Customer, supplier and commercial relationships

PRINCE2 assumes a customer and supplier environment. Someone specifies what is needed and pays for it; someone else provides the skills and resources to deliver it. Sometimes customer and supplier are departments of the same organization. Sometimes they are separate companies bound by a contract. Often there are several suppliers, each with its own team, culture and commercial interests. This lesson looks at those relationships through a people lens: how the three interests of business, user and supplier are represented, how commercial arrangements shape behavior, and how a project manager builds working relationships across organizational boundaries.

Three interests on every project

PRINCE2 recognizes three primary interests that must be represented on every project. The business interest asks whether the project is a worthwhile investment. The user interest asks whether the products will meet the needs of the people who will use them and whether the benefits will be realized. The supplier interest asks whether the products can be built, to what quality, with what resources. On the project board these interests are held by the executive, the senior user or users, and the senior supplier or suppliers. Balancing them is one of the board's most important duties.

In people terms, each interest brings a different perspective and often a different personality. Executives tend to focus on money and strategy. Senior users tend to focus on practical impact and disruption. Senior suppliers tend to focus on feasibility and resources. A healthy board has productive tension between these views. A board where one interest dominates, for example a supplier-led board that never hears from users, is likely to make decisions that look sensible on paper and fail in practice.

Internal and external suppliers

When the supplier is internal, such as an in-house IT department, relationships are governed by organizational policy, internal budgets and line management. When the supplier is external, relationships are governed by a contract. Many projects have both. The difference matters because it changes what motivates people and what levers the project manager has.

Two sets of management, one project

When a supplier is external, each organization has its own management system. The supplier will have its own project manager or delivery manager, its own reporting, its own risk register and its own commercial targets. PRINCE2 7 recognizes that the supplier's team manager may in fact run a substantial project inside the supplier organization, using whatever method that organization prefers. The customer's project manager does not manage the supplier's staff directly; they manage the relationship through work packages, the contract and the senior supplier on the board.

This arrangement creates a common people challenge. The customer project manager may feel responsible for outcomes they cannot directly control, while the supplier's delivery manager may feel caught between the customer's demands and their own company's commercial expectations. Agreeing explicit ways of working early, including how information will be shared, how risks will be jointly managed and how disagreements will be raised, reduces friction later.

How contracts shape behavior

The type of contract changes how people behave. Under a fixed-price contract, the supplier carries the cost risk and has a strong incentive to control scope tightly and to resist changes that are not paid for. Under a time-and-materials contract, the customer carries the cost risk and the supplier has less incentive to be efficient, though reputation and relationship still matter. Target-cost and alliance contracts share risk and reward in an attempt to align interests. None is right in every case, but the project manager must understand which one is in place because it shapes every conversation about change, quality and risk.

Procurement as part of the project context

Procurement rules shape who the suppliers are and how they were chosen, and therefore what relationship the project starts with. A supplier selected through a competitive tender may have bid aggressively and arrive under financial pressure. A supplier selected through a long-term framework may already know the customer's culture well. In the public sector, procurement rules also limit how freely the customer can change scope or extend a contract.

In the US federal government, most acquisitions follow the Federal Acquisition Regulation, with agency supplements, and contracting officers alone have authority to change contracts. States and cities have their own rules. For a PRINCE2 project manager, the practical point is that the contract, and any limits on changing it, are part of the context to be understood at initiation. You do not need to know the procurement rules for the exam.

PRINCE2 does not prescribe procurement procedures, but it does expect that the commercial context is reflected in how the project is organized. The senior supplier role may be held by several people from different suppliers. Work packages may need to mirror contract deliverables. Change control may need to align with contract change procedures. Quality reviews may need contractual acceptance criteria. All of this is tailoring driven by context.

Building relationships across boundaries

Contracts define obligations, but people deliver projects. A project manager who relies only on the contract will find that suppliers do exactly what is required and no more. One who builds genuine relationships will find suppliers raising risks early, suggesting improvements and helping solve problems that fall between contract clauses. Building those relationships takes deliberate effort.

• Hold a joint kickoff where both organizations share objectives, constraints and concerns openly.
• Agree joint ways of working: meeting rhythms, shared tools, how risks and issues will be raised and how decisions will be made.
• Share a single risk register for joint risks where commercial confidentiality allows.
• Recognize good supplier performance publicly, not just poor performance formally.
• Resolve disagreements early at the lowest possible level before they become contract disputes.
• Respect the supplier's need to make a fair profit; a supplier losing money will eventually behave defensively.

The senior supplier role in people terms

The senior supplier represents those who will design, develop, facilitate, procure or implement the products. On the board they are accountable for the quality of what suppliers deliver and for the technical integrity of the project. In people terms, the senior supplier is also the person who can commit supplier resources. When a supplier team is understaffed, the senior supplier is the one who can fix it. When there are several suppliers, each may have a representative on the board, and the board must make sure that collectively they work as a team rather than as competitors.

A common problem is a senior supplier from an external company who attends board meetings as a salesperson rather than as a board member. They defend their company's position rather than helping the board make good decisions. PRINCE2 expects board members to act in the interests of the project. Where a conflict of interest is unavoidable, it should be acknowledged openly, and assurance should be arranged so that the customer gets independent advice on supplier performance.

When relationships break down

Even with good intentions, customer and supplier relationships sometimes deteriorate. Early signs include communication moving from conversations to formal letters, disputes over every change request, missing information in checkpoint reports and key supplier people being moved off the project. Early action is far cheaper than contract disputes. Useful steps include a frank conversation between the executive and the senior supplier about what each side is experiencing, an independent facilitator for a joint review, re-agreeing ways of working and, where the contract allows, adjusting incentives so that both sides benefit from the same outcomes. The goal is to restore enough trust for the project to finish well, because a project that ends in litigation rarely delivers its benefits.