What do you do when a tem member is not meeting your expectations? Normally, a project manager would deal with poor performance through a process of trying to determine the cause of the performance problem, further monitoring, getting very specific on deliverables and due dates, documenting the performance problems, and so on.
But what do you do when a contractor is not meeting your expectations and this level of performance monitoring is not appropriate? Generally speaking, most companies have a policy to make sure that employees treat contractors fairly but avoid getting into any situations that would logically be considered a part of a functional manager-subordinate relationship.
For example, if a project manager provides immediate performance feedback to a contractor based on missing a deliverable date, this would be viewed as a normal project manager-team member relationship and shouldn't get a company in trouble. On the other hand, if the project manager performs a formal performance review for the contractor, this might be viewed as implying a functional manager-employee relationship.
So what do you do when a contractor is not meeting expectations? If the contractor work assignments are not completed on time, you have every right to question the contractor as to the cause and to provide feedback that this performance is unacceptable. If the contractor's performance gets back to acceptable, the situation will have worked itself out.
On the other hand, if the situation is not resolved, you have a performance problem to address. One alternative is to simply release the contractor. But the situation might not that dire.
The more appropriate course of action would be to call the contracting company and get them involved. You can explain to the appropriate person at the contract company that the contractor is starting to have performance problems. Describe the situation and your observations. Request that the contractor's manager talk to him in a more formal manager-subordinate relationship. The contractor's manager can then get back to you with the results of the meeting.
This process may seem cumbersome, but it's the nature of contractor relationships.