Failure Modes

In the different contract types, there are several main themes of failures that will pit customers, vendors, and suppliers against each other in arbitration (if you were savvy enough to write that into the header of your contracts), or a court of law, where you hope a jury (if you’re in the US) or judge in an international court sees things your way. Things will rarely, if ever, go your way completely.

Basic Contract Mode Failures

If you allow a vendor or supplier to bid or sell you on work with a Fixed Price (FP), and then bill you Cost Reimbursable (CR) or Time & Materials (T&M), you have fundamentally broken the core safeguards of the FP contract. If the vendor needs payment on a more frequent basis, you can either specify smaller payable deliverables or move to more of an Agile contract.

“Sandbagging” or “Doubling”

Explanation: Value delivered by an expert working 5 hours, and value delivered by average talent working 8-10 hours, can be virtually indistinguishable, especially at scale or on very large teams. This creates a moral hazard for a vendor, where they can have an expert work 5 hours for one customer, and then 5 hours for another, billing each for an 8-hour day. The vendor bills two different customers who do not know about each other (maybe even fierce competitors!!) for 40hrs/week (80hrs total), paying the expert for 50hrs of overtime every week, while extracting a healthy gap of 30 billable hours undetected by either customer.

Individually Benign, Cumulatively Massive Symptoms:

• Dedicated vendor staff who refuse to use your corporation’s email accounts. They must be logged into multiple systems at once, able to chat with different people at different companies at once, they can only do that from their vendor account.
• Dedicated vendor staff who are regularly unavailable during roughly one half of their common work day.
• Bugs and defects every week, vendors/teams eager to show you how much time they spent, instead of the planned backlog items they delivered. Conversely, you’ll see the team massively embellish the difficulty or prolong the time needed to solve rudimentary issues.
• If they’re doing this, they’ll know they’re doing the wrong thing, and will try to cover their tracks. This is expensive to detect, and to even suggest that this is happening can irreparably damage the relationship with the vendor. But, this is not uncommon practice.

“Team Packing”

Without strict customer time card and staffing reconciliation on each team (can be exceedingly costly and difficult), a vendor can bill 1 hour across 40 open projects within an enterprise for a person on the “bench” who does not actually work on any of the projects at all. Especially on T&M/CR contracts, it is possible to milk a large enterprise by billing for people who do not actually exist as more than a profile picture. Vendors know this, and know that you as a customer, are unlikely or are legally barred from asking for personally identifying information of their staff.

Rate Card Manipulation

This is a bigger risk in T&M/CR contracts, where the vendor provides a rate card with cheaper/junior and expensive/senior talent, and promises the bulk of the work will be done with cheap talent. Then they use the senior/expensive talent for most of the delivery, which still takes just as long as estimated, because they are using junior staff to bill senior slots so they can widen the difference between billable and payable rates, to garner more profit. This can happen across geographies as well; you get billed American talent rates, for (equally skilled) talent in lower cost regions.

The Incompetent Vendor

Explanation: In Texas, they would say you hired someone who is, “all hat, no cattle.” Somehow, some way, you now find yourself with a vendor team that simply cannot deliver any of what was promised. FP/GMP contracts limit losses by paying half now, half later, meaning you’re only going to forfeit that first half. Trying to recover it in court will likely not cost less than the remaining half. This holds proportionality.

Holding the Renewal Date Hostage

A vendor that is on a 6-month renewal period, may look for impediments and other reasons to hold up delivery until the 7th month, in order to encourage (if not force) renewal. The vendor starts a 6-month contract in January, in May/June they show you just how close they are to delivering, but it will be delivered July, due to unforeseen impediments outside their control. So you sign another 6-month contract, because it’s easier than going back through legal and signing a 1-month extension.

Too Much Work in Progress (WIP)

When a vendor is given 20 projects to complete, they will start as many of them as you allow, and bring each to the point of no return, where they sense you are unwilling to lose your investment(s) with them to complete the remainder with a competitor. There are many comedic skits about this phenomenon in general construction and home repair, but it is just as prevalent in every other market, especially software development.