Contractor/Vendor Selection: Bridging The Communication Gap

Susan Peterson, M.B.A., PMP 2008,
Copyright Susan Peterson, All Rights Reserved

In the continuing series on outsourcing project work this month’s column addresses the challenges related to selecting those individuals and/or organizations that will provide the expertise needed for specific activities. All too often this process is filled with “communication disconnects” in documenting what is needed from contractors/vendors. Whether one uses requests for proposal (RFPs), requests for information (RFIs), or other types of vendor solicitation documents, clear definition is critical. I have participated in the election process in multiple roles including leading the selection process, writing solicitation documents for clients, and responding to client proposals. The following areas are primary considerations to effectively facilitate the project vendor selection and subsequently the contracting process.

Be specific -- even if it hurts.
There is no substitute for clarity in specifying what activities need to be performed. Too often project leaders feel that there is not enough time to fully document requirements or specifications. They also may feel that providing detailed documentation means that there will be no room for negotiation if there are changes during the project. Sometimes, there are situations when many of the details regarding a project work need are unknown. In any case, providing more clear definition is better than merely documenting the are minimum requirements. In those instances where little is known, the solicitation document can state the situation and request that the respondents provide their best solutions. Otherwise, the vendors will be forced to respond vaguely or to guess (often incorrectly) about what was intended.

The project manager should also include a template for responses in order to obtain usable information that is comparable across all responses. For example, a cost template should be provided so that the breakout of costs can be readily compared among vendors. Vendors have a variety of costs that may or may not be included in an hourly rate, so the project manager needs to know what is covered in order to avoid surprises later. Also, it may appear to speed the review of responses by including a number of expertise or capability questions that can be answered "yes" or "no". However few respondents will answer "no", knowing full well that a ”no” response can be the basis for rejection while there is “always a way” to provide the “yes”.

“How ‘good’ is ‘good’”?
In order to avoid nasty confrontations during the course of the project that are always counter-productive, the solicitation should include tangible definitions of quality and performance. These definitions should correlate not only with the final deliverables but also with appropriately scheduled interim deliverables. If the potential respondents have not performed project work for the organization in the recent past, these interim deliverables may be scheduled more frequently. Acceptance criteria should also be clearly defined. For example, there are numerous “horror stories" about the disasters caused by the interpretation of "The
software has been fully tested”.

It never gets any better than the “courtship”
One would assume that potential contractors/vendors would present their best possible images to project managers during the selection process. However, I have seen solicitation responses that consisted of photocopied pages stapled together in no apparent sequence. Conversely, I have also seen responses that ere nothing but “color-coordinated glitz". While few relationships are perfect, the project manager needs to assess the overall caliber of a contractor/vendor's response in order to better predict the quality of the future relationship.

Contractors/vendors are human beings.
I once heard about a company that circulated many solicitations but that never awarded any contracts. This company took all of the responses and used the information to conduct the work in-house. It is expensive for contractors and vendors to respond to project solicitations. These costs are not recoverable. Project managers need to be prudent in soliciting responses to proposals. Once the contract has been finalized, all respondents should be notified. While a contractor/vendor may not be suitable for one project, it may be a “good fit” for other projects.

As with all successful relationships, effectively working with outside project personnel requires good upfront research, objective review, and ongoing management. Next month’s column concludes the outsourcing series with best practices to manage contractors/vendors in a project environment.

Susan Peterson, M.B.A., PMP, is a consultant who manages diverse programs and projects in both the private and public sectors for individual organizations and consortia. She also conducts enterprise assessments of project portfolio management practices. An overview of her program and project specialties is available at http://www.pmi-sd.org/Consultants. She teaches the Project Management Simulation capstone course in the University of California, San Diego, Project Management Certificate program and is a member of the curriculum committee. She can be contacted at susanada@aol.com.

PMP® Challenge Question - 6/15

Here's the question posed on 6/1:

What do we call the narrative description of services to be supplied as part of a contract?

Without the aid of multiple choices, this may appear difficult to answer, but there is one simple answer! Its a Statement of Work or SOW.

Summer Break for PMP Challenge Questions -- this feature will be on summer break until 9/1. See you back then! In the meantime, please continue to check for our weekly posts and updates.

PMP® Challenge Question - 6/1

The question posed for today is "What does RACI stand for?"

RACI is a technique which can be used for creating a RAM or Responsibility Assignment Matrix. The letters stand for Responsible, Accountable, Consulted, and Informed. Some articles about RACI add "VS" for Verifies and Signs Off.

Well that one was easy!

Here's a question for 6/15:

What do we call the narrative description of services to be supplied as part of a contract?

Check back on 6/15 for the answer!

PMP® Challenge Question - 4/15

Happy Tax Day! Just a little late with the post since I took the day off in celebration. On 4/1, I asked what does each abbreviation stand for:

CR - Cost Reimburseable. This is a contract where the seller is reimbursed for their costs. There is usually a fee or some other payment representing the profit.
CPFF - Cost Plus Fixed Fee. The contract is a variant of cost reimburseable with a fixed fee component. This type of contract tends to favor the buyer.
FPFT - Fixed Price, Fixed Time. This is a contract in which the seller absorbs all the risk by guaranteeing a price and time to complete.
CPRC - Oops? Did you think this stood for something? Its not a valid procurement abbreviation.

Now for the 4/15 challenge:

Explain the function of sum of the years depreciation.

Good luck with the challenge!

Outsourcing Sounds Good -- But What’s The Cost?

By: Susan Peterson, M.B.A., PMP Copyright 2008, Susan Peterson, All Rights Reserved

Continuing the column series theme of outsourcing, let’s assume that you’ve decided that your project has some definite needs for expertise and/or skills that are not found or that are not readily available inside your organization. As mentioned in last month’s column, the base cost of an activity can be an illusive factor to accurately calculate. There are a number of considerations to assess when determining the “true” cost of performing work. In addition to the base cost, organizations that perform outsourced work will include at a minimum a profit margin and an overhead factor. A project manager who is considering outsourcing needs to be prepared with realistic assessments in advance of contractor negotiations. In this month’s column we cut through some of the “smoke and mirrors” that seem to accompany so many cost estimates and uncover the underlying factors that are major influences of project work costs. Think of the following narrative as a bridge etween accounting textbooks and grim reality.

Do we “have a clue” what it costs us to do this work in house?
Even when using the most sophisticated project accounting systems, it may be difficult to isolate typical costs for specific types of work. A good starting point is to define and document the tasks, the performance measures, and the “allowable” variances. Another critical component of this exercise is to assess areas of risk and to determine which risk areas will be transferred or shared as a part of an outsourcing relationship. Once all of this information has been compiled, an estimate of in-house hours and costs can be determined. Typically, this estimate will be higher than project sponsors want to acknowledge. A project manager needs to hold firm amidst pressure to eliminate tasks in order to “cut costs”. Providing an overly optimistic estimate of work required to an outsourcing organization invariably leads to additional charges and schedule extensions hen the actual hours overrun the false estimate.

What don’t we know?
There are those situations when organizations do not know all of the factors about the work that needs to be performed because the work has never been done in-house. Particularly if the work involves new or unproven technology, custom equipment, or specialized skills, project managers may feel unqualified to estimate the actual level of effort that is involved. In these cases some upfront research is necessary. While a project manager may not uncover all of the aspects related to a particular activity, he/she should obtain enough information to avoid being “blown away” by potential contractors that may inflate the effort, complexity, and investment necessary to perform specific work. It is also necessary that the project manager have a “healthy respect” for the actual challenges that are inherent in unfamiliar work.

Let’s “get real” about our expectations
One of the more prevalent areas of misunderstanding between organizations and contractors concerns expectations. While project managers may believe that specifications and requirements have fully documented every aspect of each activity and deliverable, there are unwritten expectations that are assumed. Often these expectations are based on the work culture of the organization. The bottom line about expectations is “don’t ake anything for granted”. Some areas that the organization needs to consider include the following:

• Project management -- What project management practices are used in-house? Is the project manager expected to oversee the contractor’s personnel, to be responsible for quality of outsourced deliverables, etc?
• Service levels -- How accessible do contractor management and personnel need to be (especially important in global outsourcing)? What turnaround is expected on interim decisions? Are a number of decisions made “on the fly”?
• Deadlines -- What does “completed” really mean for each deliverable?
• Unanticipated problems -- What degree of flexibility or agility is considered the “norm” in-house, meaning are problems “worked around”, solved, or ignored?

Readers will note that no traditional accounting principles were detailed in this discussion of project cost considerations. While there are numerous publications that address specific quantitative approaches, it is the realistic definition of work, risk, and expectations that must be determined before any cost numbers can be ffectively applied.

Susan Peterson, M.B.A., PMP, is a consultant who manages diverse programs and projects in both the private and public sectors for individual organizations and consortia. She also conducts enterprise assessments of project portfolio management practices. An overview of her program and project specialties is available at http://www.pmi-sd.org/Consultants. She teaches the Project Management Simulation capstone course in the University of California, San Diego, Project Management certificate program and is a member of the curriculum committee. She can be contacted at susanada@aol.com.

PMP ® Challenge Question - 4/1

On March 15th, the challenge was:

You have finished project management training and desire to earn your PMP® credential. What are some constructive ways you can go about applying your new knowledge and obtaining your first project management assignment at your company?

Certainly one of your first steps might be a discussion with your manager. Let him/her know about your accomplishment and how you might be able to apply your knowledge in a work assignment. Your HR manager is another possible resource. Another constructive tactic might be to have a discussion with existing project managers in the company and ask if you can be considered for a role on a project team. If you have any additional ideas to share, please leave a comment or drop me a line at sdcapmp@aol.com.

Now for the new challenge. Here are some acronyms found in the procurement knowledge area. What does each stand for? Provide a brief sentence or two about what each is.

CR
CPFF
FPFT
CPRC

Good luck with the challenge!

"Yours, Mine, or Ours": Is Outsourcing the Answer?

By: Susan Peterson, M.B.A., PMP
Copyright 2008, Susan Peterson, All Rights Reserved

Both private and public service sector organizations face an ongoing challenge to determine whether functions should be performed internally or externally. While much is written about how to make this decision from an organizational strategic perspective, there are few guidelines for the project manager to use during the initiation and planning phases. Too often outsourcing decisions are made on the basis of past practices rather than assessing the current project situation. This month’s column is the first in a multi-part series that addresses project-related considerations regarding whether to outsource, insource, or employ a hybrid approach. The first area of focus covers some considerations of the initial decision.

“How could the core competencies have changed?”
It might appear that an organization’s core competencies are “cast in concrete”. However, in this environment of continual mergers/acquisitions, spinoffs, virtual entities, and other structural impacts, project managers often find that the composition of their teams changes frequently. What an organization once considered a strength, such as specialty engineering design or innovative research capabilities, may drop in priority and thus no longer be supported through effective hiring practices or major budget funding. In determining if appropriate in-house personnel will be available, a project manager needs to perform a scan of other current and proposed projects. What activities are being outsourced for other projects? Does the outsourcing appear to be the result of personnel shortages due to short-term allocation issues or to an overall lack of skilled personnel? If the constraints are short-term, then outsourcing may be a viable alternative. However, if the constraints are long-standing, a decision needs to be made by the organization to address long-range outsourcing/insourcing strategies.

“Who can keep a secret?”
Access to proprietary, competitive, and/or classified information may be an essential part of conducting a project’s activities. There are a number of legal agreements that are signed by employees and outsourcer organizations alike that stipulate restrictions on the use of knowledge obtained in the course of performing work. Typically, severe penalties are also documented in these agreements. In reality, violation of confidentiality may be difficult and/or costly to prove. Once proprietary information is “on the streets”, punishing the guilty does not mitigate the damage. Therefore, the primary consideration in assessing the risk of divulging company secrets to an outsourcer organization is to research its actual ethical conduct (not website statements) and its personnel practices.

“All of the problems will vanish.”
In so many cases problems do not disappear just because an outsourcer organization is contracted. The root causes of problems need to be analyzed to determine if the issues are internally based. For example, an organization may be experiencing project management problems due to its lack of understanding of effective project practices. In this type of situation an “outside” project manager may be a strong asset not only in leading a specific project but also in providing a positive example of good project management that the organization can emulate in the future. However, if the project management problems arise from constantly shifting priorities among multiple projects that cascade to under funding and inadequate resource allocation, then an “outsider” will also get pulled into the whirlpool of project dysfunction.

“Ours” blends diverse strengths and needs.
Outsourcing is not necessarily an “either or” decision. In some situations a “hybrid” approach may be effective both in the short term and in the long term. This approach involves outsourcing specific team responsibilities that will not be needed after the project is implemented. Internal employees are then assigned to roles on the team that will either continue after implementation or that will transition to other projects. Additional contract workers may be used to augment certain project tasks that need extra people only for the duration of the project. This approach provides the long-term benefit that knowledge learned during the project remains within the organization while addressing the short-term need for specific expertise and additional labor.

By this point in reading this column, readers may note that nothing has been mentioned about costs. Too often illusions about costs drive the outsourcing decision without regard for project needs. Next month’s column will include cost considerations that should be addressed only after the true project needs have been identified.

Susan Peterson, M.B.A., PMP, is a consultant who manages diverse programs and projects in both the private and public sectors for individual organizations and consortia. She also conducts enterprise assessments of project portfolio management practices. An overview of her program and project specialties is available at http://www.pmi-sd.org/Consultants. She teaches the Project Management Simulation capstone course in the University of California, San Diego, Project Management certificate program and is a member of the curriculum committee. She can be contacted at susanada@aol.com.

PMP® Challenge Question - 8/15

Before we look at a new question, let's take a look at the answer to the 8/1 challenge. In it, I stated that many PMI components have some controls or policies in place to prevent preferential treatment to active volunteers at the expense of the general membership. For larger components with more procurement needs, the challenges include providing fair treatment for all stakeholders, including minorities, veterans, volunteers, and members. What is one significant way to conduct the procurement to provide an unbiased opportunity for everyone?

There are several variations we can build into a procurement process to make it more fair, as well as ensure we pick the best vendor. First, this includes developing a good set of criteria, possibly weighted, which will be used to evaluate the responses. There still may be bias if the evaluators know who applied, so a blind evaluation might be the next step. This means removing references to the bidder from the materials so a completely unbiased evaluation can be completed.

Now here's a new question: In an organization, who is responsible for quality?

PMP® Challenge Question - 8/1

Here's a question from real life this week! Many, if not most, PMI components have some controls or policies in place to prevent preferential treatment to active volunteers at the expense of the general membership. For larger components with more procurement needs, the challenges include providing fair treatment for all stakeholders, including minorities, veterans, volunteers, and members. What is one significant way to conduct the procurement to provide an unbiased opportunity for everyone?

Check back here on 8/15 for the answer and another question!

PMP® Challenge Question - 2/1

Welcome to the next PMP® Challenge Question Challenge!

As before, you will need to answer two of the next three (2/1, 2/15, and 3/1) challenge questions correctly. Email your answers to sdcapmp@aol.com no later than midnight, March 5th. In the event of a tie, there will be a random drawing.

The prizes:
Grand Prize: a complete set of PMP® study materials - book, CD, and Mind Map card from Crosswind Project Management.
Runner Up Prize: Prepare for the PMP® Exam card from Value Based Project Management

Our first challenge will be a little more subjective in nature. I'm looking for two advantages and two disadvantages for using the contract types of fixed price, cost reimbursable, and time and materials, presented in tabular form.

Good luck with the challenge!

PMP Challenge Question - 12/15

Hey, its time again for the bi-monthly challenge question. But first, let's look at the answer to the last question (12/1) -- what are two major objectives of negotiation?

One is fairly obvious. You want to achieve a fair and reasonable result or outcome. The second often surprises people: you want to develop and maintain a good relationship with the other party. Achieving a win-win result is important since it will be incentive for the other party in the negotiation to uphold their agreement. They will focus more on the agreed outcome and less on attempts at recovering what they believe they lost.

Now let's move to a question on communications. Can you name at least 10 different types of information a Project Management must communicate?

Check back here for the answer on 1/1 (Happy New Year!). Watch for the next PMP Exam Prep giveaway challenge, coming February 1, 2008.

PMP Challenge Question - 12/1

First, the answer to the 11/15 question - Name at least two disadvantages of considering a sole-source or single supplier in your procurement decision making.

Like any other procurement method or contract type, there are advantages and disadvantages. A few of the disadvantages are:

- you might not be able to negotiate the best price (or at least may have to modify how you approach negotiations)
- you need to look more closely at the viability of the company and their competition (what would happen if they went out of business or sold out to a competitor?)
- you may need to develop a "plan B" - just in case the sole source doesn't deliver on time or with expected quality
- you need to be sure the seller is highly qualified for the work
- all of the above mean you have to watch time, cost, and quality more carefully as the project moves ahead

Have any other thoughts on the disadvantages (or perhaps want to suggest some advantages)? Please leave a comment.

Now for today's question:

What are the two major objectives of negotiation?

You might be surprised at one of them! Check back on 12/15 for the answer.

PMP Challenge Question - 11/15

I'm on the road today visiting a customer, so here's a short but meaningful challenge I put together a few days ago ...



Name at least two disadvantages of considering a sole-source or single supplier in your procurement decision making.



Answer (and another question) here on 12/1!

Cheapest isn't Always Least Expensive

When selecting any resource of any type for a project, always keep in mind the automatic selection of the "cheapest" won't always be the least expensive option. This is why we have competitive bidding for major contracts -- we get a peek at the other dimensions. Does the resource meet our need? Will our requirements be met? Will quality meet our standards?

Let's suppose we can choose between 3 "near shore" programmers working for $20 an hour each or a local programmer making $80,000 per year (or approximately $40 per hour). All facts considered, we are paying the near shore programmers $60 per hour or $20 more per hour than the local programmer. Now we also need to look at their track record -- what is their history of project delivery -- to assist in making the right decision. If the near shore programmers can deliver in less time and higher quality, they may be the right choice.

Some of you may remember the 4 Hour House, a project/competition sponsored by the San Diego Building Association in 1983. After one practice run, two teams built two houses in under 6 hours, and in the actual competition the winning team finished in 2 hours and 45 minutes, considerably less than the 3 hours and 39 minutes reflected in the project plan. In his book Project Planning, Scheduling, and Control, James Lewis points out one of his seminar students calculated the house with 350 workers actually cost less to build with a house with fewer workers over a longer time period. Building a house this quickly has another advantage too -- it can be taken to market and sold more quickly, providing both a market presence and capital advantage.

So when selecting your project resources, whether team members or materials, always weigh all the dimensions and qualifications before making your choice.