The Complete Project Management Office Handbook, Second Edition (ESI International Project Management Series)

Vendor/Contractor Relationships Function Model

The introduction of vendor/contractor support in the project management environment creates a requirement to manage that participation. This is primarily a responsibility for the project manager, but the PMO can establish the foundation for vendor/contractor management and provide the necessary support for vendor/contractor relationships across all projects.

The prominent activities of the PMO's "vendor/contractor relationships" function model are depicted in Figure 19.1. Each activity is described in this section.

Figure 19.1: "Vendor/Contractor Relationships" Function Model

Manage Vendor/Contractor Relationships

The PMO's role in managing vendor/contractor relationships is focused on oversight and support; the project manager should focus on control of vendor/contractor participation. The PMO should grow its capability to identify vendor/contractor value and capability to support the various types of project efforts performed within the relevant organization. It can then develop guidelines and recommendations for establishing vendor/contractor relationships.

When establishing its capability to manage vendor/contractor relationships within the project management environment, the PMO can consider the three activities described in the following subsections.

Identify Vendor and Contractor Needs

The PMO should collaborate with project managers to determine the nature of vendor/contractor support needed within the project management environment. This entails discussion and deliberation about the type of vendors and contractors needed, the frequency of those needs, and the preferred business relationship for each type of vendor/contractor.

The following list can be reviewed to facilitate the PMO's examination of vendor and contractor needs within the relevant organization. It indicates the types of vendor/contractor relationships that can be established, allowing the PMO to specify those likely to be needed within the project management environment.

• Vendor/contractor partnerships: This is a formal business relationship that is established to facilitate the mutual pursuit and achievement of common business objectives. The partnership relationship is used for vendors and contractors having frequent and close business alignment within the relevant organization. The vendor/contractor is often an active and visible participant on the project team and has vested interest in achieving overall project objectives. It is usually characterized by a written agreement put in effect for a period of time and reconfirmed at intervals that enables vendor/contractor participation on many or all projects within the relevant organization. Partnerships can be established to create a more permanent relationship from any of the other types of vendor/contractor relationships listed later in this section. The partnership relationship can range across a number of different business pursuits that support project efforts, for example:

  • Joint research and development (mutual business investment)

  • Business affiliation (joint sales and marketing)

  • Exclusivity of product or service use (sole vendor/contractor status)

  • Business referral activity (preferred vendor/contractor status)

  • Information system connectivity (business and sales information exchange)

  • Just-in-time product and service delivery (collaborated business processes)

• Vendor/contractor affiliations: This is a formal business relationship that is established to enable prequalified vendors and contractors to be identified and positioned for use on projects as their products and services are required. This type of relationship is used to prepare for anticipated vendor/contractor needs across multiple projects. It is usually characterized by a general contract or agreement that is prepared to (a) identify the nature and standard costs of products and services that can be delivered by the prequalified vendor/contractor and (b) specify the contractual obligations to be applied when and if the vendor/contractor is selected for assignment to any projects. This affiliation removes the burden of having to solicit, negotiate, and establish a contract for every project on which the vendor/contractor will participate, and it expedites vendor/contractor availability to begin project work when needed. The contract is usually established for a period of time, perhaps one or more years, and is activated by issuing a vendor/contractor work order that specifies the technical details of the work to be performed.

• Project-specific relationships: This is a formal business relationship that is established to obtain vendor/contractor participation on one or more specific projects. It represents the need to solicit and qualify vendors and contractors for selection, and then to prepare a separate contract or agreement for their participation on each project. This relationship is characterized either by direct association of the vendor/contractor as a project team participant, or by responsibility for independent work associated with achieving project deliverables and objectives. The business relationship and responsibilities of each party are concluded upon completion of the assignment or at project close out.

• Service provider relationships: This is a business relationship that may be formally or informally established, but it does not necessarily warrant a formal contract or agreement. Instead, it represents some level of prequalification and selection of service providers, perhaps by establishing a recognized business account with each provider. Then, as project teams require relevant services, this type of business relationship is established to handle those requirements. The service provider relationship is characterized by (a) vendor/contractor recognition of the relevant organization as an established account and (b) the use of some work-order process to provide a timely response and fulfillment of service requests originating from each authorizing project manager or project team. Payment for services can be attributable to specific projects, or it can be a shared cost within the project management environment. A few examples of service provider relationships include:

  • Technical help desk services

  • Reference and research services

  • Equipment and tool calibration services

  • On-line information management services

  • Communication and conferencing services

  • Courier and shipping services

  • Transportation services (e.g., airlines, railways, taxis, etc.)

  • Selected consulting and auditing services

• Supplier relationships: This is a business relationship similar to that of the service provider, but it deals with prequalification and selection of sources of products, supplies, and equipment needed to accomplish the project effort. Like service providers, this type of relationship is initiated by establishing a recognized business account with each supplier. Then, as project teams need to make relevant purchases or when payment is attributed to specific projects, the preferred supplier is contacted and the established account is referenced. A few examples of supplier relationships include:

  • Office supplies and equipment

  • Leased vehicles providers

  • Leased equipment providers

  • Leased housing providers

  • Raw material providers

  • Food service and meal providers

Manage Vendor and Contractor Information

Vendor/contractor information management is sometimes an administrative burden that can be reduced by effectively organizing its collection and use. Peak vendor/contractor information management efficiency can be achieved when the PMO centralizes the information database within the project management environment.

The PMO should undertake an initiative to acquire and manage vendor/contractor information as a basis for deliberating and establishing the preferred vendor/contractor relationship and as a means to recommend vendors and contractors for project work assignments. A comprehensive information management capability will examine vendor/contractor relationships from three perspectives:

• Vendor/contractor presence: What vendors and contractors exist in the market place, and what are their capabilities to contribute to project efforts within the relevant organization? This knowledge produces a general awareness of the products and services available to the PMO in support of project performance requirements.

• Vendor/contractor qualification: Which of the vendors and contractors, who have a viable presence and offerings that fit with needs in the project management environment, can be pursued in a business relationship?

• Vendor/contractor performance: What are the contributions and value of those vendors and contractors selected for a short- or long-term business relationship?

Vendor/contractor information collection can be either an exhaustive or a simple process, depending on the nature of project needs and the potential for a business relationship. The PMO will need to determine the specific information needed for its interests in vendor/contractor relationships. The information collected for vendors/contractors can be very similar to that collected for business customers. It includes consideration of the following elements:

• Vendor/contractor business profile: The vendor/contractor business profile contains any relevant information that the PMO deems necessary to gain an adequate understanding of the nature of the vendor/contractor business. Fundamental information elements in the vendor/contractor business profile can include:

  • Description (e.g., product, service, industry, etc.)

  • Size (e.g., number of employees)

  • Location(s) (e.g., local, regional, national, global, etc.)

  • Status (e.g., sales, revenue, stock position and outlook, etc.)

  • Management (e.g., executives, directors, private owners, etc.)

  • Affiliations (e.g., partnerships, industry affiliations, etc.)

• Vendor/contractor relationship history: Information on vendor/contractor relationship history examines past business dealings with each vendor/contractor. Its focus is on reviewing the business given to each vendor/contractor and the resulting performance achievements. It can also look at other vendor/contractor dealings in the industry and in the marketplace. Fundamental information elements in the vendor/contractor relationship history package can include:

  • Major business transaction history and the outcomes

  • Project work history and the outcomes

  • Partnership or business affiliation history and the outcomes

  • Key participants in projects and business transactions

  • Contract award and financial history

  • Invoice management history

  • Prominent types of products and services

• Vendor/contractor business fit: Information about the vendor/contractor's business fit warrants review from time to time. The primary information elements collected are based on the discernment and judgment of managers within the relevant organization versus absolute factual data. This information set helps to examine the vendor/contractor and associated business opportunities from a business-interest perspective of the relevant organization. Fundamental information elements associated with vendor/contractor business fit can include management perspectives on:

  • Alignment of vendor/contractor business objectives and interests

  • Vendor/contractor's business decisions and outcomes

  • Impacts of vendor/contractor's business values

  • Demonstrated vendor/contractor loyalty

  • Importance of particular vendor/contractor retention

These three areas of vendor/contractor information can be comprehensive or basic, per established business needs and the capacity to manage it. To the extent that the project knowledge management system is established, that would be an excellent mechanism for introducing vendor/contractor information for use by the PMO and by project managers.

Prescribe Vendor and Contractor Participation

The third component of establishing an effective vendor/contractor relationship is to identify how they will be introduced and used on projects and within the project management environment. As is common in most situations where there is direct project manager oversight and involvement, processes and procedures applicable to vendor/contractor participation that are managed by the project manager can be incorporated into the project management methodology.

The PMO can consider a wide range of vendor/contractor participation issues by examining the following points:

• Vendor/contractor sourcing responsibility: The project manager is responsible for acquiring necessary vendor/contractor resources to achieve project objectives. The PMO will need to determine if it will serve as a clearinghouse for vendor/contractor acquisition or just as a resource for vendor/contractor information.

• Vendor/contractor oversight responsibility: The project manager is responsible for managing vendor/contractor task assignments and performance. In collaboration with project managers, the PMO will need to determine any PMO involvement in managing vendor/contractor participation. Determinations here will also indicate and influence the role of the PMO in managing individual and collective vendor/contractor business relationships.

• Vendor/contractor project affiliation: The PMO in collaboration with relevant project managers should determine the approach to vendor/contractor management on projects, relative to each type of vendor engaged. In particular, it would be good to specify whether the vendor/contractor will be performing its assigned role and tasks as a member of the project team or will be working independent of the project team.

• Vendor/contractor project management responsibility: The PMO should establish common activities and expectations for vendor/contractor participation in project management activities and performance of their own project management efforts, per each vendor/contractor type. This deliberation also results in establishing the project manager's role in overseeing vendor/contractor project participation and performance from a project management perspective. The vendor/contractor can contribute and participate in a variety of activities aligned with phases of the project management life cycle, as warranted by the established vendor/contractor role:

  • Vendor/contractor collaboration — needs, requirements, and technical specifications

  • Vendor/contractor project planning and technical solution development

  • Vendor/contractor project management methodology deployment

  • Vendor/contractor tracking and reporting requirements

• Vendor/contractor technical performance responsibility: The PMO should establish guidance for vendor/contractor use of acceptable technical performance standards and technical competency requirements that will be applied to vendor/contractor efforts within the project management environment. This deliberation also results in establishing the project manager's role in overseeing vendor/contractor project participation and performance from a technical perspective. PMO oversight of vendor/contractor performance can include the following:

  • Fulfillment of qualifications for vendor/contractor technical team members

  • Presentation of required technical plans, designs, and solutions for timely review

  • Demonstration of a viable configuration management process, as needed

  • Implementation of project deliverable quality control and -assurance measures

  • Development of an acceptable timetable for delivery of products and services

• Vendor/contractor business management responsibility: The PMO should establish guidance for vendor/contractor business activity management, which is generally translated to mean putting mechanisms in place to ensure that the vendor/contractor has the capability to manage its contractual obligations. This can include:

  • Capability to lead and control vendor/contractor technical team work efforts

  • Acceptance of the prescribed contract modification process

  • Receptiveness to executive and senior management collaboration, as needed

  • Presentation of preferred project progress and associated business reports

  • Adherence to invoice submittal practices

The nature and type of vendor/contractor involvement will influence the particular type of roles and responsibility guidance that the PMO needs to create. In general, the PMO can begin defining vendor/contractor participation guidance in areas where project managers are expressing concerns or inquiries for assistance.

Manage Vendor/Contractor Acquisition

This activity specifies the means by which the PMO can recommend or establish the process by which vendors and contractors are introduced into the project management environment. The PMO should consider constructing a process for vendor/contractor acquisition according to the guidance contained in the following three subsections.

Identify and Qualify Vendors and Contractors

The identification and qualification of vendors and contractors should be accomplished according to the business relationship to be established. The process for vendor/contractor introduction is generally the same for all vendor/contractor types, but it is usually the urgency of need that dictates the depth and schedule of process deployment.

The following vendor/contractor acquisition steps are recommended for PMO consideration in establishing its own vendor/contractor acquisition process:

• Identify vendor/contractor requirements: Customer requirements are evaluated to determine whether accomplishing the work using vendor/contractor support is needed, cost effective, and in the relevant organization's best interest. The value of using vendor/contractor services may lie in the expertise to be gained, the need for resources, or the cost to be saved. Vendor/contractor requirements can be identified with reference to a specific project or for a broader support need anticipated within the project management environment. This step is usually accomplished in collaboration with the project manager's development of resource requirements and associated staffing plans.

• Perform make-or-buy analysis: A make-or-buy analysis is a general management concept and technique that is used to determine whether it is more cost effective for a particular product or service to be produced internally by the relevant organization, or whether the product or service should be obtained from external vendor/contractor sourcing. Simply stated, the PMO can provide guidance to help the project manager ascertain whether a vendor/contractor should be pursued to perform certain project tasks.

• Qualify vendors and contractors: The PMO's established vendor/contractor information database can be accessed to identify relevant vendors and contractors. Once identified, a review of their capabilities and expertise is used to create a "short list" of qualified candidates. The resulting vendor/contractor candidates on the "short list" for a particular project effort are then included in the distribution of the relevant proposal. Factors for vendor/contractor qualification can include:

  • Technical capability, including certifications and licenses

  • Staff experience, including r sum review

  • Familiarity with the vendor/contractor's products and services

  • Vendor/contractor familiarity with the organization

  • Geographic location and coverage

  • Previous similar jobs completed, including references

  • Financial stability, including bonding capacity

• Determine pricing arrangements: The objective of vendor/contractor pricing arrangements is to negotiate a contract type and price that will result in reasonable vendor/contractor risk and provide the vendor/contractor with the greatest incentive for efficient and economical performance. Different types of contracts provide various ways to share risk between the buyer and the seller, particularly cost risk. The contract type continuum (fixed price to cost reimbursement) places the risk for fixed-price contracts directly on the vendor/contractor (seller), whereas cost-reimbursement contracts place the risk on the relevant organization (buyer).

• Develop the independent cost estimate: An independent cost estimate should be developed for all major vendor/contractor acquisition efforts. This represents the relevant organization's estimate of the cost of the effort to be undertaken. It is used in the acquisition planning process and is generally required when examining vendor/contractor proposals. The pricing for vendor/contractor solutions should fall within an acceptable range of the costs presented in the independent cost estimate. In some cases the PMO will be adequately staffed to offer this step as a support activity to project managers.

• Write the vendor/contractor plan: The project vendor/contractor plan, sometimes referred to as the procurement plan, contains a compilation of the previously prepared elements, plus guidance for conducting vendor/contractor acquisition activities. In particular, it specifies a schedule of key procurement/acquisition events, including:

  • Vendor/contractor acquisition decision

  • Independent cost estimate preparation

  • Vendor/contractor solicitation preparation

  • Vendor/contractor candidate identification

  • Vendor/contractor proposal review period

  • Vendor/contractor contract discussion and negotiation period

  • Contract award date

The PMO can incorporate these planning steps into a template for use by project managers, or for its own use if it retains responsibility for vendor/contractor acquisition.

Solicit Vendor and Contractor Proposals

The following steps are recommended for PMO consideration in establishing guidance for preparing vendor/contractor solicitations, managing their distribution, and reviewing responses (proposals) toward selecting a qualified vendor/contractor:

• Prepare internal requisition material: The requirements in the vendor/contractor plan are reviewed and matched with existing and approved vendor/contractor sources. The requisitioning and purchasing requests are prepared in accordance with the policies and procedures established for using the particular vendor/contractor sources. The requisition authorizes the solicitation of vendor/contractor support and covers basic information such as a description of the item or service (statement of work), the quantity, the delivery date(s) or performance period, any special delivery or performance requirements, the funds, the funding source, any special progress or status reports required, the deliverables, the points of contact, and any other special terms and conditions.

• Determine type of solicitation: The proposal process to be used by the potential bidders (vendor/contractor) must be determined. Simply stated, the choices are either sole source or competitive bid.

• Prepare solicitation: Identified or prequalified vendor/contractor candidates are informed about the work opportunity through the distribution of a request for proposals (RFP) or request for quotes (RFQ) package. This information in the RFP (or RFQ) must be compiled for distribution and is usually readily transferred from the internal requisition material. The PMO can apply standards used by the relevant organization to create a template for the solicitation package, which typically contains the following elements:

  • Scope of work

  • Technical requirements

  • Schedule

  • Proposal format requirements

  • Terms and conditions

  • Subcontract type

  • Evaluation criteria

• Specify optional proposal actions: In conjunction with the preparation of the solicitation package, the following actions, although optional, are typically specified to ensure a successful vendor/contractor proposal response for major projects:

  • Prepare a draft solicitation: A draft document can be used for unusual or complex bid packages to obtain feedback from potential vendors and contractors before issuing the final solicitation. This document can be of tremendous help in clarifying vendor/contractor requirements.

  • Conduct preproposal conferences and a site survey: Meetings can be conducted for potential vendors/contractors in cases of unusual or complex bid packages. This can include vendor/contractor candidate visits to the actual performance site for services, construction, or installation work. These meetings ensure that all vendor/contractor candidates have a clear and common understanding of both the technical and contract requirements of the solicitation.

  • Respond to bidder inquiries and questions: A time period is established in which potential bidders may submit questions in writing. All identified bidders receive a list of all questions and the respective answers from the relevant organization. In some cases, responses to questions may be incorporated into solicitation documents as amendments.

• Distribute the solicitation and manage vendor/contractor responses: The solicitation package is distributed to vendor/contractor candidates on the qualified-source list. Vendor/contractor responses should be tracked and managed. Deadlines for receipt should be adhered to or, if necessary, extended as a distinct proposal management action. The PMO in conjunction with established practices may provide notice of the approaching deadline to all vendor/contractor participants. Similarly, the PMO may request the courtesy of receiving replies of "no-bid" from those vendor/contractor candidates who choose not to submit a proposal, and these too should be tracked for current and future reference.

• Evaluate vendor/contractor responses: Vendor/contractor selection may be as simple as reviewing the proposal business elements and determining which competing set of prices is the lowest. On the other hand, it may involve weeks or even months of proposal analysis, on-site visits, prototype development, and testing. One person may accomplish vendor/contractor proposal review and selection, or it may require an extended effort by a panel of evaluators. The industry trend appears to lean toward more comprehensive screening and selection of fewer vendors and contractors for longer duration contracts. The vendor/contractor evaluation process typically includes the following actions:

  • Receive and evaluate proposals: Oral vendor/contractor presentations of their proposals tend to improve and expedite the vendor/contractor selection process. However, proposal document review is still an acceptable means of examining the vendor/contractor candidates under consideration. Either way, proposals must be evaluated using the evaluation criteria stated in the solicitation regarding management, technical expertise, and price. The PMO can help to establish the practices of the relevant organization used to guide and facilitate vendor/contractor selection, and a weighting system should be used to determine which evaluation criteria are most important. Past vendor/contractor performance information should also be used to evaluate and verify the accuracy of information presented in the vendor/contractor proposal. Use of independent cost estimates, price realism, and competitive price analyses are part of the evaluation process. Use of qualified consultants to assist in this vendor/contractor proposal review is also a method for PMO consideration.

  • Hold vendor/contractor discussions: Interactions with vendor/contractor candidates provide the opportunity to clarify ambiguities in proposals received. The PMO must also determine if conditions warrant an opportunity for vendor/contractor candidates to revise their proposals and submit a best and final offer.

  • Receive and evaluate best and final offers: The receipt of revised, best and final offers from vendor/contractor candidates should be monitored, followed by a final evaluation of their revised proposed solutions. Normally, the focus of a best and final offer is on pricing. However, inasmuch as pricing affects performance, there also could be changes in the technical solution to be considered. Each vendor/contractor should highlight the revisions contained in their best and final offer presented to the relevant organization. As well, it should be noted that the best and final offer does not necessarily represent the outcome of negotiations. Vendor/contractor discussions may be used for business negotiations, or they can be used solely to request adjustment of technical aspects of the proposal.

• Conduct vendor/contractor negotiations: The contract negotiation process comprises planning, conducting, and documenting the negotiations. It involves clarification and mutual agreement on the structure and requirements of the contract prior to the award. To the extent possible, final contract language should reflect all agreements reached. Generally, vendor/contractor negotiations include, but are not limited to, the following subjects:

  • Responsibilities and authorities

  • Applicable terms and law

  • Technical and business management approaches

  • Contract financing and price

• Select vendor/contractor: This step represents the selection and notification of the successful vendor/contractor and is characterized by the following events:

  • Vendor/contractor selection: A formal vendor/contractor selection decision is made. If the associated customer contract is a major one, the final decision may require some coordination with the customer and possibly customer approval. The customer can be included in the vendor/contractor selection and decision process to preclude the need for post vendor/contractor selection confirmation.

  • Award of vendor/contractor contract or agreement: A final contract document, incorporating any negotiated modifications to the proposed offer and any customer-required directives, is prepared. Obtain appropriate approvals, sign the contract, and provide a copy for the vendor/contractor.

  • Debriefing: Notify unsuccessful vendors and contractors and debrief them on the selection outcome. Hold discussions appropriate to the proposal effort with each unsuccessful bidder to present at least general vendor/contractor selection results as a means to promote and refine future proposals. The courtesy extended by offering this discussion also refines or builds any future business relationship opportunities with unsuccessful vendors and contractors.

Prepare Vendor and Contractor Contracts

The PMO should establish the process by which vendor/contractor contracts are introduced in the relevant organization. The following are a few prominent steps the PMO can consider in establishing vendor/contractor contracts. They are not dissimilar to the process recommended for establishing customer contracts:

• Verify contract documents: This step represents verification that all vendor/contractor contract documents are complete and accurate, and reflects the results of any ensuing contract negotiations. It particularly includes a review and incorporation of subsequently received vendor/contractor project plans and technical documents that were adjusted as a result of contract negotiations.

• Obtain vendor/contractor contract approvals (and signatures): The project manager, PMO, or business unit representative leading the vendor/contractor contracting effort will present the contract or agreement for review, including a review by the legal department. Then, final review and an authorized signature within the relevant organization will be obtained.

• Book the contract: Booking the vendor/contractor contract is the process of accepting a vendor/contractor contract or work order into the business system and the project repository. An account number is established for the vendor/contractor contract, and the baselines for scope, schedule, and costs are validated in the accounting or project management information system. This process allows work orders to be issued, project work to begin, and invoices to be accepted from the vendor/contractor.

• Transfer vendor/contractor responsibility to the project manager: The work to be performed under the vendor/contractor contract officially begins when the contract is passed to the project manager for execution.

The PMO should also identify, through the established organization and structure or through a basic stakeholder analysis, which other stakeholders in the business and project management environments should receive a copy of the vendor/contractor contract.

Manage Vendor/Contractor Performance

The PMO may or may not have a direct role for oversight associated with any vendor/contractor efforts. That is a determination that must be made within the relevant organization, and presumably the points of PMO intervention will be obvious. However, the PMO is responsible for ensuring that project managers have a process for managing vendor/contractor performance, and that is addressed in this activity.

Vendor/contractor performance management is a matter of ensuring that contractual obligations are fulfilled, that roles and responsibilities associated with the project are outlined and understood, and that technical work is assigned and accomplished. The following three subsections offer insight to the PMO in establishing this capability.

Administer Vendor and Contractor Contracts

The principal objective of vendor/contractor contract administration is to ensure the fulfillment of the contractual obligations by all parties to the contract. The required level of effort for vendor/contractor contract administration depends on the magnitude and importance of the contract. On larger projects with multiple product and service vendors and contractors, a key aspect of contract administration is managing the interfaces among the various participants along with all other contract administrative activities.

It is critical that all members of the project team be aware of the legal implications of actions taken when administering the contract. For vendors and contractors, the effort needs to focus on vendor/contractor delivery management rather than personal interfaces.

The following are the recommended actions associated with vendor/contractor contract administration:

• Verify vendor/contractor contract booking: After the vendor/contractor contract has been awarded, the project manager must ensure that the vendor/contractor contract data are entered into the project and business databases. Critical vendor/contractor information areas are anything impacting on cost, schedule, meetings, and deliverables. The PMO can arrange for this action to be accomplished when the contract is established, but it is a good rule to have the project manager verify that through a notification by the accounting department.

• Organize vendor/contractor contract files: The project manager must retain critical vendor/contractor contracting documents in a file created for each vendor/contractor. This process should be an integral part of the project management information system, a component of the project knowledge management system. Vendor/contractor contract files typically contain the following information:

  • RFP/RFQ package

  • Vendor/contractor proposal (including related inquiries, preproposal meeting notes, and negotiation notes)

  • Vendor/contractor planning documents and modifications

  • Vendor/contractor performance management evaluations

  • Correspondence

  • Meeting minutes

  • Reports

  • Invoices

  • Change orders

  • Vendor/contractor deliverable tracking and management logs

• Establish procedures for contract claims and dispute resolution: The project manager should work closely with the PMO and procurement personnel on this highly legalistic area and ensure that project team personnel are aware of the procedures to be followed.

• Establish procedures to solve issues and problems: The PMO should establish recommended procedures for use by project managers in identifying, managing, and reporting vendor/contractor issues and problems. The goal is to achieve early and effective resolution of any detriment to project success.

• Establish communication guidance: The project manager should clearly identify all members of the project team, specify their responsibilities relative to vendor/contractor management, and convey authorization for communication with the vendor/contractor.

• Monitor vendor/contractor performance: Vendor/contractor performance should be monitored, to include observing actual performance, conducting regular meetings and discussions, and reviewing written reports. As well, deliverables presented by vendors and contractors should be examined for accuracy and achievement of specifications.

• Manage vendor/contractor relations: The participation of each vendor/contractor should be examined and management styles leveraged to maximize vendor/contractor strengths and minimize weaknesses. The subcontractor should be held responsible for compliance with technical and contractual matters. Working with vendors/contractors who demonstrate loyalty and indicate a potential for long-term relationships should be encouraged. Relationships with major vendors and contractors should be more actively managed than relationships with subcontractors who provide off-the-shelf items.

• Conduct meetings with vendor/contractor representatives: An initial meeting should be conducted with vendor/contractor managers and representatives for the purposes of introduction and to establish protocols associated with the project effort. Ongoing progress and status meetings should be held with the key members of the vendor/contractor project team as required by the project effort.

• Manage vendor/contractor contract changes: The project manager must establish a subcontract change-control system based on PMO guidance that defines the process by which any vendor/contractor contract can be modified. Managing change ensures that changes are authorized and their effects estimated and provided for, that changes are promptly identified, that the other party is properly notified, that compliance and impact are reported, that compensation is provided, and that the entire transaction is properly documented. The contract change-control system must be integrated with the overall change-control system prescribed by the project management methodology.

• Monitor vendor/contractor contract compliance: The project manager has responsibility for vendor/contractor contract compliance to ensure that the vendor/contractor is authorized to perform work at the appropriate time and that any special terms and conditions are complied with. Project engineers or technical personnel usually manage the technical portion of the vendor/contractor contract, whereas procurement or financial personnel (who may or may not be assigned as project team members) manage the business portion. The project manager must ensure that an effective vendor/contractor contract administration plan is prepared for any major vendor/contractor contract to ensure internal collaboration on vendor/contractor contract compliance.

• Manage acceptance of vendor/contractor deliverables: The project manager must ensure the management of vendor/contractor deliverables by members of the project team. It is critical that an effective quality control program be established and implemented to inspect and verify the adequacy of the vendor/contractor product. Acceptance of deliverables (goods, services, progress reports, documents) must be performed in accordance with both the prime contract and the vendor/contractor contract, and it must be accomplished before invoices are authorized to be paid.

• Manage vendor/contractor payments: The vendor/contractor contract should contain provisions on invoicing and payment schedules. Payment terms should be defined within the contract and should involve a specific linkage between progress made and compensation paid. Vendors and contractors should be required to submit an invoice to receive payment. This ensures the ability to track and trace invoices, which is particularly important if there are multiple vendor/contractor participants. The vendor/contractor invoice should contain at least the following information: subcontract identification number, subcontractor payment amount requested, and identification of the work performance associated with the requested payment. The project manager should also establish a plan specifying who is authorized to approve the invoices that are submitted in accordance with the relevant contracts. Frequently, invoices are tied to deliverables, and acceptance must be authorized before payment can be made. Following are several types of payments:

  • Progress payments tied to measurable progress in work or based on cost incurred, with some determination of actual work. Progress payments should be used only if the costs can be recovered by the project.

  • Payments aligned with the achievement of specific milestones or deliverables.

  • Payments based on the "pay when paid" concept, i.e., the vendor/contractor gets paid when the relevant organization receives payment from the customer.

• Review and close out vendor/contractor contract: Vendor/contractor contract close out may occur at any time during the project, but it should be performed at least during the project closure phase. The following steps are normally performed to close out a subcontract:

  • Verify that all requirements are completed and accepted. Resolve any open or pending questions and issues.

  • Confirm that all subcontractor submittals and deliveries have been received. Ensure that deliverables have been accepted in accordance with the prescribed test and inspection procedures and that the customer has accepted the deliverables.

  • Ensure that the subcontractor issues a final invoice accompanied by any other required documentation, including final lien waivers, warranty documents, or certificates of completion.

  • Approve the final invoice, and monitor and verify the subcontractor's receipt of the final payment.

• Manage vendor/contractor resource departures: Ensure that vendor/contractor staff departures are managed and that material resources are disposed of appropriately if no longer needed on the project. This includes managing turn-in of project equipment provided to vendor/contractor staff for use during the project, reallocation of work space, and removal of vendor/contractor staff access to facilities and documents, as appropriate.

• Prepare a postproject vendor/contractor performance report: Review vendor/contractor performance, contributions, and contract compliance, and then prepare and archive a final report. This report can be prepared in collaboration with the vendor/contractor, or a copy of the postproject performance report can be conveyed to the vendor/contractor upon completion. The final report should include the following:

  • Evaluation of the effectiveness of vendor/contractor staff and managers

  • Evaluation of the effectiveness of vendor/contractor processes and tools

  • Preparation of lessons learned from the vendor/contractor business relationship

  • Recommendations for appropriate recognition of vendor/contractor staff and manager

The PMO must refine these activities for use within the relevant organization, which may or may not already have a basis for vendor/contractor contract administration. If one does exist, the PMO can simply incorporate existing practices into processes deployed within the project management environment. If one does not exist, a vendor/contractor contract administration process development effort is warranted. Moreover, if there is no existing process, the PMO may need to facilitate buy-in of managers who are unaccustomed to such scrutiny of vendor/contractor participation. That can be accomplished with relative ease by demonstrating the benefits to be achieved by effective vendor/contractor management, e.g., receipt of quality vendor/contractor work products and services, proper payment of invoices and release of project funds based on validation and acceptance of vendor/contractor work products and services, and fulfillment of the primary customer contract through oversight and management of timely delivery of vendor/contractor work products and services.

Monitor Vendor and Contractor Performance

It has been reiterated that the project manager is responsible for vendor/contractor performance management and oversight. Conversely, this activity examines ways in which the PMO can support the project manager in achieving that responsibility. In particular, it specifies review and assessment activities that the PMO can perform across all vendor/contractor participants to ascertain the individual and collective value and effectiveness brought into the project management environment by these external resources. In some cases vendor/contractor performance review and assessment results will serve business decisions regarding the current or proposed business relationship with a particular vendor/contractor. In other cases, PMO review and assessment findings can be conveyed to project managers for their consideration in selecting the next vendor/contractor needed for a particular project effort.

The range of PMO responsibilities will determine the depth of vendor/contractor assessment and analysis that is performed. The following are a few examples of the reviews the PMO can conduct to monitor vendor/contractor performance and ensure that value is being achieved by the introduction of vendor/contractor products and services within the project management environment:

• Price variation analysis: This review looks at how vendor/contractor pricing varies across projects, for the same vendor/contractor and for different vendors and contractors, particularly those performing the same or similar work. It will help determine if there are pricing inconsistencies among the vendor/contractor resources used or inconsistencies in pricing for a particular vendor/contractor. Significant variations should be identified, challenged, and rectified.

• Deliverable performance analysis: This review examines the trends in the technical quality of vendor/contractor work products and services. It should ascertain any adverse trends in vendor/contractor deliverables, where the product or service routinely does not meet objectives, specifications, or expectations. This includes an examination of rework frequency, timeliness of product and service delivery, vendor/contractor responsiveness to requests for fixes, and ultimate endurance and usability of the delivered product or service. Conversely, this analysis also could identify positive trends in vendor/contractor deliverable performance. The PMO can use these analysis results to identify preferred vendor/contractor relationships for future project work and business opportunities.

• Contract add-on/extension analysis: This review is used to identify any particular vendor/contractor having a recurring need to request or negotiate work extensions, with or without additional costs incurred. This could be an indication of weak estimating practices, either within the relevant organization or by the vendor/contractor, or possibly vendor/contractor underpricing in their proposals in anticipation of obtaining subsequent increases after work has begun. It could also be an indicator of vendor/contractor staff competency or vendor/contractor management attention and capability. Once indicators are identified, the PMO can determine the cause and implement rectifying actions.

• Billing practices analysis: This review can be applied to examine the accuracy of individual and collective vendor/contractor invoices and to ensure that prescribed billing practices are adhered to by each vendor/contractor, i.e., timely submittal, appropriate description of work performed, etc. As well, this examination looks at internal handling of vendor/contractor invoices, particularly project manager approval, which serves as verification of product receipt and work performed. The PMO can then act to correct any discrepancies identified.

• Management retention analysis: This review addresses vendor/contractor manager assignments and associated effectiveness. It examines preferred vendor/contractor manager retention for subsequent or recurring efforts as a matter of developing their familiarity and experience within the relevant organization. It also identifies the frequency of vendor/contractor manager turnovers on individual projects and across multiple projects for which the vendor/contractor is involved. The PMO can review vendor and contractor manager retention and turnover issues in terms of any project effectiveness issues that require attention and resolution.

• Customer satisfaction analysis: The PMO should review any indicators of customer satisfaction or dissatisfaction with any vendor/contractor. This is usually associated with vendor/contractor work that is visible to the customer. This examination should be distinguished from finding vendor/contractor blame, because the relevant organization has inherent responsibility to select and manage qualified vendor/contractor participants, and is doing itself a disservice in suggesting vendor/contractor blame to any customer. Rather, the PMO needs to obtain customer perspectives, if not approval, regarding the vendor/contractor products and services used, and this is a measure of customer feedback in that regard.

• Project manager oversight analysis: This review solicits project manager input to vendor/contractor performance, and it can be accomplished in conjunction with the preparation of a vendor/contractor postproject evaluation report. However, here the PMO examines the input of multiple project managers, or multiple reports, to ascertain project manager perspectives on the vendor/contractor. In particular, this review focuses on the level of vendor/contractor management attention required, with the goal of identifying any undue burdens placed on the project manager resulting from vendor/contractor oversight requirements. The PMO will need to identify any vendor/contractor that presents an unacceptable burden on project manager time and effort.

• Business and investment posture: This review is conducted relative to the nature of the relationship with each vendor/contractor type. Closer business relationships, i.e., partnerships, will have a different focus than do simple vendor/contractor relationships established for project-specific work. Some of the points that can be examined to ascertain business and investment posture in vendor/contractor relationships include:

  • Financial contributions to partnering initiatives

  • Resource investments in the relationship

  • Demonstrated actions to introduce and use prescribed technical practices

  • Investments in new technology

  • Investments in communication and information-sharing tools

  • Information sharing

The results from each of these examinations should be entered into the appropriate vendor/contractor information file and be made available through the project knowledge management system used in the project management environment. Analysis results also should be considered in mid- and long-term planning for vendor/contractor support as well as in the vendor/contractor acquisition process when obtaining new or renewed vendor/contractor contracts. The primary objective of this monitoring effort is to maximize business value from vendor/contractor participation within the project management environment.