Projects involving subcontracts have their own special kinds of risks and problems. In this column, Peter Clark offers advice on how to use leverage and visibility to minimize the risks and help ensure the successful delivery of the required scope when working with subcontractors.
John sat in his office chair and thought about how well the new warehouse management system was going with the subcontractor. Because of this, John was able to promise the division head that the product would be ready by the first of the year. All of the testing to date had been successful, and there were just a couple of pieces that needed to be integrated.
His phone rang. On the other end was Paul from Applied Robotic Dynamic Decisions (ARDD), the subcontractor that was supplying the interface module to the legacy conveyor equipment. While the prototype testing at ARDD's facility had been successful, they were a week late delivering the final product. John was expecting delivery that day.
"John, I'm afraid I have some bad news. We're going to miss our delivery date by at least three months," said Paul.
John sat bolt upright, and his eyes went wide. He had been receiving weekly schedule updates from ARDD, and there was no hint that a delay of this magnitude could occur. "What the heck happened? When I talked to you last week, you said you could deliver today!" John said.
John listened in shocked disbelief while Paul told him how the person working on the project had quit the previous Friday. Examination of his files found that, rather than "wrapping up a few loose ends," he had been at least a month away from completing the coding.
Paul was apologetic, but said that there was nothing he could do about it. All of his people were working on other projects, and there was no one available at ARDD to pick up John's project. John's mind reeled. What was he going to do?
Business relationships with subcontractors are very different from the relationship between you and your coworkers. Your company's team strives to meet the business goals of your organization. It is easy to lose sight of the fact that your subcontractors are looking to maximize their business goals. If their goals line up with yours (and most often they do), then everything works out fine. Occasionally they don't, and the problems that result can make typical project problems look like molehills by comparison.
The relationship between you and the subcontractor is defined by the contract. A successful contract will cover many areas: scope, schedule, cost, warranty, payment terms, change management, and intellectual property rights. Clearly defining all these terms at contract time will prevent many problems later.
When constructing your contract, you should keep two things in mind: visibility and leverage. Visibility determines how transparent the subcontractor's work process and products are to you. Leverage defines the amount of influence that you have over your subcontractors. Visibility and leverage are needed to manage your contract. Without visibility, you will have no warning of any developing problems. Without leverage, you may be unable to get the subcontractor to take corrective action.
Regularly scheduled updates are the most common visibility tool written into contracts. Unfortunately, a schedule is often worthless without additional information. All too often, you will receive schedule updates indicating that everything is going fine and then get hit with a six-month schedule delay the day before the delivery is due. Without corroborating evidence to support progress claims, a schedule isn't worth the paper it's printed on.
As with work done in house, proper visibility requires you to understand your subcontractor's process, progress on scope, and quality of work products. Subcontractors are often reluctant (to say the least!) to give you that kind of access. Mechanisms for inspecting these areas should be written into the terms of the