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Chapter 19. Vendor and Contrator Relationship Management

Chapter 19. Vendor and Contrator Relationship Management

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oversight and guidance that includes vendor and contractor performance
management as an inherent component of project management.
This “vendor and contractor relationships” function enables the PMO to:
Ⅲ Identify and qualify vendors and contractors who add value to
project efforts.
Ⅲ Develop guidance for managing vendor and contractor participation on projects.
Ⅲ Develop guidance for managing vendor and contractor contracts
within the relevant organization.
The PMO is generally recognized as having oversight responsibility for
project performance, and vendor and contractor participation represents
a critical performance component — sometimes even as a member of the
project team — that warrants appropriate attention.

Project Environment Interface Concepts
The PMO can develop standard guidance for the use and management
of vendors and contractors within the project management environment.
This precludes the need for project managers to figure out a different
system for each vendor and contractor. In turn, preferred vendors and
contractors will become familiar with the contract and performance management practices applied to their participation on projects within the
relevant organization.
The PMO also can be proactive in identifying general and specific
project needs for external vendor and contractor participation. It can be
instrumental in prequalifying vendors and contractors for various types of
project work, making them available for selection by project managers,
who are then no longer burdened with finding a qualified external
resource in a short period of time.

Business Environment Interface Concepts
The PMO can collaborate with business units to facilitate the introduction
of vendors and contractors into the relevant organization. Additionally,
the PMO brings the necessary expertise in project management and
technical capability to assist business units in accurately preparing requirements documents, RFPs (requests for proposal), and qualifications to
expedite the vendor and contractor review and acquisition process.
The PMO can adapt the project management methodology to incorporate essential business steps and practices associated with vendor and

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contractor acquisition and management. This enables preferred business
practices to be applied by project managers across all projects within the
relevant organization.

Vendor and Contractor Relationships Activities across
the PMO Continuum
The “vendor and contractor relationship management” function along the
PMO competency continuum represents the progressive capability to apply
and manage external resources within the project management environment. This begins with a focus on properly qualifying vendor and contractor candidates, then making them available as a project resource, and
finally managing their performance.
Table 19.1 provides an overview of the range of prescribed PMO
vendor and contractor relationship management activities according to
each level in the PMO competency continuum.
The project office has direct responsibility for managing vendor and
contractor performance on projects. It uses established guidance to accomplish all required oversight actions.
Mid-range PMO levels introduce processes and practices to acquire
and manage vendor and contractor participation on projects for maximum
business value and project management effectiveness. They prescribe
vendor and contractor roles and responsibilities, and prepare guidance
for project managers to oversee vendor and contractor plans and accomplishments. An advanced PMO examines opportunities for closer vendor
and contractor relationships that offer a distinct business advantage.
The center of excellence supports the use of vendors and contractors
by examining business results of vendor and contractor participation.
The PMO’s role in this function model is to determine where vendor
and contractor products and services are used or needed, and to ensure
that properly qualified vendors and contractors are selected for project
assignments. Further, the PMO assumes responsibility for overseeing vendor and contractor performance management by developing processes
and practices that can be incorporated into the pr oject management
methodology for use by project managers, as prescribed in the PMO
“project methodology management” function (see Chapter 1).

Vendor and Contractor Relationships Function Model
The introduction of vendor and contractor support in the project management environment creates a requirement to manage that participation.
This is primarily a responsibility for the project manager but the PMO can

Center of Excellence

Evaluates vendor and
contractor
performance:
– Analyzes vendor
and contractor
business value
– Examines vendor
and contractor
participation and
effectiveness
across industries

Advanced PMO

Manages vendor and
contractor
relationships:
– Establishes
preferred vendor
and contractor
programs
– Develops vendor
and contractor
partnerships

Standard PMO

Manages vendor and
contractor
acquisition:
– Identifies and
qualifies vendors
and contractors
– Develops vendor
and contractor
responsibilities
– Monitors vendor
and contractor
performance

Basic PMO

Introduces
vendor/contractor
management:
– Monitors vendor
and contractor
business and
relationship
information
– Develops vendor
and contractor
management
guidance

Project Office

Manages
vendor/contractor
project participation

Table 19.1 Range of Vendor and Contractor Relationship Management Activities across the PMO Continuum

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MANAGE
VENDOR/CONTRACTOR
RELATIONSHIPS

MANAGE
VENDOR/CONTRACTOR
ACQUISITION

MANAGE
VENDOR/CONTRACTOR
PERFORMANCE

Identify Vendor and
Contractor Needs

Identify and Qualify
Vendors and Contractors

Administer Vendor and
Contractor Contracts

Manage Vendor and
Contractor Information

Solicit Vendor and
Contractor Proposals

Monitor Vendor and
Contractor Performance

Prescribe Vendor and
Contractor Participation

Prepare Vendor and
Contractor Contracts

Figure 19.1 “Vendor and contractor relationships” function model.

establish the foundation for vendor and contractor management, and
provide the necessary support for vendor and contractor relationships
across all projects.
Figure 19.1 depicts the prominent activities of the PMO’s “vendor and
contractor relationships” function model, and the following sections
describe each activity.

Manage Vendor/Contractor Relationships
The PMO’s role in managing vendor and contractor relationships is focused
on oversight and support; the project manager should focus on control
of vendor and contractor participation. The PMO should grow its capability
to identify vendor and contractor value and capability to support the
various types of project efforts performed within the relevant organization.
It can then develop guidelines and recommendations for establishing
vendor and contractor relationships.
When establishing its capability to manage vendor and contractor
relationships within the project management environment, the PMO can
consider the three activities described in the following subsections.

Identify Vendor and Contractor Needs
The PMO should collaborate with project managers to determine the nature
of vendor and contractor support required within the project management
environment. This entails discussion and deliberation about the type of
vendors and contractors needed, the frequency of those needs, and the
preferred business relationship for each type of vendor and contractor.
The following list can be reviewed to facilitate the PMO’s examination
of vendor and contractor requirements within the relevant organization.

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It indicates the types of vendor and contractor relationships that can be
established, allowing the PMO to specify those likely to be needed for
project assignments.
Ⅲ Vendor and contractor partnerships. This is a formal business relationship that is established to facilitate the mutual pursuit and
achievement of common business objectives. The partnership relationship is used for vendors and contractors having frequent and
close business alignment with the relevant organization. The vendor
or contractor is often an active and visible participant on the project
team and has a vested interest in achieving overall project objectives.
It is usually characterized by a written agreement put in effect for
a period of time and reconfirmed at intervals that enables vendor
or contractor participation on many or all projects within the relevant
organization. Partnerships can be established to create a more
permanent relationship from any of the other types of vendor and
contractor relationships listed later in this subsection. The partnership relationship can range across a number of different business
pursuits that support project efforts, for example:
Ⅲ Joint research and development (mutual business investment)
Ⅲ Business affiliation (joint sales and marketing)
Ⅲ Exclusivity of product or service use (sole vendor or contractor
status)
Ⅲ Business referral activity (preferred vendor or contractor status)
Ⅲ Information database connectivity (business and sales information exchange)
Ⅲ Just-in-time product and service delivery (collaborated business
processes)
Ⅲ Vendor and contractor affiliations. This is a formal business relationship that is established to enable prequalified vendors and
contractors to be identified and positioned for use on projects as
their products and services are required. This type of relationship
is used to prepare for anticipated vendor and contractor needs
across multiple projects. It is usually characterized by a general
contract or agreement that is prepared to identify the nature and
standard costs of products and services that can be delivered by
the prequalified vendor or contractor and specify the contractual
obligations to be applied when and if the vendor or contractor is
selected for assignment to any projects. This affiliation removes
the burden of having to solicit, negotiate, and establish a contract
for every project in which the vendor or contractor will participate,
and it expedites vendor and contractor availability and readiness
to begin project work when needed. The contract is usually estab-

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lished for a period of time, perhaps one or more years, and is
activated by issuing a vendor or contractor work order that specifies
the technical details of the work to be performed.
Ⅲ Project-specific relationships. This is a formal business relationship
that is established to obtain vendor and contractor participation in
one or more specific projects. It represents the need to solicit and
qualify vendors and contractors for selection, and then to prepare
a separate contract or agreement for their participation in each
project. This relationship is characterized either by direct association of the vendor or contractor as a project team participant, or
by responsibility for independent work associated with achieving
project deliverables and objectives. The business relationship and
responsibilities of each party are normally concluded upon completion of the assignment or at project closeout.
Ⅲ Service provider relationships. This is a business relationship that
may be formally or informally established but it does not necessarily
warrant a formal contract or agreement. Instead, it represents some
level of prequalification and selection of service providers, perhaps
by establishing a recognized business account with each provider.
Then, as project teams require relevant services, this type of
business relationship is established to handle those requirements.
The service provider relationship is characterized by vendor and
contractor recognition of the relevant organization as an established
account and the use of some type of work-order process to provide
a timely response and fulfillment of service requests originating
from each authorizing project manager or project team. Payment
for services can be attributable to specific projects, or it can be a
shared cost within the project management environment. A few
examples of service provider relationships include:
Ⅲ Technical help desk services
Ⅲ Reference and research services
Ⅲ Equipment and tool calibration services
Ⅲ Online information management services
Ⅲ Communication and conferencing services
Ⅲ Courier and shipping services
Ⅲ Transportation services (e.g., airlines, railways, taxis, etc.)
Ⅲ Selected consulting and auditing services
Ⅲ Supplier relationships. This is a business relationship similar to
that of the service provider but it deals with prequalification and
selection of sources of products, supplies, and equipment needed
to accomplish the project effort. Similar to service providers, this
type of relationship is initiated by establishing a r ecognized
business account with each supplier. Then, as project teams need

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to make relevant purchases or when payment is attributed to
specific projects, the preferred supplier is contacted and the
established account is referenced. A few examples of supplier
relationships include:
Ⅲ Office supplies and equipment providers
Ⅲ Technical tools and equipment providers
Ⅲ Leased vehicles providers
Ⅲ Leased equipment providers
Ⅲ Leased housing providers
Ⅲ Raw material providers
Ⅲ Food service and meal providers

Manage Vendor and Contractor Information
Vendor and contractor information management is sometimes an administrative burden that can be reduced by effectively organizing its collection
and use. Peak vendor and contractor information management efficiency
can be achieved when the PMO centralizes the information database within
the project management environment.
The PMO should undertake an initiative to acquire and manage vendor
and contractor information as a basis for deliberating and establishing the
preferred vendor or contractor relationship and as a means to recommend
vendors and contractors for project work assignments. A comprehensive
information management capability will examine vendor and contractor
relationships from three perspectives:
1. Vendor and contractor presence. What vendors and contractors exist
in the marketplace, and what are their capabilities to contribute to
project efforts within the relevant organization? This knowledge
produces a general awareness of the products and services available
to the PMO in support of project performance requirements.
2. Vendor and contractor qualification. Which of the vendors and
contractors, who have a viable presence and offerings that fit with
needs in the project management environment, can be pursued in
a business relationship?
3. Vendor and contractor performance. What are the contributions
and value of those vendors and contractors selected for a shortor long-term business relationship?
Vendor and contractor information collection can be either an exhaustive
or a simple process, depending on the nature of project needs and the
treatment of vendor and contractor business relationships in the relevant
organization. The PMO will need to determine the specific information

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needed for its interests in vendor and contractor relationships. The information collected for vendors and contractors can be very similar to that collected
for business customers. It includes consideration of the following elements:
Ⅲ Vendor or contractor business profile. The vendor or contractor
business profile contains any relevant information that the PMO
deems necessary to gain an adequate understanding of the nature
of the vendor or contractor business. Fundamental information
elements in the vendor or contractor business profile can include:
Ⅲ Vendor or contractor business description (e.g., product, service,
industry, etc.)
Ⅲ Vendor or contractor business size (e.g., number of employees)
Ⅲ Vendor or contractor business location (or locations) (e.g., local,
regional, national, global, etc.)
Ⅲ Vendor or contractor business status (e.g., sales, revenue, stock
position and outlook, etc.)
Ⅲ Vendor or contractor business management (e.g., executives,
directors, private owners, etc.)
Ⅲ Vendor or contractor business affiliations (e.g., partnerships,
industry affiliations, etc.)
Ⅲ Vendor or contractor relationship history: This information is used
to examine past business dealings with each vendor or contractor.
Its focus is on reviewing the business given to each vendor or
contractor and the resulting performance achievements. It can also
look at other vendor or contractor dealings in the industry and in
the marketplace. Fundamental information elements in the vendor
or contractor relationship history package can include:
Ⅲ Major business transaction history and the outcomes
Ⅲ Project work history with the vendor or contractor, and the
outcomes
Ⅲ Partnership or business affiliation history with the vendor or
contractor, and the outcomes
Ⅲ Key vendor and contractor participants in projects and business
transactions
Ⅲ Contract award and financial history with the vendor or
contractor
Ⅲ Vendor and contractor invoice management history
Ⅲ Prominent types of products and services provided by the
vendor or contractor
Ⅲ Vendor or contractor business fit. Information about the vendor or
contractor’s business fit warrants review from time to time. The
primary information elements collected are based on the discernment and judgment of managers within the relevant organization

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versus absolute factual data. This information set helps examine
the vendor or contractor and associated business opportunities
from a business-interest perspective of the relevant organization.
Fundamental information elements associated with vendor or contractor business fit can include management perspectives on:
Ⅲ Management perspective on alignment of vendor or contractor
business objectives and interests
Ⅲ Management perspective on vendor or contractor’s business
decisions and outcomes
Ⅲ Management perspective on impacts of vendor or contractor’s
business values
Ⅲ Management perspective on demonstrated vendor or contractor
loyalty
Ⅲ Management perspective on importance of particular vendor or
contractor retention
These three areas of vendor and contractor information can be comprehensive or basic, per established business needs and the capacity to
manage acquired information. To the extent that the project knowledge
management system is established, that would be an excellent mechanism
for introducing vendor and contractor information for use by the PMO and
by project managers.

Prescribe Vendor and Contractor Participation
The third component of establishing an effective vendor or contractor
relationship is to identify how they will be introduced and used on projects
and within the relevant organization. As is common in most situations
where there is direct project manager oversight and involvement, processes
and procedures applicable to vendor or contractor participation that are
managed by the project manager can be incorporated into the project
management methodology.
The PMO can consider a range of vendor and contractor participation
issues by examining the following points:
Ⅲ Vendor and contractor sourcing responsibility. The project manager
is responsible for acquiring the necessary vendor and contractor
resources to achieve project objectives. The PMO will need to
determine if it will serve as a clearinghouse (i.e., approval authority)
for vendor and contractor acquisition or just as an internal resource
for vendor and contractor information.
Ⅲ Vendor and contractor oversight responsibility. The project manager
is responsible for managing vendor and contractor task assignments

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and performance. In collaboration with project managers, the PMO
will need to determine any PMO involvement in managing vendor
and contractor work performance. Determinations here will also
indicate and influence the role of the PMO in managing individual
and collective vendor and contractor business relationships.
Ⅲ Vendor and contractor project affiliation. The PMO in collaboration
with relevant project managers should determine the approach to
vendor and contractor management on projects, relative to each
type of vendor engaged. In particular, it would be good to specify
whether the vendor or contractor will be performing its assigned
role and tasks as a member of the project team or will be working
independent of the project team.
Ⅲ Vendor and contractor project management responsibility. The
PMO should establish common activities and expectations for
vendor and contractor participation in project management activities and performance of their own project management efforts,
per each vendor and contractor type. This deliberation also results
in establishing the project manager’s role in overseeing vendor
and contractor project participation and performance from a
project management perspective. The vendor or contractor can
contribute and participate in a variety of activities aligned with
phases of the project management life cycle, as warranted by their
established role:
Ⅲ Vendor/contractor collaboration — needs, requirements, and
technical specifications
Ⅲ Vendor and contractor project planning and technical solution
development
Ⅲ Vendor and contractor project management methodology
deployment
Ⅲ Vendor and contractor tracking and reporting requirements
Ⅲ Vendor and contractor technical performance responsibility. The
PMO should establish guidance for vendor and contractor use of
acceptable technical performance standards and technical competency requirements that will be applied to vendor and contractor
efforts within the project management environment. This deliberation also results in establishing the project manager’s role in
overseeing vendor and contractor project participation and performance from a technical perspective. PMO oversight of vendor and
contractor performance can include the following:
Ⅲ Fulfillment of qualifications for vendor or contractor technical
team members
Ⅲ Development and presentation of required technical plans,
designs, and solutions for timely review

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Ⅲ Demonstration of a viable configuration management process,
as needed
Ⅲ Implementation of project deliverable quality control and assurance measures
Ⅲ Development of an acceptable timetable for delivery of products
and services
Ⅲ Vendor and contractor business management responsibility. The
PMO should establish guidance for vendor and contractor business activity management, which is generally translated to mean
putting mechanisms in place to ensure that the vendor or contractor has the capability to manage its contractual obligations.
This can include:
Ⅲ Capability to lead and control vendor and contractor technical
team work efforts
Ⅲ Acceptance of the prescribed contract modification process
Ⅲ Receptiveness to executive and senior management collaboration, as needed
Ⅲ Presentation of preferred project progress and associated business reports
Ⅲ Adherence to invoice submittal practices
The nature and type of vendor or contractor involvement will influence
the particular type of roles and responsibility guidance that the PMO needs
to create. In general, the PMO can begin defining vendor and contractor
participation guidance in areas where project managers are expressing
concerns or inquiries for assistance.

Manage Vendor/Contractor Acquisition
This activity specifies the means by which the PMO can recommend or
establish the process by which vendors and contractors are introduced
into the project management environment. The PMO should consider
constructing a process for vendor and contractor acquisition according to
the guidance contained in the following three subsections.

Identify and Qualify Vendors and Contractors
The identification and qualification of vendors and contractors should be
accomplished according to the business relationship to be established.
The following vendor and contractor acquisition steps are recommended
for PMO consideration in establishing its own vendor and contractor
acquisition process: