Contract Execution and Management

This module covers the issues that need to be addressed during the transition period. It also provides techniques for managing vendor progress by measuring the service-providers performance against service-level agreements, highlighting areas of deficiencies. It provides advice on how to negotiate and agree on remedial action for any deficiencies or for additional services required that is not covered in the original contract.

Lessons: Project Kick-off (CONCEPT) This lesson teaches the essential tasks in initiating the outsourcing project. Manage the Transition (TASK) This lesson teaches how to form a transition team and develop a transition plan to ensure a smooth transition. Work with the Vendor (TASK) This lesson gives an overview of the vendor management process. Manage the Progress Reporting Process
(TASK) This lesson teaches how to create and maintain a progress reporting process.

Analyse and Assess Vendor Performance
(TASK) This lesson teaches how to analyse and assess vendor progress, evaluate and validate deliverables and monitor the quality of service.

Quality Management (CONCEPT) This lesson teaches the responsibilities for quality control and auditing. Manage Service/Product Delivery (TASK) This lesson teaches how to manage service and product delivery. Deal with Non-conformance (TASK) This lesson teaches how to handle non-conformance. Dispute Resolution (CONCEPT) This lesson teaches internal escalation procedures, mediation, arbitration and litigation. Manage Change (TASK) This lesson teaches how to evaluate and manage changes. Negotiate with the Vendor (TASK) This lesson teaches how to negotiate with the vendor. Manage Risk (TASK) This lesson teaches risk management of outsourced projects.

Assess and Manage the Relationship (TASK) This lesson teaches how to manage and assess the relationship.

Project Kick-off:

About this lesson When initiating an outsourcing project, there are some essential tasks you need to perform. Firstly, you need to identify the key players in the project. Then you need to establish the project management structures and revise the project plan. More details will be covered in this lesson. Lesson objectives In this lesson, you will learn to: y y y Select the key players in the outsourcing project Set up the management structures Revise the project plan

Key players ± client contract manager
The contract manager is the one who acts as the sole point of contact between the vendor and the customer organisation . A contract manager is appointed from the customer organisation while another contract manager is appointed from the vendor organisation. Can you identify the roles or responsibilities expected of a client contract manager?

Key players ± vendor project manager The vendor project manager is another key player in an outsourcing project. A vendor project manager is responsible for: y y y y y Managing the contract from the vendor side Implementation of the system that the vendor is contracted to provide Delivery of services the vendor is contracted to provide The management of the vendor team Implementing changes to services or products Project management structure .

The client project plan must also include client staff involvement. It must show the following items. It should be jointly prepared by both the client contract manager and the vendor project manager. It should now include the plan submitted by the vendor in his proposal. and approved by the outsourcing management review board.Revise the project plan The initial task of the client management team is to revise the client project plan which describes all the activities that will take place in the outsourcing project. with amendments agreed during contract negotiation. This vendor plan must also be reviewed for feasibility and alignment with client objectives. Manage the Transition .

The transition plan should include the following details: y y y y Transition activities Person(s) responsible for each transition activity Activity start date Activity end date . Assets may include hardware. software and human resources. you are required to monitor the activities during the transition period with respect to the plan. it is the phase of transferring the control of the IT activity together with the assets. It is a phase where the transfer of responsibilities and ownership takes place between the client and the vendor. you need to form a team to produce a transition plan to ensure that the service or product development is transferred to the vendor . you will go through a transition phase. Once the plan is decided upon. to the vendor. you will learn to: y y y Define the transition plan Plan for transition Prepare for transition The Transition Plan Introduction When you outsource an IT activity or function to a vendor.Lesson Introduction About this lesson Once an outsourcing contract is signed. In other words. For a smooth transition of the project. if any. What are the activities you should include in the transition plan? What are the goals for this plan? Lesson objectives In this lesson. the best practice is to prepare a detailed transition plan with the vendor.

you need to answer some key questions like the ones listed below: y y y y y What will be transferred to the vendor? Who will be transferred to the vendor? How will the transfer proceed. when you develop the transition plan. To do so. your task as the project manager is to ensure a smooth transition.Develop the transition plan Once the contract is signed. in phases or all at once? When do you intend to transfer? When will the vendor assume responsibility for the IT operation? . Basically. it is advisable to use a transition plan.

To ensure that the developed transition plan is complete. you might have to include the HR personnel from both organisations. Generally. The primary objective of the team is to ensure that the transition takes place with minimum impact on your overall organisation.contract manager 3. there will also be new procedures. This team should consist of members from both your organisation and the vendor organisation. It is important to have a smooth and seamless transition to form the proper levels of expectations and give good first impression. it is advisable to form a transition team. to maintain the quality of the deliverables. Transition Issues When you develop the transition plan. you should identify the new organisation that will deal with the vendor in terms of: 1. which may include: 1. You need to identify the changes. Disaster Coverage During the transition planning stage. you should ensure that there is clear understanding between your organisation and the vendor as to what would be done in the event of a disaster.change initiation & implementation 3.operational procedures 2. ensure that the following are accomplished before the actual transition: ‡ proper legal authority for the vendor to perform maintenance ‡ all appropriate maintenance agreements are either cancelled or transferred to the vendor.initiating contract changes Other Changes There may be other changes besides changes to procedures and the organisation during the transition phase as well. For example.Form a transition team Before planning for transition. You should study the difference and adopt the better system. Maintenance For maintenance responsibilities in transition to the board 2. regardless of its . these changes can be categorised as follows: New Organisation Necessary to Deal with Vendor When you identify the changes during transition. If the transfer of personnel is involved. you will also need to include certain important tasks in the transition schedule. Generally.technical liaison New Procedures or Changes in Procedures When a transition occurs. Some of the old procedures will also be changed. the team needs to address the following: Changes in Current Environment Along with the transition phase are several changes to your organisation. these changes can be categorised as follows: Changes in Current Environment Along with the transition phase are several changes to your organisation. the vendor may have his own methods of testing which are different from what you follow in your organisation. Here are some of the most common issues to consider when planning for the transition.

it would be appropriate to escort the new outsourcing Accounts Manager around the various areas of the organisation and introduce him/her to the key personnel in your organisation. By outsourcing. the process does not end here as there is still much to be done. As the project manager. it is essential that each location and separate organisation be specifically addressed in the transition plan. 3. Generally. you need to ensure that the management and the users must be informed about the following: y y y y The support and training that will be provided by the vendor Specific roles and responsibilities for handling the vendor Lines of communication for information on existing services or for communicating change requests Contractual issues. you must ensure the vendor has the authority to use the leased equipment or software. you are strengthening your competitive advantage It is important that you also ensure that the management be informed of the transition of the IT activity. such as maintenance and leasing contracts Prepare the IT Department . However. Plan for the Transition The place to start preparing for transition is actually to "promote and advertise" internally and externally on the strategic advantage that you and your vendor bring to each other out of the newly formed partnership. the end user and the IT department must also be aware of the transition. Termination Letter If there are existing personnel in transition to the vendor. By doing so. the employees are actually terminated from your organisation and hired by the vendor organisation on the same day. Multiple Locations/Divisions If your organisation has multiple locations/divisions. Change Procedures As a result of outsourcing. To ensure a smooth transition. and why and how it benefits your organisation. there is usually a letter of termination that is required from your organisation. Leasing Assuming that you currently have leasing agreements. you will want to ensure that each location is adequately informed and clearly understands how it is affected by the transition. Your internal personnel will have a good understanding of what is to be done. As agreed upon in the negotiating plans. Transition Day The actual transition day is recorded on the transition plan as a milestone. you will accomplish several goals: 1.magnitude. you should ensure that all potential changes in procedures are identified and corrected prior to the transition. During the final days leading up to the transition and in t he first few days following it. Your competitors are now aware of a major positive change in the organisation's strategic position. beginning from the first hour of the transition. In addition. It provides the information to your customers that your organisation is strategically focused on improving its services and relationships. Using the theme of "transitioning with minimal impact". 2. there will be existing procedures that will need to be revised. Any processes or procedures that change as a result of the transition should be well communicated prior to the actual transition day. the responsible party (either customer organisation or vendor organisation) should complete transactions to purchase the appropriate leases during the transition.

If you require external expertise to come in-house. you should inform the IT personnel the new procedures for tracking project progress. As the project manager. developing a transition plan will certainly help to ensure a smooth transition of the project from your organisation to the vendor. depending on whether you are deploying your staff to the vendor's site or not. there is bound to be equipment transfer. As the project manager. It could be the transferring of your existing IT department's equipment to the vendor's site. managing and monitoring the IT contract 4. You wouldn't want that to happen now. such as the following: New Roles and Responsibilities Inform the IT department of their new roles and responsibilities when the transition happens. developing and/or customising domain-specific applications Equipment Transfer During the transition. it would be wise to decide and discuss beforehand who are the staff you need to deploy to the new work environment. determining the IT strategy 3. Changes to Personnel When the transition happens. you can inform the existing IT department on the following roles and responsibilities: 1. the running of the remaining non-outsourced IT assets 2. your IT personnel will also be affected. You need to decide who will remain and who will be transferred to the vendor's site. This plan should include: y y y y transition activities person(s) responsible for each activity start and end dates of each activity. would you? In preparing the IT department for the transition. . and milestones. To summarise.A situation like the one shown on the right could happen if you are not closely monitoring the movement of the hardware in your IT department. This decision has to be rationally and openly discussed with each individual IT personnel who is affected. then the transfer of equipment could be from the external vendor to your IT department.

Can you identify the possible objectives for working with the vendor? The process of vendor management . Lesson objectives In this lesson. As a project manager. you should ensure that your objectives are clear to the outsourcing team. you need to know the objectives of working with the vendor and then be familiar with the vendor management process.Work with the Vendor About this lesson The question every project manager has is ³How do I work well with the vendor?´ There is no straightforward answer. This lesson provides an overview of the process of working with the vendor. you will learn to: y y Identify the objectives of working with the vendor Understand the process of vendor management Objectives of working with the vendor When working with the vendor.

you will have to: 1. Below is the vendor management process. you still have to manage the contract.Manage the Progress Reporting Process Introduction Managing the progress reporting process is one of the key tasks in monitoring vendor performance. 2. 4. 5. Monitor progress Assess Contractors Performance Manage Service and Product Delivery Deal with nonconformance Manage Change Manage Risks . When you manage the contract. 6. Manage the contract:Once the transition is made. You do not just "wash your hands" once the vendor takes over the project. your responsibility as the project manager is to manage the contract. To ensure effective execution and delivery of the project. 3.

Manage the Progress Reporting Process Monitor the progress You should have set the performance expectations of the vendor in the Service Level Agreement (SLA). Here are some questions to consider when you manage the vendor's performance: . you are able to monitor and manage the vendor at frequent intervals. Some of the activities that should be monitored are: y y y Adherence to major milestones Dependencies between activities Adherence to vendor's project plan Monitoring the project activities will help you to identify and manage any changes that may occur during the process of delivering the IT activity. With the help of the SLA.

The outsourcing project management team should have regular progress meetings. Outsourcing project progress meetings. The format and content of each of these are discussed next.In order to monitor the vendors performance. you have to ensure that the Vendor reports and discusses progress regularly.e. the outsourcing management review board) by the client contract manager. What are the items to be reviewed or discussed in the outsourcing project progress meeting? Outsourcing project progress reporting:Progress reports may report achievements in two areas of an outsourcing project: . This will be done by ensuring: y y Formal progress meetings with the vendor at agreed time intervals Written progress reports from the vendor at agreed time intervals The contract manager must also provide written progress reports to higher management (i. For example: y y Weekly for large outsourcing projects Fortnightly for smaller outsourcing projects The minutes should contain actions and should be produced by the vendor project manager.

you must assess how well the vendor is doing. but also includes: y y y y Work completed and effort expended by client staff The total cost of the outsourcing project to date and the cost to complete Any confidential feedback or assessment of the vendor performance by client staff The client contract managers own assessment of the current position of the project Analyse and Assess Vendor Performance: Assess vendor progress Having received the progress reports from the vendor. Slippage on overall project schedules Determining the implications of slippage on overall project schedules is equally important when assessing vendor progress. When monitoring progress of outsourcing project against the vendor plans. you need to identify: y y y Tasks started/tasks completed Milestones achieved Deliverables released Gantt/Tracking Gantt charts are a good tool that will help you in monitoring vendor progress.The client contract manager should create a progress report that includes the vendor progress report. These charts compare actual progress against planned progress. What are the questions can you ask to determine the possible implication? . Tracking Gantts will show the impact of slippage on milestones and also the impact on project end-date.

Analyse and Assess Vendor Progress against Plan .

Checklist for reviewing progress/performance Another way of assessing vendor performance is to apply a progress performance checklist .

Evaluate and Validate Deliverables Evaluating and validating deliverables is one of the key tasks in assessing vendor performance. In particular. However. Introduction Another task for the contract manager is to evaluate and assess the vendor products. Evaluate and validate deliverables. Below is the vendor management process. training y Post-training feedback analysis When performing reviews in general. Most reviews and tests should be incorporated in the validation and verification activities within the vendor development life cycle.g. some independent testing may be engaged after installation. For document deliverables reviews are: y y y y Requirement specification Project plans Design specifications Acceptance test plans For delivered software or systems: y y User manuals Acceptance tests For other products. e. The client¶s role What type of planned testing or review activities should the client be involved in? What sort of testing activities are performed in a systems development/implementation project? . it is better to perform reviews earlier on than test later. the client must test or verify that a vendor deliverable is acceptable.

Conduct of joint vendor/client technical reviews Joint vendor/client technical reviews should be held where products of the vendor are assessed to: y y y y y Affirm the quality of the product Identify defects Suggest improvements Check conformance to standards Gain a common understanding of: o The problem under consideration o The solution being proposed Build up client's confidence that he will receive a high-quality product y .

Responsibilities for and inputs to acceptance testing Acceptance test plans should be created by. and acceptance testing should be performed by the client who will need support from the developers.So. who should chair the joint technical reviews? Acceptance testing The objective of system acceptance planning is to ensure that there is a formal validation by the client that the work is being carried out as specified in the requirements specification or the schedule of work. The criteria for successful acceptance must be set by the clients. Can identify what the main inputs to acceptance testing are? . Acceptance testing will focus on 3 Ds.

When you review the documents. . Product warranty & support period The client will expect the vendor to support the product for a fixed period of time after acceptance.Document review Some parts of the vendor deliverable set will be documents for use by the client: y y System development documentation required for future systems support and enhancement by the client User documentation for use by the user Documents should be subjected to review or testing as well as software or services. you should look for 3CAR: Training evaluation The effectiveness of training should also be evaluated as part of acceptance testing.

This agreement will specify performance in terms of response times. Data should be collected which describes the performance of the service and measures those key parameters identified in the SLA. The client may retain some of the contract payment until this warranty/support period is completed. throughput. then a service level agreement will describe the requirements on these services. This data should be summarised and the vendor should provide regular reports describing: y y Average performance Best/worst performance So. Monitor the Quality of Service Monitor against service level If the vendor is providing some continuous services to the client.y y y This may involve the vendor preparing a support plan that will show the resources devoted to this task. such as provision of some application or support and operation of a WAN. availability. reliability. who should be the best person to collect this data? . planned product upgrades dates and other activities. This must also be reviewed by the client contract manager for acceptability. etc« The actual performance of the vendor must now be analysed and it must be determined if the vendor has achieved these performance levels.

To measure performance against this SLA. This will form the basis of client analysis. you will learn how to compute some summary statistics. . So. the vendor service level reports should include: y Summary statistics o Mean o Standard deviation o Range y y Graphical displays of data Supporting information (where appropriate) We will need to look at the data over time. as there may be time -based factors affecting performance. you need to measure the average response times of doing operation of the system. In the next few pages. For example.Service level reports The vendor will collect data describing the performance of the service against a certain criteria in the SLA. the SLA may state ³average response time for user enquiry = 2 seconds´.

you have collected the following statistics regarding average response times for a service provided by a vendor managed service: Average = 4. For example.Example of analysing service level performance (l) Initial analysis of collected statistics may involve comparison with agreed service levels.5 seconds Standard deviation = 2 seconds Total number of transactions sampled = 25 No. of response time exceeding 8 seconds = 0 The service level agreement (SLA) states: ³The average response time will be 4 seconds´ ³No less than 99% of all responses will be < 8 seconds´ Are the recorded statistics compatible with the SLA? Example of analysing service level performance (ll) .

for the previous statistics Average = 4.5 seconds Standard deviation = 2 seconds Total number of transactions sampled = 25 No. . You must determine the cause of this behaviour and see if it will create persistent degradation to the service or create significant business problems. simple analysis of collected statistics may not reveal trends in the data that deserve further analysis. Root cause analysis may be appropriate Root cause analysis (l) Suppose we have some unusual behaviour associated with the service. which calls for further analysis: y y y Is this likely to continue eventually creating a significant number of excessive response times? What mechanism or effect could be causing it? Is it within the vendors or the clients control to remove this cause? Clearly.However. further analysis is called for. For example. In this chart. of response time exceeding 8 seconds = 0 Example of analysing service level performance (lll) But. the steady increase in response times over the period of time is worrying. the exact summary statistics can also be displayed by the following sets of observed response time.

such as network upgrading or testing. such as April. For example. Can you identify any of these actions? Assessment of support services performance The vendor may not only be providing an IT service. Root cause analysis (ll) The root cause may be: y y The vendor not being able to properly produce a required level of service. If it is correlated with specific days in the week.You must carry out root cause analysis to determine the factors creating this behaviour. such as transaction back-ups or financial auditing. Look at the anomalous behaviour of the service and determine: y y y y If it is correlated with specific technical activity being conducted at the same time or place. If it is associated with some specific office or some department. which was not in the original agreed service levels. or Some unexpected client business process. or some point in the year. When the root cause has been identified. etc« He may also provide helpdesk facilities. such as word processing. accounting pages. such as Fridays. If it is correlated with specific business activity. How do you measure the performance of these services? . regular maintenance and updates. but also support services. e-mail services. It is better if this is conducted in conjunction with the vendor. a vendor may be providing a range of office automation services. appropriate actions must be taken by the vendor and client. is being performed and it is making excessive demands on the service.

collate. which may need root cause analysis to find out the causes. it may be possible to use questionnaire-based appraisal to measure their ³soft´ performance. Quality Management . As with analysing quantitative services. summarise and present feedback Analyse questionnaire returns Graphical analysis may be the best approach to analysing questionnaire returns. usually via internal e-mail Have the vendor collect. Client and vendor should: y y y y Jointly prepare a questionnaire Agree on the minimal acceptable score level (unless it is already agreed in the SLA) Have the vendor circulate questionnaire at regular intervals. look for patterns and areas of low performance. Below is a graphical analysis of the feedback from several client reported on the performance of vendor IT staff.Questionnaire-based method appraisal When the services are associated with the vendor staff.

What are the internal process documents which you need to audit? Manage Service/Product Delivery Installation plan If the vendor is providing a product or products to you then the process of installation must be carefully managed. The people who could be responsible for installation or service deployment are: . an audit is an investigation into whether the agreed process has been followed. Audits. therefore. look not at delivered products. but at the internal process and hence the documents that describe these processes.Audits It may be necessary to perform audits on y y The vendor quality management system The vendor security control system In ISO 9000 terms.

administrator privileges to install software) 4. What resources are required to perform or support installation? o o o o o o o Hardware Software infrastructure (e.g. reviewing and agreeing with the installation plan? 2.g. 1. Who is responsible for producing. Checklist Below is a checklist that will help you in managing service and product delivery in an outsourcing project. What tests need to be performed as part of installation? o o Acceptance tests Pre-acceptance tests . utilities) Specific software tools to aid installation Other software systems that the product or service must interface or interact with Data Human resources skills (e. such as rolling installation across multiple sites.g.y y y The client The vendor Someone else For significant installation exercises. system operator) Others (e. an installation plan is needed. Who is responsible for providing resources to implement and support installation? 3. O/S.

000. What support activities may need to be performed as part of installation/delivery? o o Data migration Training  Client IT staff  Users 6.´ What can you do if there is a non-conformance in the product or service? . For example. As a client contract manager. It usually states the specific requirement the product fails to meet. What is the criteria for agreeing installation is complete? Deal with Non-conformance Installation and its plan Suppose a client contract manager believes he has found some defects or omissions in the service or products provided by the vendor. This is a critical defect and must be corrected in the product.000 per year. but the product miscomputes this as $3. a senior engineer is paid $30. What is the formalised handover procedure? 7. initially you must check to see if it really is non -conformance. For example: ³The product does not correctly compute the wages of staff.5. You need to check: Strategies of deal with non-conformance A notice of non-conformance is a formal notification by the customer that the product is unsatisfactory in one or more aspects.

Internal escalation procedures Internal escalation procedures should be specified within the contract. They should have: y y y Clear responsibilities and authority of the personnel involve in dispute resolution Procedures for identifying and clarifying disputes Criteria for escalating disputes to the next level in the dispute escalation chain If a dispute cannot be resolved between the client project manager or the vendor project manager then it should be raised to higher management.Dispute Resolution Introduction Escalation and mediation procedures serve as a guide when handling disputes. Below is an overview of the whole procedures. . The below diagram explains how internal escalation procedures work.

Changes in the requirement are rarely arbitrary. To understand changes. Only then. the contract management team must manage the requirement change process y y y y y As a client contract manager. it must change too. how would you handle the changes in a contract? Most often. before this. will you be able to spot readily any change to the contract requirements. therefore. But.Manage Change Change Another aspect of the contract that you need to manage is changes. the costing issue is the main factor that you need to consider in managing change. Mechanism for Managing Change in Contract So. Therefore. they are usually the consequence of natural change in the organisation or its business requirements changes are inevitable and often desirable. requirements change over time. you should be very familiar with the terms and conditions in the contract and the SLA. you must identify the scope of the change and agree the change with the appropriate authorities. Can you identify the correct sequence in managing change? . So. if the product or service is to continue to meet the requirement. consider the following: A product or a service is designed to meet a requirement. However. Consider the following steps on managing changes in the contract.

when you evaluate a certain change in the contract. No one will know what the system or service is providing and there will be continual contractual wrangling about what was and was not contained in the original contract. understood and used by all All requested changes to any baseline deliverable (requirements. plans. you also have to consider the following : Basically. It is better to avoid t hese problems! Negotiate with the Vendor Reasons for negotiation If there is a contract between the client and vendor. why is it necessary to have negotiations? There may be a variety of reasons for negotiations.) are handled by these procedures If change control processes are not applied using a formal process. etc. Can you identify some of them? . then the result will be chaos. So.Costing Changes in Providing Services Changes in the contract would usually lead to a change in the cost. you need to find a suitable mechanism to manage changes during the term of the contract. specifications. What are your roles as a client contract manager when managing the change process? y y You must ensure that Change Control Procedures are well defined.

Manage Risk Risk management of outsourced project You can carry out risk management processes to either overcome or avoid the risks identified in the previous page. Client management must ensure that vendors have a risk management process. . What should the features of the vendor processes be? Risk management responsibilities Both the client contract manager and the vendor project manager should be involved in managing the risks that could occur in the outsourcing project. The responsibilities for each manager are listed in the below table.

. To manage the relationship you must first assess it.Assess and Manage the Relationship Assess the relationship Not only must the client conduct day to day management. What questions can you ask to assess the relationship? Manage the relationship How can the relationship be managed between client and vendor? The following steps will help you build trust with your vendor. but the client must also manage the long-term relationship between client and vendor.

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