Question 1) What were the Reasons for failure:
a) How did the sale team perform its job? In particular, with regards to Risks?
The sale team of the INGEPP company turned out to be rather irresponsible regarding its risks and financial guarantees. In fact, they signed an agreement between the IMP and INGEPP excluding risks, the penalty policy and sanctions. In fact, all the negotiations were made by phone and fax, that is not a business communication. When the two companies faced difficulties (IMP's inability to pay in full, and INGEPP`s need to postpone production), both parties came to a verbal agreement. However, an oral agreement means nothing when it comes to trial. Each agreement and each decision must be written on the paper with the appropriate signatures and stamps. Also INGEPP should not have delivered all the equipment without getting a confirmation of the previous invoices. Moreover, INGEPP company should have had an interest in the credit history of IMP, referring to official sources. This is a mandatory step when it comes to signing a multi-million-dollar contract. In particular, this should have been done, when Mr. Durand read the news about IMP cash flow problems. Despite the trust, words that are not backed by documentary evidence, mean nothing, when it comes to business.
b) How did the project team perform its job? In particular with regards to Risks Management:
- At project initial stage (kick-off meeting)?
At the initial stage, the project team of the INGEPP company showed too little initiative. Being happy because of trust that they received from the IMP, it did not notice that strangeness, that it was left to execute the project on its own. Should have worried when the buyer had not paid sufficient attention to the drawings on the basic engineering phase.
- During project execution?
During project execution, the project team showed themselves in good faith. They warned the customer about possible delays and endeavored to deliver all the equipment to IMP on time. Thus, INGEPP project execution team did their job efficiently. However, they did not have to upload all the details before receiving the money transfer. This, in fact, was the biggest fault.
Question 2) What are Company core learning and its possible value improvement?
What would you recommend to the Top Executive as improvement to avoid facing again a similar situation, in particular what should be done:
- At tendering stage?
It is obvious that at the tender stage, Top Executive should monitor the preparation of the competent contract. First of all, it is necessary to make inquiries about the customer in order to ensure its reliability and ability to pay. Next, it is necessary to make the right contract, which will take into account the interests of the company. It is necessary to prescribe not only the date of payments and deliveries, but also fines and penalties in case of default of any party.
- During project execution?
During project execution, every single agreement, a decision and a change has to be agreed between the two parties. Moreover, these changes and decisions should be documented. It is important that in the event of a problem, as it happened in the current case, the injured party has a possibility to claim compensation through the courts.
Question 3) Margin Recovery: What would be your suggestions to save the INGEPP company from bankruptcy? Based on what is disclosed in the Case, please, elaborate your answers, taking into account the INGEPP current situation (Pros & Cons), the Stakeholders positions and the main Order provisions.
Recommendation 1. INGEPP should suggest to make an agreement with PETROLEOS. The fact that PETROLEOS had no agreement with INGEPP is a real drawback. However, it can be resolved. The whole Alkylation project was far behind schedule due to problems of the IMP company. However, there are two optimistic facts. 1. INGEP fully completed its obligations. 2. PETROLEOS did not make full payments to IMP. It means that the part of the budget, which was planned to be spent on the Project, still exists. Moreover, the Owner planned to spend US$ 60 Mio, while IMP suggested to complete it fir US$ 50 Mio. It means that US$ 10 Mio are left in reserves. Therefore, these reserves might be spent on the project (in INGEPP`s favor) in case of successful negotiations between PETROLEOS and INGEP. On this basis, PETROLEOS and INGEPP may conclude an agreement and then finish the project without IMP. Moreover, EMCOM, which is also involved in this project can follow the successful completion of the final project.
Recommendation 2. INGEPP should necessarily convince all the PETROLEOS contractors that the project is really worth continuing. Then it is necessary to renew the contract between PETROLEOS and INGEPP. Then PETROLEOS should pay what was unpaid by IMP. And after that it would be necessary just to implement the project in life.
Recommendation 3. Regardless of PETROLEOS` decision, INGEPP should submit the claim on IMP because of its failure to comply the terms of the contract. The main reason are the late payments of the installments in accordance with the plan in the initial agreement. This judgment might be won because IMP has not yet declared its bankruptcy.
Recommendation 4. Again, regardless of PETROLEOS` decision, INGEPP should demand the return of IMP`s debts. Explanation. The situation in which INGEPP found itself is extremely critical. In order to save it, it is necessary to think about tactics. Despite the fact that the IMP ran out of cash, it still was not a bankrupt. The fact that IMP was put under “Chapter 11" in order to improve its cash situation makes it possible to demand the return of its debts to INGEPP.
Recommendation 5. It is possible that PETROLEOS will not agree with the INGEPP's suggestions to collaborate. In such a case, INGEPP should think what to do with all the produced details of the plant. Provided that the construction was rather specific, it will be almost impossible to find another company, who would like to buy it. That is why, INGEPP should demand from IMP to give all the delivered equipment back. Then INGEPP might think of reusing the materials or to sell them for recycling. This might give INGEPP a possibility to have some money back for covering the debts.
Recommendation 6. As a last chance, INGEPP`s management might convince its main shareholder to find a new buyer for this plant project. Of course, some changes of its constructions might be needed, but in general, this plant project might be interesting for some investors.
