During the procurement phase of project management, it rapidly becomes clear whether or not your team has an in-depth understanding of each item required to fulfill the needs of the project. Without clear specifications, it’s impossible to put together a contract SOW that allows sellers to submit accurate bids. Often, this problem becomes evident when vendors ask additional questions or simply refuse to quote. At other times, the inadequacy of the contract SOW specs is only discovered when the wrong part arrives.
Sometimes, the mismatch between what you thought you were getting and what is actually ordered can be due to an embarrassingly simple mistake. For example, you might specify 120 two-part widgets for a project. If the vendor stocks each half of the widget separately, you might end up with 60 complete widgets total because each component is being counted separately from the seller’s inventory. Early collaboration between SMEs (subject matter experts) and knowledgeable vendors is one way to avoid this type of pitfall.
Additional Contract Terms
There are other, collateral contract SOW requirements that must also be taken into account if you want to control costs and avoid disputes with sellers. Here are some items that might need to be discussed as part of a contract SOW depending on the type of service or product being procured:
Who is responsible for insuring parts that are shipped if the freight terms are PPA (prepay and add)? If the vendor is paying the shipping company and adding the cost to your invoice, who technically owns the parts while they are in transit prior to delivery? If the parts are still the property of the vendor, then they are assuming the risk of replacing the items if they are lost by the logistics company. That means the vendor should pay the insurance and not pass on that cost to you. However, if you “take delivery” of the parts as soon as they leave the seller’s dock, then your company ought to cover the cost of shipping insurance.
You might think this is a bit convoluted and not something you should have to deal with in project management. But it’s the kind of detail that can shut an entire project down if a critical part is lost in transit and the vendor refuses to ship a replacement because of an argument over who should have insured the item. Be aware that terms such as FOB (free on board) technically apply to the ocean freight industry and do not have an agreed upon legal meaning for ground transportation. Your contract SOW should spell things out rather than using acronyms that may mean different things to different people.
Ongoing support for equipment or (upgrades for software) are items that can impact the ongoing cost of operating a system that is put in place during a project. These issues can’t simply be dealt with in the future if you are serious about responsible project management. The costs need to be nailed down and set in stone before a contract is signed to move forward with a purchase. Otherwise, there is no way to keep the vendor from having an “unexpected and regrettable” price increase once you’re locked in to using their product.
Sometimes, it’s the small stuff that matters. If you are procuring an item that should come with a user manual, other documentation or schematics, these need to be mentioned in the scope of the contract SOW. The order will not be considered complete until all these miscellaneous items are delivered. The final contract should contain acceptance criteria language covering your company’s recourse if a product or service is inadequate, incomplete, flawed, or delivered late.