4.5 Control Procurement

Progress Payments and Change Management

Vendors usually require payments during the life of the contract. On contracts that last several months, the vendor will incur significant costs and will want the project to pay for these costs as early as possible. Rather than wait until the end of the contract, a schedule of payments is typically developed as part of the contract and is connected to the completion of a defined amount of work or project milestones. These payments made before the end of the project and based on the progress of the work are called progress payments.

For example, the contract might develop a payment schedule that pays for the design of the solution, then the development of the solution, and then a final payment is made when the solution is completed and accepted. In this case, there would be three payments made. There is a defined amount of work to be accomplished, a time frame for accomplishing that work, and a quality standard the work must achieve before the vendor is paid for their work.

Just as the project has a scope of work that defines what work will be done by the project team and what will be outsourced, vendors and suppliers have a scope of work that defines what they will produce or supply to the company. Often changes occur on the project that requires adjustments to the vendor’s scope of work. How these changes will be managed during the life of the project is typically documented in the contract.

Capturing these changes early, documenting what changed and how the change impacted the contract, and developing a change order (a change to the contract) is important to maintaining the project’s progress. Conflict among team members may arise when changes are not documented or when the team cannot agree on the change. Developing and implementing an effective change management process for vendors will minimize this conflict and the potential negative effect on the project.

Managing the Contracts

The contract type determines the level of effort and the skills needed to manage the contract. The individual responsible for managing the contracts develops detailed specifications and ensures compliance with these specifications. They track the vendor’s performance against the project needs, as outlined in measurable performance evaluation criteria, supplying support and direction when needed.

Items that take a long time to acquire—long-lead items—receive early attention from the project team. An example of a long-lead item is equipment that must be designed and built specifically for the project. The equipment might require weeks, months, or years to develop and complete.

Occasionally, vendors do not perform to project expectations. Some project leaders will refer to the contract and impose penalties in an attempt to persuade the vendor to improve performance. Other project leaders will first brainstorm ways that the vendor could improve performance and meet project requirements before penalties are imposed. Both approaches to deal with non-performing vendors can work, and the project team must assess what method is most likely to work in each situation.

Managing vendor performance on a project is as important to the overall project outcomes as the work performed by the project team.

Procurement Management

Monitoring procurement includes ensuring the vendors’ performance meets the agreed-upon, often contractual, requirements. The complexity of the project determines the number and type of vendors procured. This, in turn, determines the nature of the monitored activities. For instance, projects that only require supplies to be purchased externally will have much simpler vendor management processes than projects that had to outsource the completion of some of the work to external consultants. Key tools and techniques used in procurement management include inspections, audits, formal change control methods, vendor-produced performance reports, payment systems, and contract administration.