Last week, the UK’s National Audit Office provided Parliament with its latest reports on Contract Management. They are encouraging, in that they reflect the robust focus that government is placing on this discipline. At the same time, they reveal the depth of the challenge in driving improvement.
“For several decades, governments have been increasing their use of contracts with the private sector to provide goods and services. This has produced successes but also thrown up major new challenges, which are not easy to surmount. Not the least of these is the need to build up the commercial skills of contract management staff, both in departments and in the centre, and enhance the status and profile of their role. Current reforms are going in the right direction and government is taking the issue seriously. There is, however, much to do, and the acid test will be whether the resources and effort needed for sustained improvement are carried through into the future performance of the departments in procuring and managing contracts.”
Amyas Morse, head of the National Audit Office, UK, 4 September 2014
IAACM’s Tim Cummins is discussing the report in his Commitment Matters blog. It is interesting that a number of Governments are now committing significant resources to improving their contracting capabilities. It seems to Tim Cummins (see link below) that the public sector is actually starting to out-strip most private sector companies in its grasp of the importance of contract management in today’s business environment.
From the report:
Problems with contract management
The reviews found widespread problems with how government manages its service contracts. As well as testing for overbilling, 73 contracts were tested against the 8 areas of the NAO’s 2008 good practice framework for contract management. Issues were found on all 8 areas, for example:
Planning and governance (issues on 38 out of 73 contracts tested)
Departments lack visibility of contract management at board level and lacked senior-level involvement.
People (40 issues)
Government does not have the right people in the right place for contract management. There were gaps between the numbers and capability of staff allocated to contract management and the level actually required.
Administration (39 issues)
Contract management is not operating as a multi-disciplinary function. There was often limited interaction between finance, commercial and operational contract management functions.
Payment and incentives (48 issues)
Government is not fully using commercial incentives to improve public services. Levels of payment deductions allowed by contracts are often insufficient to incentivise performance. Open-book clauses were rarely used.
Managing performance (50 issues)
Contractual performance indicators are often weak and government is too reliant on data supplied by contractors.
Government does not have sufficient understanding of the level of risk it is retaining on contracted-out services. None of those in the cross-government review shared risk registers with the contractors to ensure all understood who was managing what.
Contract development (50 issues)
Departments are paying insufficient attention to the impact of contract change. For example, departments made changes at operational level in isolation from other service areas. Systems for maintaining up-to-date versions of contracts remain weak.
Managing relationships (31 issues)
Not all departments have had a strategic approach to managing supplier relationships. Senior management engagement with suppliers has not been widespread across government. A lack of meaningful incentives for innovation can inhibit shared approaches to problem solving and mutual improvement.
Do these same issues impact you?
Tim Cummins concludes with asking how many of us can say that similar weaknesses do not apply in our organization, or in our suppliers or customers? At least Government is awakening to the issues – and the very real financial consequences that come from failure to address them. In the private sector, while some have made real investments in developing their contract and commercial capabilities, he fears that many executives have not even awoken to the need.
Download full report: Transforming government’s contract management.