As managing partner of the consulting boutique ON-POINT, I have gained a lot of experience in negotiating with procurement departments. Looking back on the last 20 years I was allowed to do this work, I remember just one client in Belgium was close to best practice in vendor and contract management.
There are many – understandable – reasons for this: Today’s procurement departments are often outsourced, in order to lower costs for their services. Their success is measured by how low they negotiate hourly or daily rates. While it is clear that no company wants to overpay its resources and providers, I sincerely doubt that the lowest rates result in most efficient projects and therefore lead to overall lower project costs.
I would like to share the main challenges project managers experience when working on a large scale, international IT projects including procurement departments:
- When individuals (contractors or individual consultants) are staffed, they often bring good technical or function background but lack the methodology necessary to do the job. Then effort and time needs to spend to either educate them on what is expected or wait until the approach was developed as part of the project. As a result, the estimated effort is exceeded, producing an overrun as the introduction and education effort was not estimated.
- Additionally, I observed that clients had to manage conflicts between externals within teams, as they were not able to work together resulting in lots of frustration on the client side as this should not be their job and costed lots of extra effort.
- I have never experienced retrospective project reviews in terms of sourcing or structured performance evaluations from providers. I also never experienced a procurement department being held responsible for their sourcing decisions - not even when projects with very questionable sourcing failed.
- On the other side, I have also seen clients contracting with providers (especially software providers) without penalties for missed deadlines from the client side. Interestingly, these clients are often (still) surprised when their providers deliver late…
- Often fix prices, bonus/malus models or any other contracting model other than T&M are viewed as too complicated and rejected as sourcing option.
As a result, I believe that many companies get good prices for their external resources, but not good deals. Their projects and programs and therefore their transformational activities become neither faster, cheaper, nor more reliable.
What can a project manager do to meet these challenges?
First of all, the sourcing of a project should be a project and program management activity, and therefore also Vendor and Contract Management. Any procurement department should help and coach, but the “vision” on how to source needs to come from project leadership.
The procurement departments role is to advise, coach, administer and manage the sourcing process. It is important that the local situation and culture is understood and taken into consideration for all decisions.
The project manager needs to understand the difference between contractors and consultants, T&M and Fixprice as well as any other contracting possibility. He/she needs to know how to play the game, in order to get the best result for his project.
At the beginning of any big scale project, the best sourcing approach needs to be evaluated. Maybe one department has all knowledge and skills necessary, but misses manpower? Then contracting individuals (with low rates) could be an option. If the methodology is missing, you might need a specialist provider. Sometimes, it is simply not clear what the best approach is. Then inviting selected providers to offer proposals – and learn from them – can be an option.
Therefore, a project manager needs to include enough time into the project plan for the sourcing – including proper proposal processes. And in short, contracts with providers are the result of the planning process and therefore a key project and program management activity.
So, to make projects more successful – and efficient – a project manager must develop a clear vision on project sourcing at the beginning of the project. Then the sourcing strategy needs to be translated via proposal and planning process into contracts with providers – using strengths and weaknesses of all possible sourcing options. The procurement department helps as advisor and service provider - if the quality of this service isn’t sufficient, the project manager needs to find external, skilled help. Sourcing, vendor, and contract management is key for the success of every project.
