A vendor building a new system notifies the project manager one week before UAT that they can deliver only half of the promised functions by the UAT start. What should the project manager do next?

The project manager's primary role is to facilitate project success. Upon learning of a significant issue, the most immediate and constructive step is to communicate with all relevant parties (vendor and project team) to understand the full impact and collaboratively explore solutions. This proactive approach aims to mitigate the problem before it escalates. Waiting for failure and invoking damages is a reactive, last-resort measure that doesn't address the immediate project need. Escalating to management and canceling the contract is premature without first attempting to resolve the issue directly. Adjusting the schedule might be a consequence, but it's not the first action; understanding the problem and potential solutions comes first.