Administering the Contract and Controlling the Supplier's Work
In all but the simplest of agreements, the acquirer has certain technical responsibilities
with respect to the contract. How well you perform these responsibilities will have a significant
effect on the supplier's performance. Your overriding aim should be to maximize the likelihood
of meeting all the contract objectives on both sides. Therefore, you should pay close attention
to fulfilling the following responsibilities.
- Provide technical clarifications quickly.
- Respond as soon as possible to supplier requests
for information, or reviews and approvals, relating to schematics, architecture, interface configurations,
use of subcontractors, and so forth.
- Coordinate, or ensure coordination, among suppliers if
the project involves multiple contracts.
- Promptly exercise quality control acceptance, waiver,
or rejection; if you reject something, quickly request correction of defects and certify progress
when the correction is complete.
- Resolve disputes and/or claims early by forewarning the supplier
of potential difficulties, initiating fact-finding activities for potential or registered disputes,
and initiating a change order process if appropriate.
- Show interest by monitoring and tracking
the supplier's progress and expediting roadblocks.
- Process changes expeditiously.
by the terms of the contract.
- Above all, pay progress payments promptly. Nothing discourages
a supplier more than leaning on his 30-, 60-, or 90-day line of credit!
As we noted earlier, the type of contract you select largely determines the degree of control
you have over the supplier's work; the firmer the price, the lower the acquirer's level of control
over contract performance. Nevertheless, even in fixed-price situations you still have levers,
short of extreme actions such as termination and lawsuits. These levers are:
- You can tie payments to acceptance or rejection of results; in other words, you can agree
to pay upon acceptance but hold back payment if there are performance deficiencies. Your position
will be stronger if you specify staged progress payments in the contract.
- You can submit change
orders to the supplier for adding or subtracting work. Preferably, you and the supplier should
agree on the validity of each change order as well as on a corresponding adjustment to the cost.
- You can issue a stop work order (under unilateral and exceptional conditions) provided that
you justify the cause.
Of course, you must make sure to write these control procedures into the contract. You cannot
expect to unilaterally assume these privileges after the contract is signed -- at least not
without risk of legal action by the supplier!
Common Problems and Issues
Knowing some of the common problems and issues that arise in contract situations can help
you avoid them. Here are four things to watch out for.
- Flawed technical requirements, specifications, or descriptions. If the product you specify
turns out to be a practical impossibility (although the supplier will have a difficult time
proving this), all or part of the contract may be invalidated.
- Formal registration of disputes
and/or the application of extreme remedies. These typically cripple any work in progress. Therefore,
make every effort to ensure that the work can continue while disagreements are being resolved.
- Questions over warranty. Most contracts include an express warranty clause. However, if the
supplier is aware of the acquirer's purpose and use for the product, then there is also an implied
warranty. Disputes arise when the product does not meet the acquirer's needs, and the supplier
refuses to honor that implied warranty.
- Inappropriate change processing. Changes can be a
source of dispute if:
- Either the supplier or acquirer makes unilateral changes in breach of
the contract or does not follow the change process agreed upon in the contract.
- The acquirer
(or one of the acquirer's agents), as a result of action or inaction, creates the need for a
change that forces the supplier to perform in a manner that is more costly or difficult than
that prescribed or contemplated in the original contract.