How to Keep Vendor Contracts Under Control

Controlling the myriad of project procurements can be overwhelmingDo you ever feel that as Project Manager you are playing whac-a-mole with all the vendor contracts that you need to manage? Sure, you have a procurement manager on staff on the project, or maybe even an entire department back at corporate.

But they just worry about the terms and conditions and counting widgets. It is the Project Manager who needs to make sure the vendors comply with their deliverable requirements. It is the Project Manager who needs to make sure they are in lockstep with the project schedule.

Is the project slipping? Which vendor(s) does that affect? Is it the vendor that is causing the slippage? What does their contract say? How can we help bring them back on track?

Or is the project ahead of schedule? Can the associated vendor(s) meet the accelerated schedule?

On any given project there are typically a variety of vendor contracts to manage and control. In the contracting world that I am most familiar with, the following types of procurements are commonplace:

  • staff augmentation providers,
  • training providers,
  • hardware vendors,
  • workstation vendors,
  • software vendors,
  • developer tool vendors,
  • network services,
  • project office space leases,
  • security services,
  • parking facility leases,
  • office equipment leases,
  • office supplies,
  • telephone services,
  • end-user classroom leases,
  • janitorial services,
  • print vendors,
  • courier services,
  • transportation services,
  • travel agencies,

and more. True, not all of these are directly tied to the project schedule; but they all require attention.

Is it any wonder that the client organization prefers to work with only one contract – their IT provider? Clients rely on the prime IT provider to deliver the system, but they leave the details to the provider. Those details include the dozens of other procured contracts that are necessary to complete the project.

Assuming the process aspects of controlling procurements are in place – vendor agreements, Statements of Work (SOWs), tracking systems, record keeping, invoicing and payment, and the like – it is really the people aspects of controlling procurements that are most effective in ensuring that the buyer/supplier relationship is carried out successfully.

The Project Manager does not (nor should she) have direct control over how the supplier’s work is carried out. (One exception would be in managing the work of staff augmentation personnel.) As such, the Project Manager and her management team must be able to monitor the vendor’s/supplier’s deliverables according to timeliness, quality, and compliance with the contract terms. Additionally, the Project Manager must be alert to a vendor’s performance directly affecting other vendors, and subsequently the overall project.

Managing vendors requires a variety of skills, including expert judgment, superior organization, relationship management, negotiation, influence, and others. Treating vendors (even commodity suppliers) as partners in completing the project is preferable to the traditional transactional buyer/supplier relationship. Think of each vendor contract as a project within the main project.

For example, one of the major tasks in the build phase is to set up the infrastructure for system development. This may include multiple procurements to set up the development environment: hardware infrastructure, development software, communications, workstations, developer tools, expanded office space, and others (don’t forget the coffee, energy drink, and snack suppliers!). When clients monitor the IT provider’s status, they only see that the development task has started. The IT Project Manager, on the other hand, sees hundreds of sub-tasks required to set up the environment before the first module is written.

For large projects especially, the Project Manager and her team must remain highly organized and flexible in managing and controlling the sub-contracts. The Project Manager must ensure that all vendors perform in concert with the overall plan. Project execution flows down to the vendors. If any vendor fails in their contracted project work, the client does not hold them responsible. They hold the IT provider responsible.

Therefore, the Project Manager is responsible to monitor each vendor’s task execution, project status reporting, and quality of work and deliverables. Project scope must be controlled. Change requests are issued as warranted.

The following techniques are useful in monitoring and controlling vendor contract performance:

  • Maintain good vendor relationships. Before any of the subsequent techniques are considered, it is important that the Project Manager establish a strong working relationship with vendor management. He should stress the importance of the project to the vendors. He may bring them into the inner circle of decision making for certain project tasks. Vendors should be aware of their importance to the overall project delivery and the visibility that will result. Good contract relationships can inspire solid contract performance, which in turn can result in long-term relationships.
  • Provide the project plan to the vendors. Each vendor must be aware of when they are expected to perform their project responsibilities. They should be given a copy of the part of the project plan in which they will participate directly. Each change order that affects the project schedule must also be forwarded to the affected vendors. If a client’s change order impacts any vendor directly, a change order must be drawn up immediately for that vendor. Keeping the vendors in the loop helps build a trust relationship with them and ensures that they will be prepared to fulfill their contractual requirements.
  • Know the vendor contracts. It amazes me how often IT providers just set aside vendor contracts once the project is underway. I am not suggesting that the Project Manager stand ready to pull the contract at a moment’s notice and thump the vendor with it the minute there is a misstep. However, the Project Manager must know the SOW and performance requirements so that he can confidently monitor the vendor’s delivery. This also helps ensure vendor accountability.
  • Request status reports. Vendors should provide status reports according to the same cadence that the client requires of the IT provider. Status reporting should be written into the vendors’ contracts as applicable. The magic of status reporting is in the formalizing of the status. Vendors report on work completed and to be completed. It becomes a self-accountability tool and constant reminder to them of their project responsibilities. This is especially effective for vendors who are not accustomed to the rigors of large project executions.
  • Maintain vendor communications. Project Managers are accustomed to managing communications with their client and their project staff. The same must happen with vendors. Communication goes beyond the status reports and the occasional instructional or informational email. Vendors are part of the team and must be treated as such. Their project performance will often excel as a result.
  • Inspect the vendor’s work. It is one thing for vendors to inform the Project Manager of the status of their work performance. It is another for the Project Manager to see it for himself:
    o Is the infrastructure performing well with no downtime?
    o Did the workstation supplier deliver the exact number of units? Were they configured correctly? Are they performing reliably under the stress of developer workload?
    o Is the sub-contracted developer’s code of requisite quality? Is he meeting his task deadlines? Does his programming pass functional testing?
    o Do the sub-contracted trainers develop instructional content per the client’s training specifications? Do the training modules accurately portray the system functionality?
  • Provide feedback. Each vendor deserves to know how they are performing (and how they performed) in executing their project tasks. Many will look to renew the relationship on future projects with the IT provider. For example, many IT providers maintain a list of staff augmentation vendors and rate them on a tiered status. Vendors who consistently perform well are given a Tier 1 rating and are continually called upon for new projects. Vendors who perform in a substandard fashion are not renewed. Ongoing feedback is provided to these vendors and their staff.
  • Manage vendor payments. The Project Manager (or her designee) must ensure that vendor invoices are accurate and submitted according to the vendor sub-contract. Invoices must be paid timely.
  • Handle disputes professionally. Whether a dispute arises from a breach of the vendor’s contract or a difference of opinion on some aspect of the vendor’s performance, the Project Manager must handle it professionally, within the contract stipulations, and with an eye to preserving the relationship. The Project Manager’s learned skills in negotiation, relationship building, and teamwork are invaluable in this regard.
  • Monitor vendor risk. Vendors in sub-contracting relationships often see themselves as a commodity provider, and prefer as little accountability for overall project success as possible. As such, the Project Manager must keep her antennae tuned to any risk events that might arise from a vendor’s underperformance. Formalizing the risk in the risk register and letting the vendor know can be an effective means to ensure they perform well to avoid the added scrutiny.
  • Document lessons learned in controlling procurements. With each vendor experience, good or bad, the lessons learned documentation should be updated. Whether the lesson is in regard to a specific vendor or the sub-contracted task, it is invaluable for future projects to consider.
  • Maintain high ethical standards. The Project Manager requires vendors to perform professionally, in good faith, in compliance with their contracts, and in honor of their commitments. The Project Manager must reciprocate in like manner. Just as the Project Manager expects the vendor to maintain confidentiality regarding project information, so must he maintain confidentiality of vendor information. The trust factor is preeminent in the buyer/supplier relationship.

Monitoring and controlling vendor contracts is a complex task that requires attention and focus. It is more than just process. The people aspects of project management weigh heavily on how well the vendors perform. And how the vendors perform reflects directly on the Project Manager and the IT provider organization.


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