This is the scenario: The maincontractor and the sub-contractor sign a contract for services and goods. In this contract under the T&C the sub-contractor has to provide warranties on products and workmanship as part of defects liabilities for a stipulated time frame. Apart from this there is a 5-10% rention amount that is to be parked for a year or two post delivery and accpetance of services by the main cntractor.
The case: As a project manager of the main contractor, when the vendor services is done and accepted within the agreed delivery period and without any penalties as well. At the time of close procurement the project cannot be closed unless the vendor accounts are fully settled. Since the vendor will only receive 90-95% of the total payment due to him owing to this rention clause. According to the close procurement process the project manager needs to ensure that the vendor dues are settled in full before moving into close project phase. how can this be achieved with the 5-10% rention clause mandated in the T&C of the contract?
The possible work around: The vendor requests the retention amount to be released against a retention garantee cheque ? However the project is closed before this work arount is completed.
The worst case scenario: The main contacting company files for insovency before the rentention period comes to fruition. What recourse does the sub-contractor have to recover the retention amount due to them.
Problem Question: Can the project procuement be considered closed without the vendor getting fully settled as per the PMPBOK guidelines?
When I have run into such cases in the past, the project gets closed with the contract still open, but your procurement department would keep an eye on the warranty period and retention amount and work with your finance department to release it once the warranty period has ended.
It is quite common for a project to be closed with some outstanding items - the key is to identify which operational teams will take ownership for them thereafter.
Kiron
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1 reply by Antony Jones
Feb 03, 2024 2:47 AM
Antony Jones
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Thank you so much Kiron for the knowledge update. I agree to fact that the ownership shifts to the operational teams as applicable from the main contractor's end. However, from the sub-contractor's view point, I am the project manager that delivered a solution/service for that said closed project,then who should take charge for the retention follow-up? I might be deputed to another project which means should the burden of retention follow-up be carried by me, for the contract is still not closed until the warranty or performance guarantee timeframe is not over yet? How can my procurement team close the project then with contract not being closed?
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Antony, it is very common to have 1 Year Warranty Period and we normally do close the project while keeping the contract open until the warranty obligations are fulfilled. However, what’s not common to be is having a 10% retention until after 1 year from project closure.cIr the contract is big, then this is a significant amount to tie for one year. We usually have 10% holdback throughout the project and those are released at substantial completion of the scope of work for each contractor.
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1 reply by Antony Jones
Feb 04, 2024 4:35 AM
Antony Jones
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Hi Rami,
thank you for your valuable input . The practice of holding a retention percentage is very much prevalent here.
the worst case scenario a that post project closure the many an main contractors have folded their business. Leaving a many of their contractors high and dry.
When I have run into such cases in the past, the project gets closed with the contract still open, but your procurement department would keep an eye on the warranty period and retention amount and work with your finance department to release it once the warranty period has ended.
It is quite common for a project to be closed with some outstanding items - the key is to identify which operational teams will take ownership for them thereafter.
Kiron
Thank you so much Kiron for the knowledge update. I agree to fact that the ownership shifts to the operational teams as applicable from the main contractor's end. However, from the sub-contractor's view point, I am the project manager that delivered a solution/service for that said closed project,then who should take charge for the retention follow-up? I might be deputed to another project which means should the burden of retention follow-up be carried by me, for the contract is still not closed until the warranty or performance guarantee timeframe is not over yet? How can my procurement team close the project then with contract not being closed?
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1 reply by Kiron Bondale
Feb 03, 2024 8:07 AM
Kiron Bondale
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Antony -
You may need to provide a better understanding of your organization structure to help me answer the question. I am assuming that you are not in a purely project-oriented organization and there is a separate contracts or procurement department within your company? If so, they would be responsible for working with the finance department (who would be keeping the accounts payable reference for the retention portion) to follow up and get it paid in due course once the warranty period ends. I'm also assuming that there is an operational support team who handles concerns raised during the warranty period. If so, they might also assume responsibility for notifying the finance and procurement departments at the right time to pay the sub-contractor.
Thank you so much Kiron for the knowledge update. I agree to fact that the ownership shifts to the operational teams as applicable from the main contractor's end. However, from the sub-contractor's view point, I am the project manager that delivered a solution/service for that said closed project,then who should take charge for the retention follow-up? I might be deputed to another project which means should the burden of retention follow-up be carried by me, for the contract is still not closed until the warranty or performance guarantee timeframe is not over yet? How can my procurement team close the project then with contract not being closed?
Antony -
You may need to provide a better understanding of your organization structure to help me answer the question. I am assuming that you are not in a purely project-oriented organization and there is a separate contracts or procurement department within your company? If so, they would be responsible for working with the finance department (who would be keeping the accounts payable reference for the retention portion) to follow up and get it paid in due course once the warranty period ends. I'm also assuming that there is an operational support team who handles concerns raised during the warranty period. If so, they might also assume responsibility for notifying the finance and procurement departments at the right time to pay the sub-contractor.
Hi Kiron, The vendor organization is predominantly a functional or weak matrix organization. There are no specific procurement team to service the project requirements in this case. The project manager is supported by a purchase executive and a supply chain executive for procurement processes.
This is a common scenario in this part of the world. All the monies due from the project are left to the PM of the vendor. The PM is answerable for this retention component follow-up. Although the project may have been considered delivered and accepted with the payment of 90-95% received .vendor’s The PM suffers the worst since that this contract is still not closed until the retention is resolved . The vendor’s project component will be a fractional component of the main contract .
This begs the question how that the close project process is accommodative in such a scenario
Antony, it is very common to have 1 Year Warranty Period and we normally do close the project while keeping the contract open until the warranty obligations are fulfilled. However, what’s not common to be is having a 10% retention until after 1 year from project closure.cIr the contract is big, then this is a significant amount to tie for one year. We usually have 10% holdback throughout the project and those are released at substantial completion of the scope of work for each contractor.
Hi Rami,
thank you for your valuable input . The practice of holding a retention percentage is very much prevalent here.
the worst case scenario a that post project closure the many an main contractors have folded their business. Leaving a many of their contractors high and dry. Saving Changes...
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