Managing Subcontractors

Managing Subcontractors

To a project in trouble, a nonperforming subcontractor can be a blessing. It is hard to fault a project manager who says, "We were ready, but the subcontractor did not deliver." When equipment does not arrive on time or does not work, or software is late or incompatible with the hardware, or a consultant is not available, or a facility is not ready, who can blame the long-suffering project manager for events beyond his or her control?

Project managers are mortal and are not answerable for everything that might happen. If the truck carrying the new computer is hit by a landslide or the equipment being imported from Taiwan is tied up when a longshoremen's strike suddenly closes the port, it is probably unjust to reproach the project manager. However, most subcontractor delays can be avoided.

Managing subcontractors requires the same thing as managing your own team: visibility into what is going on. If the subcontractor is developing software, you need to understand the plan and the milestones. If you are to be accountable for subcontractor performance, you have the right to receive status reports, to attend reviews, and to participate in milestone activities. You need to know if the subcontract work is slipping before any deliverables are due, and you need to know in time to insist on corrective action. In short, you are a manager of the subcontractor, with all the rights of a manager.

Frequently, the subcontractor is a supplier, such as a hardware vendor. If you have ordered a computer and the sales rep assures you that it will be delivered by a specific date, you need to understand what must happen if the machine is to arrive on time. Is it in stock? Where? How and when will it be shipped? Must it be manufactured? If so, what are the steps in production that will let you know the manufacturing is on schedule? How can you be sure that the machine will not be diverted from the assembly line to a higherpriority customer? Again, you need visibility into the deliveryand sometimes the manufacturingprocess. Your source for such visibility is the sales rep. What you really want is the names of people in the warehouse or the factory who can give you the status of your order firsthand. Failing that, you want the sales rep to provide you with periodic status reports.

A common supplier problem is software vendors who have provided release dates for software that your project requires. If you have developed a project plan that depends upon a software release by the published date, you have invited trouble; the delivery record of most software vendors is not promising. Furthermore, most software vendors deal with a large market and are immune from the  actions of a single project manager. Unless you absolutely have no choice, do not base your plans on software release dates. If you must do so, ensure that the client and your management understand the risks.

For all subcontractors, ask, "What are the technical factors that will affect delivery?" Note their answers, then ask, "What are the operational factors that will affect delivery?" Note their answers, then ask, "What are the financial factors that will affect delivery?" You may file some of the answers for longer-term follow-up, while others may trigger immediate action. For example, if a hardware sales rep says, ''Well, you guys haven't paid your last bill," call your accounts payable department to ensure that the bill will be paid, or at least that the supplier will not place you on credit hold.

Exhibit 5.6 is a list of potential risks in dealing with subcontractors. The list is short, but those who are creative in offering excuses for nondelivery will give you many new items to add.

Exhibit 5.6 Potential Subcontractor Risk Areas

Technical Risks

The subcontractor will not assign adequate or capable resources.

The subcontractor is not familiar with some aspect of the project, such as the technology or the application area.

The subcontractor does not follow a proven methodology.

The subcontractor does not use project management techniques that allow problems to be identified early.

Physical separation leads to technical incompatibilities: You cannot run what the subcontractor has produced.

Operational Risks

The subcontractor's staff goes on strike.

The subcontractor lands a higher-priority project and diverts key resources from your project.

The physical distance from the subcontractor leads to misunderstandings and confusion as well as reduced visibility.

Transportation causes problems. (The transporter is also a subcontractor and is subject to many of these risks.)

Customs regulations delay import into your country or export from the subcontractor's country.

(continues)

Exhibit 5.6 (continued)

Financial Risks

The subcontractor goes bankrupt.

The subcontractor holds up shipment because your company has not paid its last bills.

The subcontractor uses your schedule as a means to extract extra costs.

The subcontractor "baits and switches," replacing the high-quality resources that were proposed with less capable people.

The Legal Subcontract

The legal side of subcontract management is a discipline in itself, with formal contracts prepared by legal experts. You will need to be aware of what the contracts say, but your primary concern is performance and delivery to a schedule. That requires that you understand and have the authority to monitor your subcontractors' internal procedures and plans.

Before a contract is signed, you should review it and ensure that it provides you with visibility, or at least does not prohibit it. If the contract bars you from the visibility you need, make sure that your management understands that you are not able to monitor the subcontractor's progress and cannot be responsible for its performance.

Where possible, ask that a penalty clause for the late delivery be inserted into the contract. You may decide not to exercise it, but its existence will provide you with a potent tool to persuade subcontractors to meet their commitments.

The Demon of Distance

Your greatest enemy in dealing with subcontractors is distance. It is tough enough to be aware of what is happening across the street, but if your subcontractor is in Singapore, you have virtually no way to confirm the glowing status reports you will receive. Before you deal with remote subcontractors, pay particular attention to their references and to the experiences that other companies have  had with them. The point, of course, is not that remote subcontractors are less trustworthy than those in your backyard, but that distance makes them harder to observe.

Contingency Plans

If possible, create contingency plans to be used if the subcontractor's deliverables are late. Prepare your contingency plans in advance of the problem so that they can be triggered the instant you need them. For example:

For equipment, arrange to use another department's or company's equipment in the short term, or arrange for a short-term rental if the vendor does not deliver on time.

For packaged software, ask the manufacturer for a beta version if the release date slips. (Normally, you will want to avoid beta software, but if the urgency of the project exceeds the risk, it might be an option.)

For custom software, identify short-term workarounds that you can develop that will allow your project to continue if the contractor is late.

For consulting, identify other consultants that you can call on at short notice if the consultant you are provided proves not to be acceptable.

What If?

The Subcontractor Has Assured You That The Schedule Will Be Met Until The Very Last Minute.

Assuming you accepted the subcontractor's assurances in good faith, your project schedule is now at risk.

Actions

Establish a new delivery date and determine your degree of confidence in it. Identify what you think is the most probable actual delivery date.

If you were able to establish a contingency plan, put it in motion.

If there is a penalty clause in the contract, remind the subcontractor of it.

Notify your management of the impact on the project and consult with them on steps that could be taken with the subcontractor.

When the deliverable arrives, treat it as a late activity and apply the corrective actions described in "Tracking Progress."

Document the subcontractor's performance as a guide to be used in assigning contracts for future projects.

You Have no Power to Get a Subcontractor to Perform.

If you truly have no power, then you are at the mercy of the subcontractor. For example, if a software vendor is unreasonably late in releasing a version that you absolutely must have, you have no choice but to wait, and your project will suffer.

Actions

In your initial dealings with subcontractors, identify potential sources of power. These may be legal, economic, or moral, but you need to establish what will motivate each subcontractor to perform.

If you determine that a subcontractor is immune from any actions you may take, recognize that your project is exposed and identify that exposure as a risk.