Top 5 tips to maximise value in public sector contracts
June 03, 2015
While the economic outlook for the UK looks set to improve, the pressure on public finances continues. With significant further public spending restraint expected until 2017/18, this pressure is unlikely to fade away as the ‘new’ conservative government beds in during the rest of 2015 and beyond.
Against this backdrop of ambitious public sector savings targets over the next few years and increasing scrutiny over spending, delivering better value at lower cost is essential for all public bodies. The scale and extent of the required cuts means new ways of working are needed.
Taking the right approach to contracts in the public sector has an important role to play in delivering the savings that are needed.
Don’t forget the service delivery phase
Public sector bodies are prepared to apply significant effort in the procurement phase of large complex projects. But they generally do not continue this level of support in the critical service delivery phase. This is where most money is spent and where there is greater risk of losing essential value. The lack of robust contract management is often dramatically exposed too late…when significant value to the public sector is already lost and disputes arise a few years later.
To achieve intended value for money for public spending, organisations need to consider the whole contract lifecycle and invest in robust contract management from the outset. They need to ensure knowledge is transferred from the procurement phase onwards and hold contractors to account for the full extent of what they agree to deliver.
While the need for the public sector to provide robust contract management is, at times, acknowledged, the ability of public sector organisations to deliver it is sometimes limited. A lack of commercial skills and know-how to match the private sector contractors potentially puts the public sector at a disadvantage.
Don’t under-estimate the task
Another key factor is the lack of understanding of what is required in the services phase of a contract to provide proper contract administration and to manage the often complex mechanisms in large service contracts. The level of attention and rigour required is often underestimated and the necessary complexity of the contract management task is not well understood. In underestimating the requirements of contract management, public sector organisations can inadvertently allow contractors to take advantage and transfer the risk back to them.
In order to minimise the risk of losing value throughout the whole contract lifecycle here are a few things that public sector organisations should consider:
- Focus on the entire contract lifecycle – It’s in the service delivery phase where most money is spent and the risks are arguably the greatest. Public sector organisations need to extend the scrutiny and focus on procurement over the whole of the contract lifecycle in order to deliver value for money.
- Bridging the gap between procurement and contract management – Too often the expertise of a procurement team is lost after contracts are awarded. Ensuring that important knowledge and expertise are transferred from procurement to the latter phases of the contract lifecycle is critical to delivery.
- Continuously monitor compliance, performance and finances – Checks and balances across the contract lifecycle to prevent value leakage. Organisations must monitor and address the gap between the ‘delivery promise’ and the value actually delivered.
- Independent professional advice can be crucial – The complexity of the task of contract management shouldn’t be underestimated. Independent professional advice can be used proactively and cost effectively after the contract has been awarded to secure the contracted outcomes and avoid unnecessary failures.
- Don’t wait until it’s too late – The lack of robust contract management is often dramatically exposed too late when significant value is already lost. Invest upfront in contract management to manage risks and ensure the value embedded in the contract is delivered.
In a climate of continued public sector austerity, rising demand and increased scrutiny, the public sector needs to ensure that contracts are delivering their full value. By applying rigour in contract management to retain the procured value post award, the public sector should get exactly what it deserves – excellent value for money public services.
How has your whole contract lifecycle view saved your organisation money? What knowledge leakage have you experienced during a contract? Share your experiences and thoughts below or schedule a meeting to find out how you can retain value throughout a contract.