Vendor management: Tips from an Insider

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I was out for dinner the other evening with some friends. One was recounting a story at his workplace about a vendor who had delivered some work well behind schedule. It was also wholly inadequate to meet the needs. The organization did not have much recourse though because the arrangement was solidified by a handshake. There was no contract in place.

His story started the ball rolling. There were suddenly verbal munitions flying everywhere. Everyone seemed to have a horror story of dealing with a vendor. I slunk under the table and reminded my friends that I too was a vendor.

I am sure that you also have a horror story about dealing with a vendor. Poor quality, higher costs than expected, and long overdue deliverables are just some of the long litany of issues that people experience. On the other hand, vendors can also provide some valuable expertise in an area that the organization does not have expertise or only requires for a limited time. Contracting a vendor to deliver a particular service can actually be a positive experience for your organization!

The current article will provide you with some tips to deal with vendors to help make your experience a positive one. It will focus on vendors providing services rather than products.

Tips for Contracting a Vendor

1. Ensure a contract is in place

You might be surprised how often organizations engage vendors without a contract. "Why do we need a contract? Everyone seems so nice and we all get along so well!" Contracts are not for when the relationship is positive. They are there if the relationship goes sour and the other party no longer seems as nice. Make sure some form of written agreement is in place.

2. Solicit more than one bid

Remember that you have options, and remember to mention that to the vendors. It is always good to solicit quotations or proposals from several vendors. If the contract is worth a significant amount, create a short list from the quotations and do more detailed evaluation. Interview the vendor. Check their references. Check their financial stability.

3. Choose an appropriately-sized vendor

A very common mistake is selecting a vendor too big for the project. My company is often hired by clients to define their requirements, develop a request-for-proposal, and assist them in selecting a vendor to deliver a technology solution. I often caution against hiring a very large company when it is a smaller project. You want your project to be a high priority for the vendor so that you get good service. Small projects often suffer from lack of responsiveness from large vendors. At the same time, though, they need to be a large enough firm to ensure that they can adequately deliver the project.

4. Structure the project in discrete phases

Projects can often be broken into several, discrete phases. Contract the successful vendor on a phase by phase basis with clear deliverables at the end of each phase. The deliverables should be such that almost any vendor could use them to begin the next phase. If the relationship sours or the vendor does not produce adequately, it is easier to switch vendors if they have been contracted on a phase by phase basis.

5. Withhold partial payment until final delivery

Structure the contract so that the vendor receives the last payment after services are rendered and approved. It is common to withhold twenty or twenty-five percent of the contract amount until all of the services or deliverables are completed. You can also structure the payment terms so that the vendor gets chunks of the money as major milestones are reached through the project.

6. Build penalties into the contract

Another common practice is building penalties into the contract for late delivery or for deliverables that do not meet the specifications. Contracts often include clauses that penalize the vendor for delivering after the agreed-upon schedule if it is their fault. This usually amounts to a small percentage per day or week. Penalties for poor quality are often harder to define because quality is more subjective. However, the penalties are often applied when the vendor does not produce what it agreed to produce. This is usually measured against what the vendor proposed initially and the requirements defined for the project.

7. Approve the vendor's proposed project staffing

Vendors sometimes switch personnel during the project for a variety of reasons. You should feel comfortable with the new person they suggest for the project. He or she should have commensurate skills and fit in with the team just as well. Ensure the contract includes a provision for you to approve the proposed staff member. Similarly, it is not uncommon to include contract clauses indicating that the vendor must replace someone on the project if he or she does not work well with the other project team members.

8. Maintain a positive relationship with your vendor

The final tip is ensuring that you maintain a positive relationship with the vendor. The vendor will want to deliver better results if you are well disposed to one another. This not only includes more responsive and better service, but also providing you with advice about how best to accomplish something. They will be more inclined to go that extra mile when you really need it. A contract is a critical control to have in place, but you can ultimately accomplish more through a positive and mutually satisfactory relationship.


This article gives you some tips on how to manage a vendor relationship, and will help ensure that your experience with a contractor is positive.

Many organizations have had poor experiences with their vendors or consultants. The reason for this is that often the relationship was not well defined, and neither party knew exactly what the other one wanted. It is important to clearly define the relationship during the procurement and contracting processes, and ensure that the relationship remains consistent throughout the life of the contract. Most vendors want to provide quality services to their clients. Sometimes, it just takes a little bit of structure.

Blair Witzel ( is a member of the Project Management Institute and a consultant with McDonnell Doane + Associates, an information management and technology firm focusing on the not-for-profit and public sectors. His work centres on managing multi-project portfolios and working with organizations to develop project management methodologies to more effectively deliver projects.

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