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Harvest City: The Intelligent Procurement System Project
What could be worse than wasting millions of dollars in overpriced procured products and services? Installing a $26 million intelligent procurement solution to help transform procurement . . . and failing in the process!
In February 2017, Bill Miller, the CEO of Venso, an IT system design startup based in California’s Silicon Valley, read through the legal document on his desk one more time, then reached for the phone to call the company’s lawyer. The letter had been sent by the lawyers of his client, the Harvest City Convention Center, and named Venso as responsible for the delay in the center’s opening. It assessed Venso a $5,000-per-day penalty for the IT system failure. It also conveyed a message from Harvest City’s mayor, Andrew Thompson, demanding that Venso pay the $1.25 million cost of implementing an alternative, conventional procurement system for each convention center tenant.
Miller felt that Venso could demonstrate that flaws in the overall design of the Harvest City complex and an unsystematic approach to project changes had delayed the implementation of Venso’s intelligent procurement system. He debated whether he should just cancel the contract—worth $26 million—and cut his losses, or work with his lawyers to negotiate with Thompson and the convention center executives for the support required to finish the system as specified, despite the deterioration in communication and rising hostility between the various parties. He also wondered how the situation had gotten to this point.

Building the Most Modern Convention Complex in the U.S. Midwest
In 2009, the city council members in a growing U.S. midwestern city began to consider how they could market the city as a global destination for business travel, while also providing local citizens with a modern, prestigious gathering place. Consequently, they voted to approve the construction of a downtown convention center.




HBS Professor Emerita Lynda M. Applegate and University of Colorado, Boulder Professor Ramiro Montealegre prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on real events and despite occasional reference to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental.

Copyright © 2018 President and Fellows of Harvard College.   To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
 
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In 2010, Mayor Thompson assembled a citizens’ task force to select a developer. The task force— including representatives from the hospitality, tourism, labor, environment, and architectural industries—recommended the “creation of the Harvest City Convention Complex Corporation (‘Harvest City Corporation’) as a public benefit corporationa to finalize the scope and cost of the proposed complex, work with the primary stakeholders to identify the revenue and financing necessary to bring it to fruition, and then exclusively manage, market, and operate the new facility.”
In 2012, Thompson hired John Casper as the CEO of the new corporation. With 20 years’ experience running a convention complex in the eastern United States and several awards to his name, Casper brought a robust leadership style and a hands-on approach. To prepare for his role at Harvest City, Casper attended leading trade shows, meeting with potential clients that would sign on to open hotels, stores, restaurants, and other hospitality venues. He also handpicked each member of his leadership team so he could find individuals who shared his passion for the hospitality industry and for delivering unsurpassed service.
In September 2012, Thompson and the major stakeholders signed an agreement to receive a $60 million grant for the new complex, which was to be financed by revenue bonds and federal grants, supplemented by a sizable investment from the city. When completed, the complex would include a convention center, a shopping mall, and a 1,200 bed five-star hotel with adjacent luxury apartment and condominium towers. Phase 1 of the project would develop the hotel, convention center, and parking garage. Phase 2 would develop the shopping center and apartment buildings. Estimated federal grants for Harvest City Phase 1 were $100 million, with $80 million to be paid in the 2013 federal fiscal year and $20 million in 2014. The revenue bonds assumed the date of beneficial occupancy (DBO) for the hotel and convention center would be January 1, 2017, with bond repayments to begin on that date. Harvest City Corporation also talked with several private equity firms that had expressed interest in providing additional financing once Phase 1 was completed.
Construction on the complex broke ground in October 2014. Hotel and convention center bookings were already confirmed for early 2017. (Exhibit 1 provides a timeline of key events in the Harvest City project.) The city’s tourism office and chamber of commerce strongly supported the complex because they believed it was critical to the city’s economic vitality. Beyond hosting restaurants, live concerts, and specialty retailers, the Harvest City complex would benefit the economy of the downtown area surrounding it.
The Emergence of the Unconventional Convention Center Sector
Many local municipalities in the United States viewed convention centers as drivers of economic growth and had undertaken a variety of initiatives to facilitate their development. As the competition between both cities and centers to play host to conventions increased, however, so had the attendees’ standards. Because visitors wanted services customized to their individual preferences, convention centers needed to manage higher and increasingly diverse consumer expectations. To understand “the voice of the consumer,” for instance, many convention centers were attempting to integrate information derived from multiple sources, while also protecting customers’ privacy. Enterprise software firms that specialized in big data and predictive analytics, like Salesforce.com and SAP, were beginning to offer intelligent systems that aggregated information from social media, entertainment,


a The chief difference between a U.S. nonprofit corporation and a public benefit corporation is ownership. There are no owners or shareholders in a nonprofit company. In contrast, a public benefit corporation has shareholders who own the company and expect it to generate a profit and return a percentage of the dividends to them. (For more information on public benefit corporations, see R. Bell, D. Scott, and M. Weiss, “Non-Profit Corporation vs Public Benefit Corporation,” Delaware Inc.com, https://www.delawareinc.com/blog/non-profit-corporation-vs-public-benefit-corporation/).

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and a wide variety of other information sources that could then be integrated with internal booking, property management and other hotel, convention center, and shopping center systems. Increasingly, these systems were delivered as cloud-based, software as a service (SaaS) solutions and infrastructure as a service (IaaS) on-demand business models.
Casper emphasized that everyone involved in designing, constructing, and managing the Harvest City complex should focus on the project’s multiple stakeholders to ensure a unique experience for event managers and planners, convention center tenants, and end consumers. He traveled the globe to draw inspiration from the best convention centers in the world, and to promote Harvest City. During the planning phase, he insisted on being involved in every detail—from the high-level design decisions down to the final touches. He was confident that Harvest City would offer advanced technology and functionality that surpassed any other conference venue in the world.
The complex would, for instance, provide innovative building maintenance, communication, and audiovisual technology. It would also be operationally efficient while maintaining the ambience and service delivery excellence of a luxury brand. An intelligent building system would integrate all electrical, mechanical, and security systems, enabling the lighting, heating, ventilation, energy, audiovisual and data, parking garage, and security systems to be monitored and controlled from a centralized property management dashboard. The walls would be decorated with carefully selected artwork; background music was to play in public areas; water fountains and park-like settings were to be placed throughout the venue; and there were even plans for the center to have its own signature scent. Solar panels on the roof would provide power, and each conference, hotel, and shopping complex guest would receive a high-bandwidth connectivity package. An on-site audiovisual team would also be available, supported by a cutting-edge business center equipped with a full range of high-tech media, publishing, and communication equipment.
The Hotel’s Intelligent Procurement System
With the rise of online marketplaces like Airbnb and vacation rental by owner (VRBO), traditional hotels now competed with people’s living rooms. The online hospitality market created consumer demand for travel experiences and comfortable accommodations at a much lower cost. Because meeting each visitor’s expectations was key to customer retention, hotels and leisure operators were turning to advanced analyses for clues on how to keep their customers and shareholders happy.
In the spring of 2014, the management team of the luxury hotel chain chosen to manage the Hotel at Harvest City knew that the hotel would need to provide a state-of-the-art hotel booking and property management system to ensure that guests received the ultimate in luxury service at a competitive price. To do so, it would need to link its internal property management and booking systems with its financial and resource planning systems, while also linking with external and social media data providers, such as customer comments on social media and reviews on rating sites like TripAdvisor. While many hotels focused on the front end, the team also knew that the hotel had to invest substantial time and money into ensuring that its materials, supplies, and services—whether delivered by hotel employees or its many vendors—were consistently delivered at the right time, at the right place, and at the right price.
Procuring direct items was different from procuring indirect items. Agreements for direct materials and services, from raw materials and goods sold by a hotel to the food, ingredients, and beverages sold at its restaurants, were to be set up with partners to meet both the requirements of a long-term contract and to be sufficiently flexible to provide on-demand services. Indirect materials and services—from office supplies and computer equipment to maintenance, repair, and operating provisions—were procured as needed.


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While most established hotels in the chain used traditional procurement systems, the management team of the Hotel at Harvest City saw this new convention center project as an opportunity to adopt the state-of-the-art systems that were increasingly being used by the rapidly growing boutique hotels that, along with online marketplaces like Airbnb, had been stealing market share from established hotel chains. The team spent considerable time researching new sensor-based, Internet of Things (IoT)b procurement systems that were streamlining and simplifying business processes, customer service, and operational readiness while also enabling reduced cost and flexibility. By 2020, it was estimated that IoT technologies would add $1.7 trillion in value to the global economy.c
By 2014, IoT-equipped devices could monitor direct and indirect procurement, thus streamlining processes and providing valuable data and analytics to procurement teams and hotel operators. Direct spend categories, such as inventory of goods, food, ingredients, and beverages available at a hotel, could be monitored and managed via sensors in warehouses that measured the volume and quantity of a product or supply and could automatically place orders for new inventory when it reached a certain level. Indirect spend categories, such as building or machine maintenance, could be aided by sensors that monitored equipment and/or system “health” and “life expectancy,” so that systems, machines, or components could be scheduled for maintenance and those nearing the end of their lives could be replaced. These intelligent systems enabled procurement teams to do more with the same resources and integrated information across business units within an enterprise or across multiple businesses within and across industries. Within the hotel industry, IoT could also be linked to booking and property management systems to ensure timely delivery of room service reservations, timely cleaning of rooms, heating and cooling changes at the time of check-in and check-out, etc. Industry observers believed that IoT would eventually automate tactical and operational tasks—especially when combined with robotics—while also augmenting real-time procurement decisions and strategy.d
In June 2014, the management team of the Hotel at Harvest City commissioned Venso—a rapidly growing, 100-person, Silicon Valley startup with a proven record of developing and hosting sophisticated intelligent procurement systems for several boutique and midsized hotels—to develop, host, and support its procurement system in the cloud. Venso’s contract with the hotel was valued at
$5 million and estimated that the system would be completed and operational by September 1, 2016.

Harvest City Reaches for the Cloud
In July 2015, Casper learned of the hotel’s contract with Venso for the development of intelligent procurement system. Until then, it was assumed that each Harvest City tenant would develop its own procurement system. Casper believed that providing a convention center–wide intelligent procurement system could provide value in supporting each tenant while enabling Harvest City’s management to create unprecedented visibility into the consumption patterns of all purchases (including money spent on people and labor). From apps that tracked movement and access to tagging equipment and suppliers, new sets of data could then be analyzed to make better decisions. For example, operational costs could be reduced by aggregating demand across all parties involved, and relationships with suppliers could be strengthened. The feedback loops would also harmonize and


b The IoT (Internet of Things) is the interconnection of everyday items and devices that transmit data through the Internet, either about the item/device, its users, or its surrounding environment.
c Worldwide Internet of Things Forecast, 2015–2020, IDC, Report# 256397. http://www.idc.com/infographics/IoT.
d A. Ryder, “Augmentation vs. Automation: AI’s Utility in the Workplace,” Sloan Management Review, June 19, 2017, http://sloanreview.mit.edu/article/augmentation-versus-automation-ais-utility-in-the-workplace/, accessed September 9, 2017.

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improve the cohesive experience of customers who visited the complex and the surrounding area’s venues. Furthermore, by integrating the intelligent building management and procurement systems, Casper’s management team could more easily achieve specific procurement targets and maximize the efficiency of the complex while keeping the building and tenants secure.
Harvest City’s planners laid out the requirements for the desired system and sent a request for proposal (RFP) to 10 companies worldwide, including Venso. Eight, including Venso, declined to bid. One project consultant advised Casper against accepting the two submitted designs, arguing that the intricacies of the proposed system made it unworkable.
Venso’s reluctance surprised Harvest City’s planners, who knew the tech company had installed stand-alone procurement systems at several companies, and that the underlying IoT technologies (such as sensors, mobile, wireless, and internet) were well established. In addition, Venso was known for successfully integrating emerging big data and predictive analytics technologies with hotel booking and property management systems to provide reports and decision support to the boutique hotel management teams and operating employees. However, Miller’s concerns echoed those of the outside project consultant. “An integrated, intelligent procurement system can add real value,” said Miller. “But these decisions cannot be imposed on a project after construction begins, because the technology they involve must be embedded in the construction plan from day one. Finally, because the convention center was to begin operating so soon, we could not implement this system successfully in the prescribed schedule.”
After several meetings, Casper persuaded Miller to reconsider Venso’s position. In November 2015, Miller and Casper signed a $26 million contract to develop a “best-in-class cloud- and IoT-based procurement system to facilitate the procurement of direct and indirect items for all tenants.” The system would connect procurement data, functions, and teams, initially for the hotel and convention center. This phase of the project would be implemented and tested by November 1, 2016—in time for the grand opening of the hotel and convention center in January 2017. A separate contract would be negotiated during summer 2016 for the second phase of the Harvest City project. Miller explained,
The contract accounted for the risk we were assuming. We established deadlines after which both the overall design and specific subcomponents of the design, such as the software involved, were fixed and irrevocable. All sides knew the stakes involved in finishing the project on schedule, so the contract gave our team virtual carte blanche to work as needed at the construction site. It also specified assurances of dates by which other subcontractors would finish the work they needed to do before we began installing our system.
On behalf of the convention center, Casper accepted these contract terms. Miller elaborated,
When Venso entered the contract, most of the Phase 2 convention center tenants’ contracts were not finalized. We knew many tenants were developing plans to respond to recent trends in e-commerce and the future of physical shopping, but did not realize that no one had surveyed them about their needs. Instead, the final contracts included a clause that Harvest City would provide an intelligent procurement system for all Phase 1 and Phase 2 tenants.
Under the new agreement, Harvest City Corporation agreed to assume the cost and project management for implementing the intelligent procurement system for the entire convention center, including the Hotel at Harvest City. It assigned management for the relationship between Venso and the hotel to the project manager who was responsible for building design and construction support

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systems, such as the escalators, elevators, parking garages, and other complex-wide structures and systems. This manager had not overseen the integration of a procurement system. The contract specified that Venso would: (a) design the intelligent procurement system; (b) install the mechanical sensor components; (c) program the logic and sensor controls; and (d) design and develop the real- time, process-control software to manage the intelligent system.
The contract also specified that Venso would have the right of first refusal to bid on operating the intelligent procurement system for the Harvest City Convention Center and the Hotel at Harvest City once the facility was opened in January 2017. Venso would also have the right of first refusal to bid on developing and operating the intelligent procurement system for Harvest City Phase 2.
Construction had already begun when Casper and Miller signed the Harvest City-Venso contract. Nonetheless, the design of the complex needed to be altered to accommodate the multiple sensors and cables required for Venso’s expanded procurement system. Some of the interior spaces in the complex also had to be demolished and rebuilt to incorporate these alterations.
A month later, in December 2015, Casper resigned due to illness. Instead of hiring a new CEO, Harvest City Corporation divided Casper’s responsibilities among the remaining executive team members, who reported to the Board of Directors.
Implementing the Venso Contract
The day after Casper’s resignation, Venso employees had to stop working when a building inspector deemed their work area unsafe. Miller commented, “Our pleas to Harvest City Corporation’s executives to assure our ability to continue work were not acknowledged.” Moreover, several future tenants treated the contract as a starting point of negotiation rather than a final document, Miller recalled, “It was chaos. We were changing everything to accommodate them long after they had signed off on the original specifications.”
For example, in February 2016, an operating team at the convention center requested a change to the intelligent procurement system. Although the change saved $1.4 million, it required some building demolition and reconstruction to accommodate the change. In March 2016, the catering vendor for the convention center asked for the procurement sorting subsystems to be altered, adding $400,000 to the cost.
When Venso’s project team managers’ complaints were ignored, Miller took the complaints to the corporation’s executive team, which promised to “look into the matter,” but failed to resolve the problems. Miller sent an email to the manager overseeing Venso’s work, stating that Venso would not accept the request for the changes to the procurement sorting subsystem.
Venso’s relationship with Harvest City Corporation’s leadership continued to worsen, Miller recalled:
The new executive team failed to recognize how integral the procurement system was to the entire project. To them, our work was just a modular project that could be prioritized like the installation of a walkway or ceiling tiles. Not surprisingly, they refused to deal directly with me, so I was constantly negotiating with other subcontractors just for basic access, and they were all trying to manage their respective portions of the project. Unless there’s a central authority who is willing to say “No,” a signed contract often has little relevance when you’re in the field.
A project manager from Star & Williams, a consultant to Harvest City Corporation, added:

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The manager overseeing Venso did not understand that he needed to manage the uncertainty and complexity of the intelligent procurement system project in a different way from the approach used for standard building systems. In addition, the executive team that took on additional responsibility after Casper’s resignation was overwhelmed with the demanding decisions and short time frame needed to get the Harvest City Convention Center and Hotel at Harvest City operational in time to meet the agreements signed to host the first event in January 2017.
In contrast, another consultant hired to oversee the Harvest City construction project sided with the corporation, stating, “Venso should have known how many design iterations a project of this scope entails to ensure that the system would operate as advertised once it launched. It should have foreseen and accounted for all the things that could go wrong in its simulation runs because it owned the software code, and in the end, that’s what matters.”

The First Event at Harvest City
In mid-November 2016, seven weeks before the hotel was supposed to begin serving guests and the convention center was scheduled to hold its first national conference, a local pharmaceutical company was offered the opportunity to host a one-day preview event. The staff was ready, and there was a palpable sense of excitement in the packed venue. As Mayor Thompson prepared to introduce the keynote speaker, however, the fire alarm suddenly sounded. The mayor attempted to calm the crowd, but the intelligent building management system triggered the fire sprinklers, spraying water on the attendees. In addition, the facility sensors automatically alerted the intelligent procurement system, which then sent a message to the fire and police departments and emergency responders, who arrived within minutes. The “sprinkler incident” was noted by local newspapers covering the event and picked up the next day by the national and international media.
The post-incident review found problems with the IoT sensors installed by Venso to detect and monitor equipment and relate incidents to the intelligent procurement system. After Venso installed the sensors and the procurement system, the vendor hired to install the intelligent building management system had requested and was granted permission from Harvest City Corporation’s executive team to tap into the sensors for its fire emergency alert system. Venso was not notified of the request and its approval. In addition, as workers readied the auditorium for the event, dust from recent maintenance had caused several sensors to read that they were overheated. In addition, “jam logic” software in the intelligent procurement system (designed to manually shut down specific sections of equipment and alert building maintenance personnel of problems) had been inadvertently circumvented when the intelligent building management system vendor tapped into the IoT sensors to build its fire emergency software module.
Harvest City’s executives decided to cancel events and delay the opening of the convention center until the building maintenance system software was fixed and new procurement systems were installed. “Clearly, the IoT sensors that we installed for our intelligent procurement system are not performing at the level required by Harvest City, its tenants, or the public,” Mayor Thompson stated in a press release. Recognizing that his reputation was at stake (and under growing pressure from Harvest City stakeholders and facing reelection), in December 2016, the mayor engaged OnCloud—an IoT system design consultant that specialized in integrating emerging IoT and AI technologies with traditional enterprise systems—to assess the state of the procurement system and to propose changes that could be implemented quickly, inexpensively, and with high confidence in reliability.



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In January 2017, OnCloud issued a report to the city that characterized Venso’s system as “highly advanced” and “theoretically capable of living up to the promised functionality, reliability, and performance,” but concluded that the complexity and scale of the system would “most likely delay operational stability and reliability for 6–12 months.” OnCloud also noted that Harvest City convention center and hotel teams had added conflicting requirements to the design after Venso had begun to build the system, and that these additional requests had added to the complexity and may have contributed to the delay. OnCloud recommended two things: (a) changes to the building maintenance system to work without the IoT sensors, and (b) the construction of a stand-alone packaged, procurement system for the Hotel at Harvest City, the Harvest City Convention Center, and for all tenants who were scheduled to take occupancy during Phase 2. OnCloud estimated that these replacement systems could be installed and fully functional in for the Hotel at Harvest City and the convention center in under five months at a total cost of $1.25 million.
In the meantime, Harvest City Corporation and many of its tenants retained legal counsel. Because Harvest City Corporation had agreed to provide an intelligent procurement system to tenants, such as the Hotel at Harvest City, as part of its lease, the hotel was threatening to sue for breach of contract and damages for the loss of revenue from the delayed opening. In February 2017, the lawyers for the tenants and Harvest City Corporation worked together and sent a letter to Miller stating that, due to the faulty IoT sensors, Venso would need to pay the $1.25 million cost of the new procurement systems for each Phase 1 and Phase 2 tenant and a $5,000-a-day penalty for delaying the grand opening of Harvest City Phase 1. The mayor publicly supported these demands.
Miller immediately hired a legal team to assist Venso in negotiating with Mayor Thompson’s office and Harvest City Corporation. By the end of that month, Miller stated, “No one from Harvest City has acknowledged the mitigating circumstances that led us to this point. We are the scapegoat for the demands and mistakes of both the corporation and the tenants.”



























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Exhibit 1	Timeline of Harvest City/Intelligent Procurement System Project

2009	The citizens of Harvest City vote to approve the construction of a convention complex.
2010	Establishment of a citizens’ task force to assess the needs for a convention complex commissioned by the city.
2012	The task force recommends building the Harvest City complex and creating Harvest City Convention Complex Corporation (“Harvest City Corporation”). John Casper is hired as the corporation’s CEO.
Sept. 2012	The city’s mayor, Andrew Thompson, signs a $60 million grant agreement for the new convention complex. Harvest City Corporation receives additional grants and begins discussions with several private equity firms about future investments.
June 2014	The Hotel at Harvest City commissions Venso to build an intelligent procurement system valued at $5 million.
Oct. 2014	The construction of the Harvest City convention center complex begins.
July 2015	Harvest City Corporation identifies the opportunity to have a fully integrated intelligent procurement system for the entire convention complex.
Nov. 2015	Venso is awarded a $26 million contract to build the complex-wide intelligent procurement system.
Dec. 2015	John Casper resigns due to illness. His responsibilities are divided among Harvest City Corporation’s management team.
Feb. 2016	An operating team requests design changes to the intelligent procurement system.
March 2016	A catering vendor requests a $400,000 change to the intelligent procurement system.
Mid-Nov. 2016	A local U.S. pharmaceutical firm hosts the first conference at Harvest City (seven weeks before the official opening of the convention complex). Thompson delays the opening of the complex.
Dec. 2016	Thompson hires OnCloud to audit Venso’s intelligent procurement system.
Jan. 2017	Harvest City Convention Center originally scheduled to open. OnCloud issues its report.
Feb. 2017	The mayor announces the decision to build a conventional packaged procurement system for each Harvest City tenant at the cost of $1.25 million, to be provided to each merchant independently. Venso is fined $5,000 a day for delays and is required to pay for
the conventional procurement system.









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