IT'S ALL YOUR OWN PROBLEM AND NONE OF MY OWN: A LOOK AT VENDOR MANAGEMENT

by Donna Fitzgerald, Senior Consultant, Cutter Consortium

The question came up in the project management discussion group I run (www.newgrange.org) about how much responsibility a project manager (PM) has in making sure that a vendor is fairly compensated under the terms of a fixed-fee contract. Far be it from me to say a vendor can't enter a fixed-fee deal knowing they'll be taking a loss BUT once the contract is signed a certain attitude of fairness should prevail.

In this Advisor, I'd like to offer the perspective that the client-side PM is just as responsible for managing to the spirit of the contract (which is still essentially a document that says an honest day's work for an honest day's pay) as the vendor.

To illustrate my point, I'd like to share a tragedy of errors I once saw unfold at a company I'll call XGC. Prior to the start of the new fiscal year, the woman I was working for was promoted to senior director. In her new position, she would have responsibility for approximately a $20M portfolio of IT projects.

When the new organization was announced, I immediately began informal discussions with my network to find out what the word was on all the new projects we'd be inheriting. Most of the feedback I received was good but everyone I talked to hinted that one project was in serious trouble. The story was that the vendor was working on a fixed-fee contract but because of indecision on the part of XGC, things were going south. They all cautioned me that we should plan on getting hit with a very large change order to cover the amount of time the vendor was sitting on site spinning their gears while XGC waffled and shilly-shallied.

Being both proactive and paranoid I sent my client (the newly minted senior director) out to get an official answer (so I could do a year-end accrual) and she came back with the message, "Nope -- no problem. The vendor said they didn't have anything more to bill us."

She was busy, I was busy, and we both accepted the answer. After all, it was a fixed-fee contract and we'd done our moral duty by asking (or at least that's what we told ourselves). To this day, we both kick ourselves.

It's Your Problem

There's a line from an old western ballad that says "It's all your own problem and none of my own," which appears to embody the attitude most people have toward their vendor when they are working on a fixed-fee contract. The only problem is, in the long run your vendor's problems are eventually your problems, whether you want them to be or not.

Returning to the situation at XGC, four months into the new year, everything fell apart. During the next quarter, the vendor was acquired by a very large consulting firm, who showed up on our doorstep one day and demanded we pay them $1.8M immediately or they'd pull the development team. At the time, the current contract was for a fixed fee of $843k and no one (including the project team) disputed that only 40% of the work on that contract had been done as agreed, hence the billed amount of $337k. This put roughly $1.5M in dispute, which was almost twice the original contract price.

So how did everyone find themselves in this rather ugly mess? I'm embarrassed to say it's because no one spent two minutes and multiplied out the number of people on the vendor development team (who were onsite every day) times their average bill rate and said, "Whoops, they've only billed us for $40k in the last three months and yet their costs have to be somewhere around $600 to $700k. There's probably something wrong here that we need to get to the bottom of."

Saying, "It's their problem and none of my own" is absolutely foolish and will come back and bite you 100% of the time. The ultimate outcome in the case I've discussed was that XGC paid the entire $834k, the development team left, and the project was scrapped at a total cost to XGC of $4.5M (XGC had an internal team of 15 working on the project).

While they say that hindsight is 20-20, there are a few solid lessons to be learned from this situation. The first is Tanstaafl (there ain't no such thing as a free lunch). A vendor that goes out of business or leaves mid-way through a project ensures that the project won't get done on time, no matter what the dollars. Also, from the client side, excessive dithering about how something really should be done needs to be confronted. If no one knows what the requirements are then no one should be coding. PERIOD. The Dilbert cartoon where the pointy-haired boss tells the development team to start coding while he goes out and gets the requirements is a situation that we all know doesn't work.

The final lesson is that every PM needs to be willing to deal with cold, hard reality and call a stop immediately when it's clear that the project has spun out of control. Going on hope and believing that things will somehow magically get better only leads to project failure. I knew in my gut in December that something was seriously wrong. Taking the extra five minutes to put in writing that the vendor was losing $10k a day based on the current progress toward deliverables might have illuminated the problem early enough to have saved both XGC and the vendor several million dollars in wasted time and effort.

-- Donna Fitzgerald, Senior Consultant, Cutter Consortium