A major dispute arises with a vendor on a project. The project manager claims that the vendor has failed to perform its contractual obligations, while the vendor complains that the project is behind on payments.

What is the best course of action for the project manager in this situation?

A. Refer this issue to a third party for mediation or arbitration
B. File a contract claim and then work directly with the vendor to resolve the issue
C. Terminate the contract, document lessons learned, and find another vendor
D. Conduct a procurement audit

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HINT: What is the tool used during Control Procurements to document, process, monitor, and manage disputes between a buyer and seller?

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Answer and Explanation:
The correct answer is B.

When disputes arise on a project, claims administration can be an effective tool to help buyers and sellers reach an agreement and prevent damage caused by litigation and early contract termination. Filing a contract claim and working with the vendor to reach an agreement is a more direct problem-solving approach and therefore the 'best' answer choice. Claims administration also refers to using alternative dispute resolution. However, since mediation and arbitration can be costly, risky, and time-consuming, of the choices provided, negotiation is the preferred method of settling disputes and is, therefore, the best course of action in this situation.

Details for each option:

A. Incorrect. Claims administration is used during the Control Procurements process to handle claims, disputes, or appeals between a buyer and a seller. Alternative dispute resolution, which involves mediation and arbitration, can be costly and time-consuming to a project and should only be used if the parties cannot first resolve a claim on their own.

B. Correct. When disputes arise on a project, the disputing party should first seek to negotiate or work directly with the other party to settle the dispute and document the issue by having one or both parties file a claim. This claim should be processed, monitored, and managed throughout the contract life cycle.

C. Incorrect. Early termination of the contract would be an overreaction at this point since resolving the dispute using claims administration has not been attempted. Since the early termination of the contract could create delays to the project schedule or added cost, this option would not be the 'best' answer.

D. Incorrect. From the question, you can determine that the project is in the process of Control Procurements, as the project is still administering the contract and monitoring the vendor's contract performance. Procurement audits are used as part of this process to review contracts and contracting processes rather than resolve disputes.

Reference: A Guide to the Project Management Body of Knowledge (PMBOK^® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Page(s) 498