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Contractors and Vendors Execution

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Contractors and vendors are often used to accomplish project tasks. The complexity, uniqueness, and uncertainty of the activity will determine the nature of the relationship between the project team and the contractor or vendor.

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Contractors and Vendors

When to use

Contractors and vendors are normally used on projects for one of four reasons:

There are insufficient internal resources to do the project work when scheduled.
A special skill or capability is required that is not available with internal resources.
The contract or vendor resources are less expensive than internal resources.
There is a requirement to use local resources as part of the project.

Instructions

There may be significant project management challenges when using contractors or vendors. If the project has a high degree of uncertainty, it is difficult to develop a complete set of requirements and schedule for use with the supplier. This can lead to numerous change orders which often become very expensive on projects. Further, depending upon the nature of the work being done by the supplier or contractor, there may be a significant amount of time and effort on the part of the project team to interface with the supplier.

Project activities often require a supplier provide a “one-of-a-kind” development from vague requirements and on short notice. When this is the case, it is important to select a supplier who has high technical skill and can act quickly. This often is not the lowest cost supplier. However, the procedures in most purchasing departments are structured for creating long term contracts with multiple deliveries of a well-defined and documented product or service with the lowest cost provider. The purchasing department’s inability to quickly react can become a major obstacle to meeting the project objectives.

Finally, purchasing departments often have policies and practices that create difficulties for projects. There may be a long term relationship between the organization and a preferred supplier for a type of commodity. That relationship works well for standard operations, yet that supplier may not be able to meet the unique technical or schedule requirements of a project. This leads to conflict between the project team and the purchasing organization.

If you will have extensive use of suppliers providing specialty products or services on your project, you should have a purchasing member on your Core Team.

Supplier relationship

The relationship between the project team and the supplier varies depending upon the level of uncertainty and the existence of special requirements.

Commodity provider – if there is nothing special or unique about the products of services, use the organization’s standard supplier. Purchasing should fully manage this relationship without additional project support.
Custom products or services – if the required product or service is unique to the project, but well specified, purchasing will have the primary relationship, but a project team member will need to periodically interface with the supplier to answer questions and clarify requirements.
Project design effort – on some projects, there is no clear requirements document for the supplier to use. Instead the project is relying on the supplier to propose a special or unique solution for the project. In this case, the primary relationship with the supplier must be by the project team, not purchasing. There are numerous trade-offs to be made in the design process to help the project meet all its goals. A buyer in the purchasing department, unless a member of the Core Team, is too far removed from the project to make those decisions.

00:05 Hi I'm Ray Sheen.
00:06 Let's talk now about actually using contractors and vendors on your project.
00:10 Contractors and vendors present some very serious project management challenges.
00:15 Many projects use contractors,
00:18 vendors or suppliers to accomplish some of the project tasks.
00:22 They can be a great help because of the extra resources with
00:25 the expertise that they bring to the project.
00:28 But they also have to be managed.
00:30 Selecting vendors for projects is often more difficult in selecting them for
00:34 normal operations because of the project environment.
00:38 Many times, a project does not yet have fix specifications for the goods or
00:42 services that it needs, so requirements are vague and changeable.
00:46 Of course, a project often only requires a small quantity of the goods or
00:49 services, so it has to be right and
00:52 on time the first time, especially if the project is under time constraints.
00:57 This means that vendor selection is a very important project management decision.
01:01 The most common selection processes and projects are either a directed source,
01:06 where a corporate relationship already exists with a preferred vendor.
01:09 Selecting the lowest-cost vendor who can meet the project schedule, or if it is
01:14 a highly technical task for screening possible vendors for their technical
01:18 capability, then select in the lowest cost vendor, who can meet the schedule.
01:23 Once we have selected the vendor's supplier, there are three types of
01:26 relationships that the project team can have with that vendor.
01:30 The first is appropriate for a supplier of commodity goods and services, or
01:34 at least what is considered a commodity for this project.
01:37 In this case, we're purchasing something that is standard, off-the-shelf,
01:41 commodity item.
01:42 There's nothing unique with respect to the project.
01:45 The project team's relationship with the vendor should be at an arms
01:48 length relationship.
01:49 There's no reason for the project team to directly interact with the vendor.
01:53 Purchasing should take care of all the activities that are associated with
01:56 managing this vendor.
01:58 The project team uses whatever exists in the market with respect to features,
02:02 quality levels, pricing, and lead times.
02:05 That's the easiest relationship for a project team and often for purchasing.
02:10 The second type of relationship is one where we do want something that is special
02:14 or unique for our project.
02:16 In this case, we're purchasing from the supplier a custom product, or
02:20 requiring custom services, whenever we have a specification for
02:24 what we want to purchase.
02:26 We can't leave this one entirely in the hands of purchasing.
02:29 The project team members will need to conduct periodic interactions with
02:32 the supplier.
02:33 Initially, to answer any questions about the specification, but
02:36 as time goes on to monitor progress and ensure that the supplier has interpreted
02:41 the specification correctly, and is meeting the desired performance level.
02:45 Purchasing is still in charge,
02:47 they negotiate the contract within the project boundaries of prize and schedule.
02:51 And they are managing the various contract terms and conditions.
02:54 The project team sets the required quality levels and the features.
02:59 The supplier proposes a price and lead time, then purchasing negotiates for
03:03 the best combination of those.
03:05 This time, the project team does have a regular interaction with the supplier, but
03:09 purchasing is still in the lead.
03:11 The really difficult relationship is what I call the design effort relationship.
03:16 In this case, we're purchasing something that is custom-designed by the vendor.
03:21 We don't know precisely what we are buying but we know what we wanted to do.
03:25 There are some requirements but no detailed design specification.
03:29 The vendor is the expert, we're buying their expertise.
03:33 Project team members will need to have a significant level of involvement
03:36 with the vendor.
03:37 In fact, I'd prefer to have a team member lead the vendor relationship
03:41 with purchasing and a supporting role.
03:44 This is because there are numerous decisions and
03:46 trade offs to be made while the vendor is doing the design work.
03:49 They need to be directly interacting with the core team to ensure
03:52 the design is compatible with the project goals.
03:55 Purchasing should still do the negotiations.
03:58 After all, they are the organization's professionals in that field.
04:02 However, this is a difficult negotiation for purchasing.
04:05 Since there's no specification, and
04:07 even the schedule dates may be a negotiable portion of the contract.
04:11 Purchasing can only create a contract with general deliverables and conditions.
04:16 This will need to be refined during the execution of the project
04:19 which will require continuous interaction with the vendor.
04:23 The project team has a general requirement for quality levels, features, price and
04:27 lead times.
04:28 But all of these maybe negotiable and it'll automatically come down to whether
04:32 the total solution created by the vendor can meet the project goals and objectives.
04:38 The seller proposes a solution and during the lifecycle of the project,
04:41 the deliverables are defined through negotiations.
04:44 This relationship is a very indepth and
04:46 interactive relationship on the part of the project team.
04:52 Once you determine what you'll be purchasing from vendors,
04:54 then you can determine the appropriate relationship.
04:57 Then work with purchasing to manage your vendors effectively.

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