How can you use contracts and payments to save money on project vendors?

On paper all projects & budgets are defined perfectly & calculated down to the last nail. Challenge lies in handling the variations, extras in scope, unforeseen, delays, weather & labor related events. As is normal in all projects, events occur out of the scope; so handling, resolving, sticking to the timeline becomes a key factor for PM. Elements like weather, external impacts, labor, equipment & progress payments sometimes need to be handled & prioritized to stay on track and within budget. PM is a living embodiment of factors that need tweaking on a continuous basis so monitoring, achieving milestones & active reviews become critical.

Negotiation of scope and finalization of technical boundaries is very good to forecast any project. Also it's very good to prepare a project schedule including by making the timeline for customer input and projects output documents to track the delay if happens.

Organizations should treat vendors as partners as the vendors play an important role in the organization's chances of succeeding or failing in a project. The corporate level agreements make the vendors equally responsible to deal with any kind of vendor related non-conformities which might jeopardize an organization's reputation. The terms and conditions of the corporate level agreement should be honored by both the vendors and the organization. A long term business partnership can be established when both parties work together with a common objective of serving an end customer.

Absolutely, the procurement process specially for the long lead deliveries should start as soon as the requirement is know even before the final scope is defined. In my line of work which is oil and gas the project milestones are totally dependent on the delivery of materials. Services contracts either included in the scope of main contractor or could also be initiated in parallel for direct contact if not included in the main contract.

In my experience, when involving a high amount of money jointly with a short target date, the setting of penalties is essential to protect the project. Penalties are not just a way to get money back (in fact, once you miss the target date, money cannot fix It) but above all to get extra commitment from the contractor Who Will make all the efforts to meet your goal. Penalties are one of the ways to get contractors on board, as well as a continuous monitoring. Usually penalties cannot exceed a certain amount of total bid (i.e. 1% each delay day, up to 5%), but again, it's not just about money saving: it's about achieving a common goal. Contractors who do not accept penalties may hide difficulties in monitoring their internal control.

- One thing that I found very useful is be very clear about the words that u use - all other aspects of contracts are important. Every word of the contract reflects value in terms of money - either u are gaining or losing. So choose the words very carefully knowing their impact on monetary terms. Be sure that u have incorporated all important aspects in ur Contract.

In my experience, a central role here is played by the Purchasing Office. Their Key support Is that of monitoring the correct delivery and payment while the project manager could be busy on other technical issues.

The simpler the terms, the better. However, ring-fencing the agreement is equally important. Also, in the happenstance that a potential client suggests written contracts / agreements are an overkill, and "their word is their bond", avoid them like the plague.

I gather from performance it is meant progress and milestone completion. Yes payments need to be progress bound Infact if possible it should also be bind with planned schedule so delays can have penelty to safeguard the owners and early completion should carry incentive for the contractor.

Always, however the comparison of the bids should be done like apple to apply keeping the experience and reputation of the bidders in front. Offcourse their financial standing also matters to avoid delays due the cash flow problems with the contractors.

Competitive bidding Is essential in my experience. Depending on the impact of the project, two, three and even four contractors are very welcome for a bid. Besides, all contractors must receive the 100% of elements to get to a proper offer. I do this by taking them on field and answering technical questions in front of all of them, to ensure equality while bidding. Then, the process must be completed by comparing the offers with the help of a SME and asking vendors for modifications in case they are not aligned. Only then, you can award.

I recommend to use audit rights in contracts to reduce payment risks in case of under-performance or misreporting. Audits provide the customer with the ability to review vendor’s performance of services, verify vendor’s reported performance against applicable SLAs and examine vendor’s measurement, monitoring and management tools. Audits should be clearly defined as a measurement of activities against contractual requirements. There are many requirements in relation to audit provisions and the following points should be reasonably addressed: • the scope of audit (what is to be audited) • the restrictions as to the type of information that can be disclosed • the frequency of audits • payment for audit costs • timing and reasonable notice

In my experience, a nice practice Is that of "badging" a contractor in case of a very well done work. This motivates the contractor to keep being competitive and honest next time.