Never reject a supplier’s offer during the project costing period. If you reject a supplier’s offer, there will be no price comparison. There is no leverage if the supplier has to play truant on the pricing and service level.

Recently, I happened to discover a project manager doings. Here it goes.

During a project negotiation with supplier, Jimmy, the Project Manager, wanted to lower the cost of every item from this supplier (Peter). In return, Peter wanted to know how much the project budget has so that he can offer a better deal.

Thus Jimmy, without knowing, shares the entire project budget file to Peter. After getting the budget file, Peter, the supplier, is now fully aware how much of approved funds the project has to spend. Peter is now aiming to find ways to ensure the project has to spend extra funds in order to make more profits. While all these negotiations are going on, another supplier (Mary) happen to come along to offer their company services.

However, Jimmy happily went to reject Mary’s offer upfront, not knowing Jimmy can use Mary’s quotation to slash Peter’s pricing. If Jimmy finds that the pricing is not right, he can also proceed to get pricing and work with Mary. In this project, Jimmy supposes to have a big saving in the project, but after sharing the budget file to Peter, the project is now having a lesser saving.

Lessons Learned

  1. Never put all eggs in one basket. Never pin all hopes in 1 party. If this party betrays your trust. You have nothing to fall back onto. More price comparison makes decision much easier and more leverage.
  2. Do not EVER share your budget file to supplier so that they can help in your cost management. Project Manager should not ever think that the supplier will try to save money for the project.

When comes to business world, personal interest is survival. A project manager has to protect the project sponsor’s money spent in all the activities.

Pause for a minute and ponder.
If you share the project budget file to supplier/ vendor, what is the supplier’s motivation?
Their objective is to make more sales and earn high profits, are they going to find ways to save money for the project? They will find all ways & means to quote every item and mark up the low cost items in order to make more margins (profits).

What will be the Project Manager creditability of cost management?

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