The biggest problem with contracting out work is that you do not have direct control over how the work is done, because seller’s team does not report to you. And having contracted the work out you need to put checks and balances in place to understand how is the work being progressed.
Controlling procurements involves monitoring contract work, evaluating the quality of project work, making changes to the contract as and when required, and making sure that work is done as per the terms written in the contract.
In some organizations where project is of large scope and involves complex work there is a separate person in charge of administering the contract, and project manager works with this person to integrate project work and contracted work.
There may be multiple units of work contracted out to multiple sellers in bigger and complex projects. In a sense contracted work is nothing but another small project! And you can very well imagine that some of the processes will be applicable to you as a project manager to execute for each of the contracted work!
In bigger and complex projects there may be multiple units of work contracted out to multiple sellers. And administering these contracts will involve project manager exercising these processes – project execution by seller organization, reporting project performance of work that seller is doing, quality control to measure the quality of seller’s work, change control process when deliverables do not measure up to expectations, and controlling project risks to keep in check the risks associated with contracted work.
Note that a contract, although a legally bound on seller and buyer, can change when both parties mutually agree to change them. The reason for changes could be several including changed requirements, reduced scope, and altered financial/compensation terms.
What do we need?
Project plan, of course
This contains all information about identifying making-or-buying decision till closing the contract, so this is a primary input in Procurement Management Plan – a subsidiary plan.
Procurement specific documents
These contain the SoW, requirements, contract terms and contract awards.
The actual document (a legal contract, if you are dealing with sellers outside of your organization) outlining roles and responsibilities of seller and buyer, scope of work, compensation details, payment terms, performance evaluation criteria, integration points with project work, milestones, warranty, limitation of liability, change request handling process, penalties, incentives, termination and alternative dispute resolution (ADR) mechanisms and so on.
Change requests approved for implementation
We talked about implementing change control process for contracted work, earlier. The corrective or preventive actions suggested and approved by way of change requests are part of work scope of seller.
How do we do this?
These help you to keep track of day-to-day work progress on seller’s side and to spot trends when things may not be going well, so you can take preventive actions.
Change control system for the contract
This is similar to the change control system we have seen earlier that is used to change any of baselines or plans on the project. These are the set of procedures to deal with changes to contract, escalation and resolution of issues and such. This system is integrated with integrated change control system on the project.
Performance reviews of seller’s work
These tell you how your seller is performing his work. These are held periodically and the goal of these reviews is to verify that project progresses as per schedule and cost allocations, and to ensure that seller is adhering to all compliance measures mentioned in the contract.
These regular reviews will validate your understanding of seller’s capability, based on which you awarded the contract. They will also tell you if there are problems brewing with seller’s delivery processes. Any signs of early warning will help you educate seller to correct their processes and thereby avoid impact to your project.
Inspection and audits of seller’s work
These help you verify that actual product, service or result is being produced as per your expectations. These help you verify quality of deliverables are as per expected quality standards, and to confirm that technical documentation is prepared as per agreed specifications.
Performance reporting of seller’s work
These are performance reports prepared by seller team, based on expectations set in the contract (for instance, earned value measurements numbers and forecasts). They are sent at regular intervals and help you report progress to your management.
Payment terms are mentioned in the contract and as per this your company’s accounts payable system will make payments to seller. However this has to go after you or some other person authorized to verify deliverables from seller sends an approval to the Accounts department for releasing payments.
Whenever there is a conflict or disagreement between seller and buyer with respect to payments, terms of delivery, scope or delivery or any other aspect of contract work, it is called a claim, dispute, or appeal. The contract would have a section to address this. It specifies how the claim is to be settled, either through negotiations or third party involvement (Alternate Dispute Resolution).
Records management system
Contract produces lot of documentation. Many a times managing these is more important than managing internal project specific documentation due to the legal nature of the relationship involved (where stakes are higher). These include invoices, change requests, requirements, performance reports, clarifications, meeting minutes, mail communications and more. The records management system should store data without too much of compilation work for you and it should make it easy to navigate, search and pull out information whenever required.
What’re we going to get out of this exercise?
Seller’s performance related info
You get this when the work performance data coming into this process is analyzed in the context and provides insightful information. This information feeds into your own project. You get to know the overall status of cost performance, schedule performance, quality of deliverable, and also the performance of seller is gauged and documented. This information also represents information such as adherence to contract terms.
Like any monitor and control process this one produces change requests. And as the thumb rule goes any inputs used for the process may stand a chance to be updated. These include procurement management plan, cost baseline and project schedule. As you know they must go through Perform Integrated Change Control process.
Updates to project plan and project documents
Most probable ones to be updated are schedule baseline (when schedule is reworked), cost baseline (when seller’s project cost changes) and procurement management plan (when procedures to deal with seller are to be refined).
Controlling procurement is as critical as managing your own project work. Maybe more, because seller’s team is not under your direct control. Some people tend to think that making a strong contract will help them incase seller cannot deliver. This may be true, but it does not avoid impact on buyer’s schedule if seller does not perform his work. Hence, it is better to do all that is required for seller to do a good job at his work and have good checks and balances in place so that you are sure of the good work being done.