I'm managing an large project where most of the work is done through a subcontractor. We worked collaboratively to come up with a project plan and schedule, building in contingency reserves for tasks that we anticipated as being problematic. Unfortunately, it looks like at least some of the subcontractor's team are taking the contingencies as extra time to get their work done. The contract is FFP so we don't have a carrot/stick for bonuses or penalties. Is there a more effective way of avoiding or at least mitigating this other than telling them over & over that the idea is to only use the contingency reserves if absolutely necessary?
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What is the payment schedule like? Is it based on milestones and/or hitting performance goals?– Mark PhillipsMay 16, 2011 at 16:05
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Milestone payments. The ones that have already been hit represent about 70% of the total cost of the project, but we are getting to the point where the wheels usually start to fall off.– Doug BMay 16, 2011 at 18:42
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4 Answers
I am reading that the contract between you and the sub is FFP, correct? I think I interpreted it differently than Yegor.
If you did not build bonus and penalty into your FFP contract with your subcontractor, then you indeed have lost your ability to provide a decent incentive for performance. It is hard to substantiate that your sub is simply using the contingency runway because it is there (Parkinson/Student Syndrome) or because they are truly needing it to recover from random issues. To accuse them is essentially severing your relationship with them, which may or may not be a good idea.
Since it is not likely you can "cure" their use of the schedule reserves, your options are limited to what you can control, which is to mitigate the downstream effects on the packages that are succeeding the sub's work...to the degree possible. Then, capture this as a lesson learned and ensure to include that carrot/stick in your next FFP contract with any sub.
You control for Parkinson's Law and Student Syndrome during the planning phases. You set your target schedule considering where it falls on your probabilistic estimate, the risk you care to assume, AND the effects of Parkinson's. After this, you calculate your contingencies and build them in to your baseline. After that, the results are the results; trying to blame unfavorable schedule variances is a non winnable argument.
answered May 16, 2011 at 16:15
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+1 setting up controls in the planning phase and "trying to blame unfavorable schedule variances is a non winnable argument." May 16, 2011 at 16:38
For you current contract, the only effective path is to lay your cards on the table and tell them how they're affecting your work. But there's no guarantee that they'll care.
For future contracts, always put the carrot/stick in the contract, be very clear about milestones and delivery dates (and how those relate to carrot/stick), and never divulge contingency amounts.
answered May 16, 2011 at 20:09
Why Firm Fixed Price (FFP) contract can't have bonuses/penalties? It can, like any other type of contract.
But the main problem here is that you should not disclose your schedule to the subcontractor. It's your internal document, as a project manager. And, of course, you should not disclose them your contingency reserves. They are for you, not for them.
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Yegor - they can and they do. But they MUST be written into the contract before it's signed. The same with the schedule, you need to show them your schedule to keep them on track, but if there are critical dates, these need to be addressed in the contract. After the fact it's too late. And I wouldn't have disclosed the contingency. May 16, 2011 at 20:06
Let them know how it will affect their chances for follow-on work.
Make sure you find alternative vendors and that you have copies of the code.
answered May 16, 2011 at 21:22
