TOPIC: Procurement question

Hello Everyone,

This is a question from the PM study coach and i need some clarification for the answer.

Here it is :

You are in the final stage of your three-year project; payments to suppliers are being
finalized. Some of the procurement records for the first year of the project have been misplaced.
You are able to settle the accounts of all the suppliers except for one. That account remains open
due to a dispute because three deliveries from that supplier were sent late. According to the
contract, there are penalties for late delivery.
The supplier maintains that he is not at fault because the delay was caused by a last minute
change in specifications by the client. He has agreed to accept a portion of the penalty, but not
the full amount. The amount to be deducted as the penalty is $323,000 USD.
Having reviewed the situation with the supplier, you realize that you have taken the discussion as
far as you can without legal advice. You call your lawyer, and after reviewing all the available
documents, the lawyer suggests going into litigation.
Which one of the following would be the best course of action?
A.) Deduct the penalty
B.) Do not deduct the penalty
C.) Engage in alternate dispute resolution
D.) Enage in litigation

Before i put the answer let me explain my way of thinking : ( I answered D which is wrong )

First of all i got the answer wrong because of this sentence : " You call your lawyer, and after reviewing all the available
documents, the lawyer suggests going into litigation"
From this i suppose that you explain all the story to your lawyer, even the lost documents ( we have to be honest right ? code of ethics )
I suppose that the lawyer knows what he do and if he suggest to go in litigation means that he doesn't see any other choice here.
He is the lawyer of the company and he doesn't want to go to court to spend money of the company but find a way to make things easy if possible. ( If possible ADR i mean )
He is the professional for this kind of case and i'm wrong here seems because you can oversee is suggestion and decide to go into in alternate dispute resolution

it seems to me that the answers says implicitly "you can't trust your lawyer judgement'
The lawyer didn't consider this possibility ( ADR ) or didn't take into account the fact that documents were lost ?
I never encounter such problem on my procurements in my experience and if i did i would have managed it the wrong way !.

Now the answer :

Correct answer is C
Explanation: Going to the courts is the last option because it is usually costly for both parties. Also,
the time spent on litigation means the project remains open. Going to the courts should be used
when everything else fails.
The question says that some of the procurement records were lost, and these may contain the
proof that supports the supplier's position. If you deduct the penalty, the supplier could go to court
and get the penalty reversed. On the other hand, you cannot categorically prove that the delay was
caused by last minute changes, which makes it difficult to accept that the penalty can be waived
completely.
In these circumstances, the best option would be to engage in alternate dispute resolution,
because it is usually swift and less costly.
Reference: PMBOK® Guide 5th Edition, page 388


I also have another question about Stakeholder/Procurement, let's suppose like here in this question your procurement needs a lawyer.
He will influence the choice of contract for your procurement and so the way you will plan your procurement and the possible outcome finally...
Should i consider Lawyer as part of the stakeholder ?

Thank You for your answers,

Noreddine.

Hi Magroud!

For the main question in your post, let's approach it from a PMI perspective -- in other words, let's connect the question to the PMBOK (and other study guides), and refrain from the "what I'd do in the real-world" perspective.

The most important concept to understand for this question is that the PMBOK emphasizes that litigation should be the LAST thing you try when attempting to resolve disputes, and alternative dispute resolution (ADR) techniques should be first attempted.

The question tries to throw you off with the following information: "Having reviewed the situation with the supplier, you realize that you have taken the discussion as far as you can without legal advice. You call your lawyer, and after reviewing all the available documents, the lawyer suggests going into litigation." So, instead of looking at the information which is presented (and is misleading), let's look at what's NOT there: Has the question indicated anywhere that mediation or arbitration (ADR techniques) has been attempted? Nope! From the question, it seems that you have only had one-on-one discussions with the supplier and nothing else.

So before jumping into litigation, ADR is the way to go. Also, this is a question of determining the BEST correct answer, not just the correct answer. Perhaps deducting the penalty is the correct thing to do, but PMI would suggest first using an Alternate Dispute Technique to make that decision.

As for your last question about whether or not to consider the lawyer as a stakeholder, the answer is YES! Note that the definition of a stakeholder is an individual, group, or organization who may affect, be affected by or perceive itself to be affected by a decision, activity, or outcome of a project. Technically, the mailman delivering a project's contract could affect the project, and your next-door neighbor could perceive that they could be affected by the project -- so almost anyone can be considered a stakeholder! My examples are a bit of a stretch, but correct according to the definition. So, yes, a lawyer used on a project could easily be considered a stakeholder in it.

Let me know if you need any other clarifications!

Thanks a lot for your clarifications.
It was exactly what i needed.