may require the Buyer consider a large retainage percentage to cover expectations on a contract with systems.  The estimated value does not include the spare parts, which would be itemized separately in the bid price of the contract. 

B.  The closest rail transit projects consider knowledge management is as-built deliverables and O&M Manuals. Historically, rail transit projects deal with paper and hammers. As system projects increase the volume of paper, Buyer’s in the rail transit domain will need to consider management and sharing knowledge via electronic/digital medium. 

C.  On IT initiatives for KM:  Historically commuter railroads with budgets that are funded by the government, which off-set actual operating expenses to fare revenue ratio, tend to lag with leading edge IT practices in other industries. However, as the volume of paper increases with the size and complexity of mega projects, it will be inevitable for railroads to consider paperless approaches. While limiting paper, the are still projects that will require paper copies and software hard drives on-site for immediate use in recovery and restoring operations.