Budgeting – Part 2

A lot of people forget that they will need to allocate resources to manage the project on their end.  This might also need to be budgeted unless you feel you have adequate capacity with your current staff to handle this part of the project.

To get a handle on this, consider how much time you have to manage the project and can you be as attentive to it as you need to be.  Often projects go out of control financially or schedule wise because no one is keeping an eye on them.  It is important to have weekly status meetings with the vendors, getting bills sent as detailed as possible (and checking them as soon as they come in) and making sure the vendor(s) know that all overages must be approved in advance.  In fact, make it clear to them that you need to know about overages as soon as they see any possibilities of this on their end.  Look it like a marriage – you need communication, trust and you both have to work together to be successful.  Make sure you have plenty of bandwidth to keep things on a good trajectory or allocate funds to bring in someone who can help you.

Some companies like labor and services to be flat bid or set up as a not to exceed.  This can be dangerous for both you and the vendor.  If things get out of hand on the project you might get nickel and dimed by change orders for the most inane things.  And on your side, what if the vendor completes the project under budget? You will not receive any upside savings.  On flat bid projects vendors might assign less skilled labor so they can keep their costs down.

These are all factors to consider as you are negotiating this area.  You might want to have an agreement on key personnel who must be assigned to the project and cannot be replaced without your approval (in fact, you should have this anyway).  Take a long hard look at your strengths and weaknesses here to decide whether a pay as you go or flat bid scenario is best for you.  If projects in the past have often gone over budget take a serious look at a flat rate but be very careful to detail everything in the initial requirements to the vendor or you could get hit with a large number of change orders.  This can often make the project more expensive than a time and materials approach since you can often negotiate better hourly rates in that scenario.

A little advice about if things fall apart.  Don’t try to assess blame and use contracts to bludgeon your vendors.  Instead try to work with them to find out what the problems are and then come up with a plan on how to move forward.  Contracts are important but don’t use them as a weapon.  Once a relationship with a vendor disintegrates no contract in the world is going to save the project.