The Money Files

Last time we looked at the different times in a contract where you would be scheduling payments. Today, I wanted to write a bit about the different types of payment you could factor into your work with vendors to give you some variety with how you structure payments.

Before we start, make sure to discuss any payment plans with your procurement and finance teams, so you don’t end up committing your company to something that you really shouldn’t! In my experience, contracting and procurement are really outside a project manager’s pay grade – organisations generally want the specialists involved, and most project managers would not have authority to sign contracts.

However, it’s worth knowing about the different payment options out there, so you can mention them in conversations with the right people if they are relevant to how you think your project would be best served.

Here are some options to consider for your next project procurement activity.

1. Uptime/availability payments

This is something to build into service level agreements. In the past, my projects have needed to set up SLAs, and uptime payments were built into those.

In essence, vendors get an incentive payment for keeping the service available instead of penalty clauses for downtime.

You could use this principle to build in payments for services or support being available, and you could have various thresholds that trigger different payments. Or you could put penalty clauses in for downtime, but that’s not so good for relationship building. The management at my last company was very much against punitive clauses as they believed it did not incentivise a partnership relationship and was too much centred on blame.

If you do put these clauses in your contracts, make sure you also document how you claim the payments. For example, for uptime incentives, if I remember rightly, we had to claim them, and sometimes for the value offered, it wasn’t really worth the admin… so think that through before you write them into contracts.

2. Performance payments

I haven’t used these personally in projects, but I believe they are common in construction (are they? Let me know in the comments).

This would be a payment related to hitting a particular performance threshold, perhaps delivering early on a particular milestone, or reaching some kind of target. When we pay for services, there are often performance-based payments built into the schedule. You’ll have seen these, too if you do any kind of online transaction processing. For example, I signed up for a service linked to my personal website that allows me to have up to 10k of transactions per month at a flat rate fee, and then if I go over that, the next tier of payment-based payments kick in. Payment is based on how many transactions you put through the system.

That could be relevant for your project if you are launching a service where volume or number of transactions or units processed would trigger an additional payment or an additional discount.

3. Incentives

You could find any number of ways to incentivise vendors. For example:

• Productivity savings
• Process improvements
• Staff savings
• Time per transaction saving
• Decrease in number of complaints or increase in staff satisfaction as measured by a survey

In addition to the ones I’ve already mentioned above. Anything that reduces overall cost of the service or product could be passed on to the client (your project), and there could be an incentive payment linked to that – ideally something that is beneficial to you both, not just cost-cutting for cost-cutting’s sake.

Have you used any of these payment methods on your projects? Let us know in the comments!

I’ve been reading the Project Routemap Procurement Module and it’s got some really interesting things in around setting up a project for success. It’s a UK Government publication, aimed at large-scale public sector initiatives, but there is a lot we can pull out and apply to other, smaller projects.

The procurement module is one of several, and I’ve been reading it in light of it being a good resource for project audits and peer reviews. For example, there’s a short sidebar of different project documents and reports that might be helpful for finding out more about the existing procurement arrangements on an in-flight project. I’ve pulled out some from the list below, along with my own explanation of what these might tell you.

Procurement strategy

This will be the main one. The procurement strategy for your project might be a simple ‘we’re buying this thing’ in the business case or it might be a more detailed, evolved document that lays out a multi-year, multi-vendor approach.

ITT and bid selection docs

Invitation to tender (ITT), the responses and the bid selection criteria help you decide which supplier to go with. We also found them useful to go back to and review why decisions were made and what assumptions were made at the time. The bid selection criteria are so important to get right, so involve the right users and teams in pulling those together!

Regulatory and statutory requirements

Any compliance requirements that affect your project will also affect your ability to procure services from certain suppliers. For example, in UK healthcare, there are many requirements that must be in place to allow organisations to contract with the NHS. If the supplier cannot meet those requirements, that might affect the ability to deliver the service.

Sustainability strategy

Many organisations now have a sustainability strategy or environmental goals. For example, choosing to partner with suppliers who are making the commitment to working in sustainable ways, or only buying energy efficient light solutions, and so on.

There may also be environmental impact assessments for the project that show what the impact will be and how that can be mitigated or approached.

Contracts

Another big one: I remember having a bound copy of a contract on my desk during a long project. Not because we needed to refer to it to hold the supplier to account, but simply because it had useful appendices that documented the payment schedules, milestones, service levels and lots of other things I seemed to need to look up often.

Any framework agreements and other types of third party agreements (like heads of terms or service levels) would also fall into this category. They shape the relationship between the supplier and customer, so they are useful to know in detail.

Funding arrangements

If your project is being funded from grant income, or there is a limited window in which to spend the funding, or you have to apply for funding to be released in stages… all that is good to know as you enter the delivery planning. Funding milestones are typically big ones because you don’t want to miss the deadlines.

There are lots of others, like a contract management plan, supplier relationship management plan, the business case, stakeholder requirements, the benefits realisation plan and more. What else do you use when it comes to managing project procurements?

Q1 tends to be a time when new budgets are approved and that means we’re starting to see requests for contracts with suppliers trickle through the PMO. It always takes a few weeks for budgets to get released, even if the intention is to start the work in January. By February, project teams are ready to get started, knowing that any further delay in the admin is going to put pressure on their ability to deliver by the dates from the business case. And that’s why all the supplier agreements seem to be floating around at the moment.

The infographic below talks about the major groups/people involved in putting together and approving supplier contracts for new third parties, but it’s the same people involved in renewing deals and reviewing an existing supplier to see if we want to give them more work.

 As with any internal process, this is probably a bit specific to certain environments and types of contract, and you might not see all of these roles in your business.

Equally, there might be some other key positions that have a part to play – I know that in one set of contract negotiations for a multi-million software project, my project sponsor attended every conversation, along with the technical architect. And just as well they did too: it created a great sense of common purpose and everyone was on the same page from the beginning.

Take the suggestions below as a starting point for opening up the conversation with your colleagues if you are creating new supplier agreements, so you can make sure the right people are involved from the start.

Read more about who gets involved in contracts.

How much do you really know about that supplier you are thinking of using on your project? They’ve sent you a quote, and you’ve got a nice glossy presentation with photos of their account managers, but what’s it really going to be like?

In this video I share some of the things I’ve found important when starting a relationship with a new third party – in fact, before the relationship even gets going it’s important to ask these questions.

If you prefer to read, there’s an article here on what to check before you sign on the dotted line: What you need to know about your supplier.

If you’re a video kind of person, and you want to hear my personal experience, then click Play on the video below! Let me know in the comments under the video what else you consider when you are assessing what organisations to partner with for project delivery. I’m sure you’ve got some great stories too!

My last few videos have looked at the procurement lifecycle, and today I want to dive into the third step: negotiating and contracting. This is a really important part of working with suppliers and it takes us to the point of saying yes to the work (hopefully).

Here’s a quick overview of what you need to know:

You can read more about this part of the procurement lifecycle in this article.

Pin for later viewing: