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Effective Subcontractor Management

Effective Subcontractor ManagementEffective Subcontractor Management

21 July 2011

John Lake, Project Manager – Subcontracts (Roke Manor Research)

Dr. Jon Broome, chair, APM Contracts & Procurement SIG.managing consultant, leading edge projects consulting ltd

1

A dAgenda

Housekeeping

Intro to the C&P SIG

The main eventThe main event.

Housekeeping

Fire proceduresp

ToiletsToilets

Focus : mobiles off etc.

One of the first SIGsFlourished and then declined.A conference some 3 ¾ years ago :A conference some 3 ¾ years ago : members wanted the basics of contracts & procurement.pWe run a combination of basic training events called “seminars” (always booked upevents called seminars (always booked up well in advance) & more leading edgeevents.

Aim of the C&P SIG :The Contracts & Procurement Specific Interest Group :The Contracts & Procurement Specific Interest Group :

Exists to promote and disseminate knowledge, understanding and best practice of contracts and u de sta d g a d best p act ce o co t acts a dprocurement in a project environment. Aims is to become a lively and constructive debating f hi h t k i ti b t ti d h lforum which takes existing best practice and helps make it better. Wants to be disseminating this knowledgeWants to be disseminating this knowledge, understanding and better than best practice through a variety of accessible means.Has a long term aspiration to become recognised as an international forum at the leading edge of excellence in contracts & procurement for projects.excellence in contracts & procurement for projects.

2011 Contracts & Procurement SIG StructureThe Bulls Eye : Committee membersThe Bulls Eye : Committee members & those who want to initiate ‘projects’ & pro-actively contribute. Copied in on most emails wrt SIG initiatives.Bi monthly web / tele conference

The Inner Circle Circle : Those who

Bi-monthly web / tele-conference meetings.

are willing to contribute when asked e.g. Talks, contributing & reviewing documents. Limited direct emails.

The Middle Circle : Those on the C&P web mailing list.

The Outer Circle (& beyond) : Receive Information via general APM publicity.

Future EventsBasic Contract Law for Successful Projects – VWV – Newcastle –Basic Contract Law for Successful Projects VWV Newcastle 14th September (day)What is NEC3 ? – Me - Newcastle – 14th September (evening)Annual Conference : How to write winning bids – Various –London – early October.The Top Ten Mistakes in Contracts & Procurement andThe Top Ten Mistakes in Contracts & Procurement … … and what to do about them – David Beare – Leeds 24th November.

We are also developing a Procurement Guide & discussing an event on Agile Procurement some time in late October.


About Roke

R&D t f ll

Roke snapshot

› R&D centre of excellence

› Situated in Hampshire, UK

› Trusted List X site

Some of the world class test facilities at Roke:

› Turnover in excess of £50M

› Over 350 world class scientists & engineersengineers

› Specialise in ‘First, Fast, Difficult’

› Delivers technological advantage to G t C i l & Si

› CTIA Chamber › High Voltage Chamber

› EMC Chamber

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Government, Commercial & Siemens organisations


Objectivesj

Mission Statement for today:

To enhance your skills and capabilities in the management of subcontractors during the delivery phase.

● Focus on pitfalls and gotchas

● Review actions that can help to address or avoid costly pitfalls

● Gather your inputs and create a Working ● Gather your inputs and create a Working Paper

● Provide some example management tools p g

9


Agendag

1. Setting the scene:• Project Life Cycle• Key Issues

b d d• Subcontractor types – Management demand• Some common “Gotchas”• Typical Scenario

2. Break-out Scenarios – Covering some difficult points in the delivery Life Cycle

3. Break-out Reports

4. Primary findings/discussion

5. Summary and close

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Project Life Cycle (APM) j y ( )

X

X

Concept

Definition

Implementation Handover &

X X X

Design Build ●

O O O O

& closeout

Operations

TerminationBusiness

XBusiness

Case

Project Management

Plan

Integration

Strategy

X

X

Strategy

SelectionContract Award

Handover &

X

X

Implementation

Subcontractor X

Closeout

11


Key Issuesy

● One throat to choke: No matter how many subcontractors areused the customer will consider you liable as prime (its your

t ti )reputation)● Subcontractor failures: Failure by a subcontractor may have

onerous knock-on consequences on the overall project

● Timing is everything: Contract Negotiation times are oftenli ti S b t t t b d l d ft

● Legal recourse: Legal recourse is generally impractical as thecosts and consequences are excessive

● Negotiating strategy: Agreements made at the core negotiationtable need to be underpinned by the subcontractor(s)

unrealistic. Subcontractors must be engaged early and often

● Out-of-the-woodwork issues: Unforeseen issues may stress theprime/subcontractor relationship and dealing with these matters requires calm and open-minded thinking

These issues emphasise why subcontractor management is so important and a key skill that is required on projects.

q p g

12


Subcontracting “Boston Matrix”g

What is your typical type of subcontractor?

Project percentage

StarQuestion Mark

*Complexity

Dog Cash Cow

Subcontractor’s Validated Experience

13


Supplier Management Risks – Some Gotchas!pp g

Things to watch out for:

● Single source dependency

● Re-assignment of risk during the contract

• Always have an alternative (selection process)

● Acceptance ambiguity

Di i i hi R P i it

• Ground rules for meeting/communications control

• State Acceptance criteria in SoW – allow for integration● Diminishing Resource Priority

● Excessive and unreasonable Change Requests• Obtain CVs of key personnel – specify approval of changes

S if b li i il• Specify a baseline setting milestone

• Include formal CCR procedure in your SoW

Schedule reviews of performance against risks regularly and at key milestones

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Workshop (part 1)O b i fl thi k b t h t hOn your own, briefly think about what, when you come away from this evening, answered question or “tips about how to … …” would make it really worthwhile having y gattended. Come up with one *.* This could be going down a level of detail wrt what John has

id “h t ” ti / ti thi t ti d t llsaid, a “how to” question / tip or something not mentioned at all.

Have chat around the table around these.

A bl i h N 1 h i d i hAs a table, come up with your No.1 choice and write on the BIG Post-It.

Have two in reserve and write each on a large’ish Post ItHave two in reserve and write each on a large ish Post-It.

Name your table and just record on bottom of each Post-It before bringing upbefore bringing up.

Workshop bit (Part 2) - ProcessI th BIG P t It i l i l d f J hI arrange the BIG Post-Its in a logical order for John to answer. I arrange the large’ish ones around these so if easy to easy ‘cos related can be ticked of as wellso if easy to easy cos related can be ticked of as well.

I hand them to John in logical order one-by-one.

John (mainly) or I attempt to at least answer all BIGPost-Its by end.

After answering one, John & I check in that answered and we (i.e. including you) attempt to address if not.

After end of evening, any slides, tools etc. that John demonstrates are distributed to participants.


Scenario Exercise

● Summary of analysis of the risks considered

● Documentation Tools - Overview

● Q & A● Q & A

● Summary of follow-on actions

17


Scenario Exercise

Thank You

for

your questions and inputs!

18


Contact Details

For John Lake :

Tel: +44 (0)1794 833781 Tel: +44 (0)1794 833781 Fax: +44 (0)1794 526914

Mob: +44 (0) 7872 407570john lake@roke co [email protected]

For Jon Broome

Tel : +44 (0) 1179 09 3297 Mob: +44 (0) 7970 428 929

Email : jon@leadingedgeprojects co ukEmail : [email protected] | your | projects | up for | success

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Extended Slide Set

N t t f th t ti 21 J l 2011Not part of the presentation on 21-Jul-2011

but some used in the interactive sessions - may be useful for explanationuseful for explanation

Contact John Lake (john.lake@roke,co.uk) with any questions

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How do we manage subcontractors?g

Prime

Controlling Designated S b t t Communications Issues/Crises Soft/Personal Controlling

Documents Subcontract Manager

Communications Plan

Issues/Crises Management

Soft/Personal Skills

e.g. Contract, Ts & Cs, SoW, Requirements Specification, Quality Plan, Config Management Plan

SubcontractorConfig. Management Plan , Change Control Procedure, Risk Management Plan, Schedule, Milestones, etc.

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What is Supplier Relationship Management (SRM)?pp p g ( )

There is still some confusion about what SRM is:There is still some confusion about what SRM is:

1. SRM is the process that defines how a company interacts with its suppliers.

2. SRM is the mirror image of “Customer Relationship Management” (CRM). Just as a company needs to develop relationships with its customers, it also needs to foster relationship with its suppliersalso needs to foster relationship with its suppliers.

3. The immediate objective of SRM is to streamline and make more effective the sourcing process between an enterprise and its suppliers (via the sourcing process between an enterprise and its suppliers (via technology).

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SRM should be a collaboration of several disciplines:SRM should be a collaboration of several disciplines:

● Account Management

● Supply Chain Management (Procurement Specialists)

● Commercial Management

● Supplier Performance Management (programme Management Project ● Supplier Performance Management (programme Management, Project Management)

Th i d h SRM b hi d id f h d j b f There is a danger that SRM may be something done outside of the day-job of Programme and Project Managers (where dedicated roles and responsibilities are not fully defined)

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Getting the Relationship right at the outset and understanding both sides of Getting the Relationship right at the outset and understanding both sides of the equation is the most effective way of obtaining excellence in performance. This will involve several factors:

● Segmentation/categorisation: Commodity, Performance monitor only, Development potential, Strategic partnership

● Accountability: Executive involvement● Accountability: Executive involvement

● Process and Governance: Tailoring/developing internal processes

● Technology: Implementing tools

● Resourcing: Who manages?

What other factors are important in a supplier relationship?What other factors are important in a supplier relationship?

The desired outcome is a win-win relationship where all parties benefit.

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Relationships & Collaborationp

Community

EnterpriseSupplier Customerppp

Pre-Supplier Competitor Intermediary

SRM is not isolated to Supplier-Enterprise

25


Scenarios: SRM in practice p

The “standard” contract delivery process - C&P Procurement Guide:

1.Concept&

2.DevelopProject

3.Develop Contract

4.DraftContract

5.SelectContractor

6.Delivery of Require-

7.Operate :Deliver

8.Disposalor

Feasibility Procure-mentStrategy& DeliveryOptions

Procure-mentStrategy

& DetailRequire-ments

& EnterContract

ment& ManageContract

Outcomes& ReceiveBenefits

Upgrade

Boundaries?

The gateways or boundaries may be blurred in practice

26


Scenario 1: Clarifying the Relationship and the Solutiony g p

Concept Feasibility Select Suppliers

Bid Deliver

Intensive Activity

Community

EnterpriseSupplier Customer


Short cuts at the bid stage can lead to incorrect assumptions

27


Rebuilding the Relationshipg p

1. Contact: Escalate the issue and arrangeassignment Project Managers/Commercial Team

2. Awareness: Review what has happened

3. Understanding: Define the System Specification for the Productg y p

4. Engagement: Produce full Statement of Work and review

5. Acceptance: Reach agreement by iteration of the SoW

6. Commitment: Delivery teams engage to work closely to monitor the solution

7. Internalisation: Strong relationship developed with collaborative bids in progress

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Lesson Learned


● Collaboration: Involve suppliers in the bid process appropriately (key stakeholders)

● Document any high-level agreements

● Prioritise the level of engagement by Risk Analysis

● Get buy-in from the appropriate stakeholders ● Get buy-in from the appropriate stakeholders

● Agree an appropriate Statement of Work – including critical parameters

● Put in place appropriate Communications Channels to review progress, i k d irisks and issues

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Scenario 2: SRM involves the customer

Concept Feasibility Select Suppliers

Bid Deliver

Intensive Activity

Community



Choice of supplier can be critical to customer satisfaction

30


Supplier Management Risks – Some Gotchas!pp g

Things to watch out for:

● AOC Slip

● Re-assignment of Risk● Re-assignment of Risk

● Acceptance Ambiguity

● Dependency Linkage

● Review Cycles

● Requirements Creep

● Diminishing Resource Priority

● Single Source Dependency

● Levels of Authority

● Differences in Process, Terminology & Culture● Differences in Process, Terminology & Culture

Avoidance requires constant vigilence!

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2 Subcontract Initiation2. Subcontract Initiation

● Commercial Relationships (Partnerships!)

● Project Life Cycle – Impacts - Toolkit● Project Life Cycle Impacts Toolkit

● Procurement strategy

● Subcontractor selection

B ilding a S bcont act● Building a Subcontract

● Statement of Work (SoW)

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Subcontract Initiation

Commercial Relationships- Formal Partnerships

ProfitPartner A

x%

Risk

Revenue Input Partnership Agreement

y%

Costs

g

Partner B

Partner responsibilities need to be assigned.

33



Commercial RelationshipsPrime - Subcontractor Consultation:

Involve Subcontractors in

Prime Contract

Subcontractors in Risk Planning to identify risk dependencies

Profit

Profit

Ri k

Subcontractor B

RiskRisk

Costs

Subcontractor A

Sub A Dependencies

Contract Price

Sub BDependencies

Costs

Profit

Risk

Price

Risk

CostsSub B

Sub A

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Commercial RelationshipsPrime – Subcontract (Partnership)

Project 1

Programme of Projects

Project 2 Opportunity A Opportunity B

Profit

Risk

Costs

Profit

Risk

Costs

Profit

Risk

Costs

Profit

Risk

Costs

Existing Business New Business

Subcontractor MotivationSuccess in the current project leads to:

• Profit in the short term

Prime MotivationSuccess in the current project leads to:

• Profit in the short term• Profit in the short term• Retention in the “Programme”• Opportunities to bid for future work

• Profit in the short term• Known relationship• Easier bidding in the future

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Procurement StrategyImpact

ACTIVITIESINPUTS OUTPUTS

1. Develop inclusive Project Breakdown St t (P BS)

FBCProjectScope St t t

Project Procurement Strategy Document,Structure (ProBS)

3. Identify ‘Make or Buy’ Criteria

4. Packaging to give Package Breakdown Structure (PaBS),

Statement

Refined SBC

Document,giving overall approach & summarising for each major package or

t f

Internal

Buy’ Criteria.( )

(with interactions & dependencies stated).

Project Brief

category of packages :

Package Scope

Inter-capacity

External Potential

2. Understanding of Supply Possibilities for Project

Internal & External Market Consultation

Inter-actions & depend-encies + proposed responses

RISKS

● Technical Risks specific to the work 5. Recommendationson the ‘Nature of the Relationship’ for each Package/Contract.

responses

The Nature of Relation -ship sought

● Technical Risks specific to the work being undertaken by the subcontractor

● Technical risks owned by the Prime associated with the dependencies on the success of the subcontractor in containing its risks.

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g

● Risks associated with the subcontracting itself.



Subcontractor SelectionProcess

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• Formal Selection Process• Selection Governance

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Subcontractor SelectionRisks

• First time use of a subcontractor – Performance may be unsatisfactory (cost, time, quality).

• Subcontractor may leave the consortium - Bankruptcy, change of management, loss of personnel resources.

• Incompatible working practices – Methods, standards and p g p ,cultural differences may differ from expectations and cause friction in communications or make it difficult to gauge progress.

• Poor progress/financial reporting – The subcontractor may not give sufficient information to allow progress between milestones to be gauged or cost-to-complete to be gauged in T&M contractsT&M contracts.

• Poor Change Control – The subcontractor may initiate uncontrolled changes (e.g. add/remove functionality through ad-hoc communications)

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ad hoc communications).



Subcontractor SelectionRisks

• Poaching of work or personnel – Subcontractors may campaign to work directly with your customer or recruit your key personnel.

• Export control issues – Where export licences are required work/communications may be delayed until all licences are

t d granted.

• IPR issues – There may be misunderstanding of the ownership of Intellectual Property Rights between customer, prime and subcontractorsubcontractor.

• Conflicts in division of work – Subcontractors may duplicate work being done by the prime or others.

• Poor support provision – Subcontractors may not provide the appropriate level of support for related tasks in the project or for post-delivery support.

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Subcontractor SelectionFormal Selection Process

•Overall Advantages:

● Emphasises competitive status (to

Vendor Long List (VLL)

Vendor Pre-Qualification Form

Long List Vendors are issued

Interim

Down select

● Emphasises competitive status (to vendors)

● Explores/identifies shortcomings early

Sh Li

Interim List Extended Vendor Pre-Qualification Form

List Vendors are issued

Down select

● Can be used to demonstrate best practice (governance)

Vendor Short List (VSL) Evaluation Requirements (Vendor Questions)

Short List Vendors are issued

Short Listed Vendors are asked to conduct

Responses

Analysis of Evaluation Requirement Responses

Vendor Presentations & Demonstrations

+

Scored EvaluationInforms

Informs

Weighted Evaluation Criteria

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Evaluation Report



Subcontractor SelectionGovernance

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PSB Product Selection Board

S SSu Su

PST Product Selection Team

SMEsSubject Matter experts

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p



Building a Subcontract

C i l S b Selection Process

Commercial Subcontract (T’s & C’s) – Negotiated Terms

T d S l i

Project Context

Annexes:•DEFCONs (MOD)•Dependencies (CFx)

ITTTender Response

Capabilities

P j

Selection

Compliance Matrix

Detailed Statement of Work

Draft SOW

Draft Schedule

Draft T’s & C’s (Flow-Down)

Projects History

Technical Response

Matrix

Scoring

Credit Check

QA Audit

Payment Milestones

Subcontractor Costed Proposal

P h O d

Draft T s & C s (Flow Down) p

ROM Price Framework Agreement

QA Audit

Purchase Order

Ch /A d

PO Acknowledgement

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Changes/Amendments



Building a SubcontractEssential Documents - Ownership

D t O hi /A th hiDocument Ownership/Authorship

NDA Commercial Manager (CM)

Statement of Work Project/ProcurementStatement of Work Project/ProcurementManager (PM)

Costed Proposal Subcontractor

Commercial Subcontract (T’s& C’s)

CM

Instruction to Proceed (ITP) CM( )

Purchase Order PM (with Finance Approval)

Export Documents CM

Framework Agreement CMThe form of these documents is tailored to the project requirements (contract size, risk category, geography, classification)

43


Selection of Subcontractor(s) and Entry of Contract Selection of Subcontractor(s) and Entry of Contract

- Statement of Work (SOW)•Your SOW supplies the framework against which the Subcontractor can bid against which the Subcontractor can bid effectively and understand the controlling documents.

Description and Scope of Work

Requirements and Use Cases

Schedule (WBS)

Key Milestones P j t C t lli •Key Milestones

Deliverables List

Acceptance Criteria

Quality Requirements

Project Controlling Documents

Sub-project PlanProvisions for Change Control Management

Provisions for Configuration Management

Quality Plan

Project Management Requirements

Communications Provisions

Acceptance Plan

Risk Management PlanCo u ca o s o s o s

Security Requirements

Commercial Management Provisions ….etc…….

44

Warranty and Support


Selection of Subcontractor(s) and Entry of Contract Selection of Subcontractor(s) and Entry of Contract

- Statement of Work (SOW)•Your SOW is the seed document supplying the

b “DNA”subcontract “DNA”.

It should supply a description of:

● The job to be done,

● How you are going to manage and control the subcontractor,

● Your expectations of performance and● Your expectations of performance and

● Your Acceptance Criteria.

•This underlines the disciplined approach expected from the subcontractorsubcontractor.

•If you produce a poor SOW (incomplete, vague, poorly drafted) then it may cause:

● A bad initial impression● A bad initial impression

● Many questions (wasted time)

● Incomplete response

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● Ambiguity.



Statement of Work (SoW)Your SOW supplies the framework against which the Subcontractor can bid effectively and understand the controlling documents.

Description and Scope of Work

Requirements and Use Cases

Schedule (WBS)

Key Milestones P j t C t lli Key Milestones

Deliverables List

Acceptance Criteria

Quality Requirements

Project Controlling Documents

Sub-project PlanProvisions for Change Control Management

Provisions for Configuration Management

Quality Plan

Project Management Requirements

Communications Provisions

Acceptance Plan

Risk Management PlanCo u ca o s o s o s

Security Requirements

Commercial Management Provisions ….etc…….

46

Warranty and Support



Statement of Work (SoW)Your SOW is the seed document supplying the s bcont act “DNA”subcontract “DNA”.It should supply a description of:

● The job to be done,

● How you are going to manage and control the subcontractor,

● Your expectations of performance and

● Your Acceptance Criteria.

This underlines the disciplined approach expected from the subcontractor.

If you produce a poor SOW (incomplete vague poorly drafted) then it may cause:If you produce a poor SOW (incomplete, vague, poorly drafted) then it may cause:

● A bad initial impression

● Many questions (wasted time)

● Incomplete response

● Ambiguity.g y

47


2 Subcontract Delivery2. Subcontract Delivery

● Billing Basis Options

● Cost Control● Change Control● Planning

● Stakeholder Management

● Communications

● Reporting

48


Subcontract Deliveryy

Billing Basis OptionsFixed Price

● Define Payment Milestones according to work budgeted (agree with commercial).

● Link Payment Milestones to Prime Plan and PFS cycle (for cash flow & accurate EVA).

● Ensure subcontractor’s risk is clearly defined (SOW and Contractor’s Proposal Document)

Profit

(SOW and Contractor s Proposal Document).

● Regular updates of the subcontract schedule.

● Corrective action plans for schedule slippage.

● Implement strict Change Control.

Risk Allocation

Subcontractor Costs

49

Subcontractor’s Fixed Price



Billing Basis OptionsTime and Materials

● Prime price based on NTE Estimate.

● Project Cost model based on Deterministic Estimate.

● Any “Delta” cost is released via Change Request only.

Delta

CR1

CR2

● Ensure subcontractor’s CTC is declared each reporting period.

● Obtain Change Requests even for “zero cost” changes”.

● Prime’s duty is to minimise cost to the t C t t P i d d h

CR1

customer – Contract Price reduced when successful.

Deterministic Estimate

Not to Exceed Estimate

50

Subcontractor’s Price



Stakeholder ManagementStakeholders

•Stakeholder Management Plan: •Key Project Roles•Define Levels of Influence•Identify Management Requirements

51

•Identify Management Requirements



Stakeholder ManagementAnalysis

• Identify

•Name each stakeholder and determine what their interest is in the project and what information they will require

• Assess

•It is important to understand the current level of commitment It is important to understand the current level of commitment of the stakeholder in order that they can be managed accordingly

• Plan

•Determine how each stakeholder will be managed, who by, and the frequency and format of contact

• Action• Action

•Ensure that engagement with stakeholders is maintained as planned and the Stakeholder Management Plan is regularly reviewed and update

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reviewed and update



CommunicationsCommunications Planning

Wh S b t ti i ti f i t d d d th d i t t thi t When Subcontracting communications frequencies, standards and methods are important things to define:

● Communications Plan

● Roles & Responsibilities (Stakeholder Analysis)● Organisation Chart● Communications Channels and Media● Reporting and Escalation● Reporting and Escalation● Meetings● Review and Approval● Document Formats

C fi ti M t● Configuration Management

Important to cover communications expectations in the SoW (Resource time, locations, channels, t l t i t)travel – cost impact)

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CommunicationsReporting

● Budget status

● Schedule status

● Earned Value/Cost-to-Complete Estimate

● Key Performance Parameter status● Key Performance Parameter status

● Priorities and Key Objectives

● Risk Status

● Issues status

● Change Request/Approved Change status

● Status against plan/Key Milestones status

● Exceptions and reason for incomplete/corrective action

● Next period plan

Important to cover reporting expectations in the SoW.

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