An overview of subcontract management activities, aimed at those new to the function or those who are working in different areas but want to understand more about the responsibilities and practices. For more information please go to www.optimatrix.co.uk

1. Optimatrix
Subcontractor Management
An introduction
Norman Housden
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2. Optimatrix
Index
• Introduction
• SCM – A team event.
• Subcontractor Manager - Responsibilities
• Subcontractor source and selection.
• Subcontractor engagement.
• Subcontractor Negotiation.
• SME interface with Subcontractor.
• Subcontractor Performance.
• Documentation – Version control.
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3. Optimatrix
Introduction
• Subcontractor management is a team effort that relies on many disciplines spanning all phases of
the contract life.
• The Subcontractor manager has responsibility to ensure that each discipline undertakes, and completes on
schedule, relevant assigned activity and that nothing falls through the cracks.
• Well-written and managed subcontracts, regardless of size, result in success on the prime contract, a satisfied
customer, and a positive relationship with the subcontractor.
• Effective management of Subcontractors relies on effective Relationship Management (understanding the
Subcontractor drivers and constraints).
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4. Legal Commercial
Sub 1
Optimatrix
Subcontractor
Finance lead HR
Legal Commercial
Sub 2
Gov System
Subcontractor Eng
Finance lead HR Legal Commercial
Sub 5
Exp & Subcontractor
Gov System Sec Finance lead HR
Eng Prime
Cost Comm
Systems
Mod Eng Gov System
el Eng
Finance
Sub Contractor Legal
Management
Gov
Bid
Legal Commercial Mngnt
Sub 3 HR
Risk
MA
Finance Subcontractor HR Legal Commercial
lead Sub 6
Gov System
Legal Commercial Finance Subcontractor HR
Eng
Sub 4 lead
Subcontractor Gov System
Finance HR Eng
lead
Gov System
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Subcontractor Managers Responsibilities
• Prime interface between Prime and Subcontractor.
• Develops and maintains Subcontractor source and selection plan.
• Develops and maintains Subcontractor engagement plan.
• Co-ordinates and manages the SME interface with Subcontractor.
• Monitors and manages Subcontractor performance.
• Ensures, as appropriate, flow-down of end-customer terms and conditions.
• Ensures flow-up of negotiated A’s, D’s, R’s & E’s. (Assumptions; Dependencies; Risk's and Exclusions)
• Identifies and mitigates all risks associated to the subcontractor.
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Subcontractor source and selection
•The Subcontractor manager co-ordinates the Subcontractor source and selection plan.
• Identifies and engages SME Stakeholders.
• With SME input identifies potential Subcontractors.
• Establishes initial contact and qualifies interest.
• Establishes relevant NDA.
• Develops (from SME input) and co-ordinates issue of formal RFI documentation, including:
• Overview.
• High level requirement documents, (outline SOW including statements on required annex’s A,D,R
&E, CDRL’s , Compliancy matrix etc.).
• Statement on applicable T’s& C’s (those which Prime will negotiate on).
• Statement on Billing and Payment policy.
• RFI response schedule.
• Communication Channels (for requirement clarification – SPOC prinicples).
• Co-ordinates and disseminates all clarification questions and responses.
• Develops (from SME input) acceptance / scoring criteria. (scoring matrix).
• Co-ordinates review panel of SME stakeholders, and manages down select process.
• Communicates selection panel decision.
• Manages RFP issue to selected Subcontractors
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Subcontractor source and selection (cont.)
•Develops specific Subcontractor RFP plan.
• Establish business worth to the subcontractor (core, % of turnover, new market entry etc).
• Undertakes due diligence – (D&B etc).
• Develops (from SME input) and co-ordinates issue of formal RFP documentation, including:
• Overview.
• Decomposed requirement documents, (initial SOW including required all annex’s (A,D,R &E, CDRL’s ,
Compliancy matrix etc.).
• Applicable T’s& C’s (those which Prime will negotiate on).
• Billing and Payment plan.
• Commercial response Schedule.
• Co-ordinates and disseminates all clarification questions and responses.
• Co-ordinates Subcontractor Audits / Presentations (as appropriate).
• Develops (From SME input) Acceptance / Scoring criteria. (scoring matrix).
• Co-ordinates review panel of SME stakeholders, and manages down select process.
• Communicates selection panel decision.
Whilst specific Subcontractors will be selected to proceed, the information gathered and assessments undertaken
of non-selected Subcontractors should be maintained in a Subcontractor database, as initial reference for future
sourcing activity or should a need arise to replace the selected Subcontractor.
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Subcontractor engagement
•Develops specific Subcontractor engagement plan.
• Co-ordinate relevant TA, MOU, MOA.
• Where applicable co-ordinate export licence activity (TAA; ITAR; EAR ; F680 etc)
• Establishes organisational hierarchy charts – Peer review and escalation
• Develops Subcontract management schedule – All gates and deliverables to be included (this schedule
must align to Prime requirements, however needs to realistically accommodate subcontractors needs.).
• Establish Actions Log – For the daily management of all actions that are sub – schedule level or are on the
schedule but require specific activity.
• Develops meeting calendar - To include PMR; Commercial; Technical and Finance.
• Within the Project database establish file structure for all Subcontractor management documents – including
SOW, T’s & C’s, CDRL’s and SRDL's. (see Document and version Control).
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9. Subcontractor Negotiation Optimatrix
It must be remembered that every interface, however innocuous, is a potential negotiation with a
subcontractor. As such all project team members must ensure that they do not unwittingly enable the
subcontractor the opportunity to manipulate any aspect of the terms or requirements through informal
agreement. Simple guidelines should be followed:
• Internally identify the key individuals in Prime organisation, who have relevant authority for specific
negotiation areas (e.g. T’s & C’s = Commercial lead). These leads are responsible for:
• Establishing the Primes baseline.
• Gap analysis, from Subcontractors position.
• Identify drivers / lever’s to change Subcontractors position.
• With SCM develop combined Negotiation Plan.
• Identify the Subcontractor personnel with authority to negotiate.
• Identify escalation route.
• Schedule specific meetings to negotiate, (as opposed to technical reviews or planning meetings).
• Appoint lead (single) negotiator.
• Develop meeting strategy (targets, acceptable, concessions available).
• Avoid (where possible),providing Subcontractor with knowledge of outside issues, as these could
be used by them. (i.e. customer / governance time schedules).
• On key requirements, if agreement cannot be reached “park” the point and proceed with other
elements, return later in the negotiation at a suitable point where the Subcontractor has identified a
concession the Prime is able to concede, barter.
• Close the meeting when all items have been discussed. Document all areas of agreement and
outstanding issues. Schedule follow up meeting providing sufficient time to assess the position.
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Subcontractor Negotiation (cont.)
• With the relevant SME’s review the open issues to identify other negotiation tactics or mitigation activity.
(Engaging escalation where appropriate)
• Review the varying scenarios of not reaching agreement on each and multiple open issues and determine
the minimum point where proceeding is viable.
• Brief Senior Management on position and action plan as necessary.
• Continue this process until such point as suitable agreement is reached or the viability to proceed
(including timescales), is compromised.
Whilst not covered directly it must be noted that an exit strategy must be developed with regard to any
Subcontractor relationship areas to be considered include:
• Termination for convenience.
• Termination for breach / anticipatory breach.
• End of project / contract end.
• Fundamental change in client project definition.
All of these aspects should be in the T’s & C’s however it is important to detail the rights and obligations of
both parties, including such things as the return of data and IP ownership of completed development.
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SME interface with Subcontractor
Whilst the SCM should act as the SPOC (Single Point Of Contact) with the subcontractor, this cannot be
allowed to restrict the required detailed interface between the Prime SME’s and their Subcontractor
counterparts, necessary to develop the technical and commercial aspects of the Subcontract. However the
same disciplines of document control, authority and control of released information must be adhered to.
Examples are shown below:
• An Prime single point of maintenance for each and all contract related documentation is established,
(including but not exclusive to T’s & C’s; SOW; TA and Billing and Payment plan).
• Meeting plans, objectives and minutes to be documented for each meeting by the Prime meeting lead.
• SCM to add all actions to Actions Log and is responsible to manage performance .
• SME to promptly advise SCM on progress of actions (both SME & Subcontractor), when completed or date
requirement changed.
• In order to ensure clarity of requirement no customer generated information shall be provided to the
Subcontractor, unless previously agreed with the SCM.
• The organisational structure shall show the authority of SME’s against each element of the contract.
• No verbal or written agreement shall be made which remove or alter any of the Primes or flowed down
Customer requirement outside the authority of the SME. Any, which the SME is authorised to agree, must be
documented (as detailed above), in the relevant document and be notified to the SCM.
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Subcontractor performance
The performance of Subcontractors is obviously critical to any project. During the selection process it is
important to ascertain, where possible, evidence of both technical performance on similar business, but also
the culture and methodology of the organisation. Understanding the approval and governance requirements
and processes will enable more accurate planning, but also may provide further insight into their decision
making process and key authorities.
It should also be recognised that whilst the performance of a subcontractor prior to selection, and during bid
preparation, may show key indication of the culture and the priority they place on a particular project, it must be
remembered that the delivery phase is a different scenario and is likely to be undertaken by diverse areas of
the business. Not withstanding this it is essential that each stage is subject to the same rigour of performance
measurement and has defined resolution and mitigation routes where performance does not meet the
requirements. Dependent on the nature and phase of the contract, it is possible to use incentives or penalties,
however these, amongst other commercial remedies, must have been previously established via the
commercial SME. Key areas to consider for all phases include:
• Reporting
•Schedules – For each phase of the project a detailed schedule, including project gates and deliverables
should be established, and proactively maintained by the SCM, (this is a working document not a record
of what has happened).
• Technical reports – establish the content, format and timing, (to be included in the schedule), required.
• Quality and security certification – establish applicability and timing, (to be included in the schedule),
required.
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Subcontractor performance (cont.)
• Testing and acceptance
• Acceptance criteria must be clearly pre-defined and articulated in the SOW.
• Testing and acceptance should be clear deliverables detailed in the schedule ( even if an iterative
delivery approach is adopted).
•Issue resolution and mitigation
• SCM, with input from SME, is responsible for Subcontractor management including performance
issues, these in the most part will be undertaken in accord with the Subcontractor however there may be
instances where a more compelling approach may be necessary. In all circumstances the following
should be considered:
• Impact on the project – cost, quality and schedule.
• Remedy – route to recover with zero project impact.
• Remedy – route to recover with mitigation action.
• Cause of issue and future avoidance.
• Resolution types
• Harmonious – the resolution and recovery is amicably agreed or the impact is not deemed to
warrant further pursuit by the Prime.
• Disputed – where the Prime does not believe that the Subcontractor either fully accepts
responsibility for or does not provide acceptable resolution to the issue, the Prime may need to
utilise any of the following:
• Escalation.
• Commercial incentive or penalty.
• Contractual remedies.
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Subcontractor performance (cont.)
•Reporting
• Project shchedules, CDRL’s, SRDL’s and Compliancy matrices – dependent on phase of the project.
• Action log – SCM should establish and maintain daily, an action log, to manage those activities and
deliverables that are not identified in the schedule.
• KPI’s - these will change dependent on the phase of the project, however all KPI’s need to be relevant;
unambiguous; current and “owned”.
• Informal – whilst it is recognised that this form of information transfer will happen, it must be noted that
these “reporting” mechanisms, although extremely valuable to managing the subcontract, must never be
interpreted as contractually binding.
• Meetings & reviews
• PMR’s (Project Management Reviews) – formal PMR’s should be established, the frequency of these
will be dependent on the phase of the project but should be at a minimum monthly. They are to review
the overall progress of the project and cover key areas including, cost; risk; schedule; management and
programmatic issues. It is recommended that these follow a set agenda and template reports and KPI’s
are used.
• Technical – dependent on phase of the project, but should adhere to SME interface guidelines.
• Visits & Site audits - Appropriate levels of Subcontractor site visits should be conducted dependent on
the nature and phase of the project, these should adhere to SME interface guidelines and where they are
specific audits should be formally undertaken.
• Contract negotiation meetings - dependent on phase of the project, but should adhere to
Subcontractor negotiation guidelines.
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15. Optimatrix
Documentation – Version control
With all contractual relationships, the clarity of the supporting documentation is critical, as is ensuring that the route
to the final document can be traced. It is also worth noting that usually it is only when things go badly wrong are the
documents required, as such the last position to be in when trying to rely on written agreement is for it to be
incomplete, ambiguous, contradictory or even there to be multiple copies of the “truth”. To avoid this simple
guidelines should be followed.
• All Subcontractors requirements documents should be authored and maintained by the Prime authorised
personnel appropriate to the document (e.g. T’s & C’s = commercial lead). These include but are not limited to
SOW; T’s & C’s, CDRL’s; SRDL's and Schedules.
• Subcontractors must respond using the Prime documents, (developing their own documentation should be
avoided.).
• All such documents should be version controlled and use track changes, comments should be applied either
on the document or separately on a change log (if the quantity of changes is large), detailing the reason for
the change.
• Following review meetings any changes must be made within two working days and issued to the defined
distribution list.
• Meeting plans and objectives should be documented and copied to SCM prior to each meeting (SCM to store in
database).
•Meeting minutes to be issued to the Subcontractor and SCM within two days of the meeting detailing all
actions,(including due date and owner), and understandings.
• Action Log to be maintained daily and issued to defined distribution list. Date and issue controlled.
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