When the Project Isn’t Going According to Contract

When large systems projects become troubled, lawyers often get involved. Payson is not a lawyer, but he has consulted on a number of troubled large projects. His observations may help you salvage a vendor relationship if it is salvageable and both you and the vendor are amenable to reworking the contract to continue the project.

First, the disclaimer: I’m not a lawyer. This is practical, not legal advice. Void where taxed or prohibited. If you experience a lawyer lasting more than four hours ...

Very large (greater than $50 million) systems development and integration projects involving vendors with fixed price-scope-schedule contracts are generally a bad idea. But there are compelling reasons why some entities, particularly in the public sector, still work this way. These efforts rarely play out as originally envisioned by the parties or as written in the contract. When these projects begin to go off the rails, lawyers often get involved.

(If you have any reason to believe your project is not being performed as described in your contract, get legal help immediately and ignore advice from consultants on websites.)

Lawyers are experts at contract law, but they may not be experts in project management or systems integration. While helping you understand your rights and obligations, your lawyer may look to you for ideas about how to proceed.

In my experience, there are a few bad apples, but most developers and integrators are trying to do the right thing. If your vendor was, until recently, treating you fairly, owning its share of responsibility for miscommunication and change, and discussing problems with you candidly, then you suddenly notice an increased formality (“Let’s put that in writing”), blaming (“We were ready; your people weren’t ready”), and defensiveness, there are several possible explanations:

1) You are a sucker and the vendor has been taking advantage of you. In my experience, this is often the default assumption of lawyers on your side when they get involved. This might be because of the adversarial nature of Western law; it might be how lawyers defend your interests. However, it isn’t always the correct assumption.

2) The vendor may have gone to the dark side. Most vendors are neither good, nor evil—they are neutral. They provide good customer service because it is profitable. They treat you well because unhappy customers are bad for business. The strength or absence of character you experience from a vendor is strongly influenced by the local team managing your project or engagement. If the vendor historically demonstrated competence and integrity but has had a recent local management change resulting in decreased communication or service, your local (“good”) team may have been replaced by a team brought in to “fix the problem.” It may be that the “good” team wasn’t managing the engagement profitably. The new team is a roll of the dice; they might be good guys, but if they are starting out behind (late or over budget on your project) and in a defensive posture, it may be hard to tell. They might be bad guys, looking to turn around the project in ways that aren’t in your best interest or seeking simply to cut their losses.

3) The vendor isn’t evil, but its organization has panicked, realizing too late that contractual performance was in jeopardy. The local team members may be getting upper management pressure (perhaps guided by their lawyers) to start setting up a defense. This may or may not mean that they have gone over to the dark side, but from where you are sitting, it can be hard to tell.

Your organization is in a tough position. You have invested time and resources to get where you are with the current vendor. If you choose to escalate the legal situation, it will likely bog down or kill the project. If you don’t protect your rights under the contract, you may forfeit them. Your next move can strongly influence the eventual outcome.

One response I have observed seemed to preclude a constructive resolution. There was a dawning awareness by both client and vendor that they had significantly underestimated project scope. Vendor progress against the unrealistic expectations was faltering. The client and his legal team dictated a remediation plan to get the project back on track to meet the contractual commitment. The plan proposed a series of impossible milestones to gauge vendor success in fixing the problem. Pretending that the originally contracted goals were achievable wasn’t helpful. Things quickly escalated to a legal fight. There were casualties on all sides, and the project didn’t get done any better, faster, or cheaper.

A more effective approach is to ask the vendor to develop and propose a remediation plan—a short-range plan to complete near-term deliverables (giving you a clearer path to graceful termination) that includes measurable criteria to build confidence in their progress—while they develop a revised plan for the balance of the work. The intention here is not to prematurely consent to change the contracted agreement (that may come), but to give the vendor some breathing room and a chance to be forthcoming during planning about its efforts to reassess the situation.

Jointly discussing options during replanning allows “hypothetical” changes to project scope, schedule, or budget to be discussed so that all parties can signal what is and isn’t feasible. This won’t magically solve the problem. But, if the plan is a collaborative effort, the vendor team is competent, and the vendor hasn’t gone over to the dark side, it may be easier to find a negotiated settlement of the difference between the original contract and the new proposal.

When problems materialize, there is a delicate balance between protecting your organization’s legal rights and provoking a messy legal battle. Lawyers are the best people to advise you in this high-stakes game, but you must consider the consequences of their advice to assure they are consistent with the end game that supports your goals.

If your vendor has gone over to the dark side and is preparing for a legal blame game, there may be no way to salvage the relationship. On the other hand, if the person across the table has seemed reasonable until recently, a collaborative approach to planning your way out of the contractual quagmire may give you the best opportunity to salvage the situation.

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