Contractor and Vendor 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.

Quick reference

Contractors and Vendor Execution

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.

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 to 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 skills 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 or 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.
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  • 00:00 Hi, I'm Ray Sheen.
  • 00:05 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, vendors or suppliers,
  • 00:17 to accomplish some of the project tasks.
  • 00:20 They can be great help because of the extra resources or
  • 00:23 expertise that they bring to the project, but they also have to be actively managed.
  • 00:28 Selecting vendors for the project is often more difficult than selecting them for
  • 00:33 a normal operation, because of the project environment.
  • 00:36 Many times a project does not yet have a fixed specification for the goods or
  • 00:41 services that are needed, so requirements are vague and changeable.
  • 00:45 Of course, a project often only requires a small quantity of the goods or services.
  • 00:50 So they have to be right on time the first time,
  • 00:53 especially if the project is under time constraints.
  • 00:57 This means that rapid vendor selection is a very important management decision.
  • 01:02 The most common selection processes on projects are either a directed source.
  • 01:06 Where a corporate relationship already exists with a preferred vendor,
  • 01:10 selecting the low cost vendor who can meet the project schedule.
  • 01:14 Or if it is a highly technical task, first screening possible vendors for their
  • 01:19 technical capability, then selecting the low cost vendor who can meet the schedule.
  • 01:24 Once we've selected the vendor or supplier, there are three types of
  • 01:27 relationships that the project team can have with the vendor.
  • 01:32 The first is appropriate for a supplier of commodity, goods or services, or
  • 01:37 what is considered a commodity at least on this project.
  • 01:41 In this case, we're purchasing something that's standard,
  • 01:44 off the shelf commodity item.
  • 01:46 There is nothing unique with respect to the project.
  • 01:50 Project team's relationship with the vendor should be an arm's length
  • 01:53 relationship.
  • 01:53 There's no reason for the project team to directly interact with the vendor,
  • 01:56 they have more important things to be doing.
  • 01:59 Purchasing takes care of all the activities associated
  • 02:02 with managing the vendor, because it's a commodity product.
  • 02:06 The project team is just using whatever exists in the market with respect, for
  • 02:10 feature quality levels, price, and lead times.
  • 02:12 This is the easiest relationship for a project team and often for purchasing.
  • 02:18 The second type of relationship is one where we do want something that is special
  • 02:23 or unique for the project.
  • 02:25 In this case, we're purchasing from the supplier a custom product, or
  • 02:29 require a custom service.
  • 02:31 However, we have a specification for what we want to purchase.
  • 02:35 We can't leave this one entirely in the hands of purchasing.
  • 02:37 The project team members will need to conduct periodic interaction with
  • 02:41 the supplier, initially to answer questions about the specification.
  • 02:45 But as time goes on, to monitor progress and ensure the supplier has interpreted
  • 02:50 the specification correctly, and is meeting the desired performance level.
  • 02:54 Purchasing is still in charge,
  • 02:56 they're negotiating the contract within the project boundaries of price and
  • 03:00 schedule and they are managing the various contractual terms and conditions.
  • 03:04 However, the project team sets the required quality level and
  • 03:08 the features, which are often unique and customized for the project.
  • 03:14 When bidding, the supplier proposes a price and lead time,
  • 03:17 then purchasing negotiates the best combination of those.
  • 03:20 This time the project team does have regular interactions with the supplier,
  • 03:24 but purchasing is still in the lead.
  • 03:27 The really difficult relationship is what I call the design effort relationship.
  • 03:32 In this case,
  • 03:33 the project is purchasing something that is custom designed by the vendor.
  • 03:37 The project doesn't know precisely what they're buying, but
  • 03:41 they know what it is that they would like to do.
  • 03:44 There are some requirements, but no detailed design specifications.
  • 03:48 The vendor is the expert and the project is buying their expertise.
  • 03:53 Project team members will need to have a significant level of involvement with
  • 03:56 the vendor.
  • 03:58 In fact, I prefer to have the team members lead this vendor
  • 04:00 relationship with purchasing in a support role.
  • 04:04 This is because there are numerous decisions and trade-offs to be made
  • 04:07 throughout the project time while the vendor is doing their design work.
  • 04:11 They need to be directly involved with the core team to ensure that their design
  • 04:16 is compatible with project goals.
  • 04:18 Purchasing should still do the negotiations. After all,
  • 04:20 they're the organization's professional experts in that field.
  • 04:25 However, this is often a difficult negotiation for
  • 04:28 purchasing since there is no specification, and
  • 04:31 even the scheduled dates may be negotiable portion of the contract.
  • 04:35 Purchasing can only create a contract with general deliverables and conditions.
  • 04:39 These will need to be refined during the execution of the project,
  • 04:43 which will require continual interaction with the vendor.
  • 04:47 In this case, the project team has general requirements for quality levels, features,
  • 04:51 price, and lead time.
  • 04:52 But all of those may be negotiable and it will ultimately come down to whether
  • 04:57 the total solution created by the vendor can meet the project goals and objectives.
  • 05:03 The seller proposes a solution and during the lifecycle of the project,
  • 05:06 the deliverables are defined through negotiation.
  • 05:10 This relationship is a very in depth interactive relationship for
  • 05:13 the project team.
  • 05:16 Once you've determined what you'll be purchasing from vendors,
  • 05:19 then you can determine the appropriate relationship.
  • 05:21 Then work with purchasing to manage your vendors effectively.

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