The Effective Contract Management Model: “ECoM”
July 15, 2015
In my last blog I explored how public sector bodies apply significant effort in the procurement phase of large complex contracts but tend not to extend this approach to the service phase even though more money is spent here and the risk of losing value is higher. The transfer of knowledge is essential to achieve the intended value for money through enabling robust contract management.
The need to enforce contract terms and challenge contractors is acknowledged but the contract management task is not well understood and often underestimated. Combined with contract management, public sector bodies can become intelligent clients and effectively retain the procured value for money in their contracts.
Effective contract management is key as it aims to continually realise the benefits and value secured in the procurement and development phase, throughout the remaining life of the project.
Contract Management Model
Effective contract management is underpinned by robust contract administration. The key elements of contract administration are:
- Performance Monitoring
- Financial Monitoring
- Compliance Monitoring
They key elements of contract management are:
- Change Management
- Risk Management
- Relationship Management
Performance monitoring is key to holding the contractor to account for delivery of the contracted services. It requires clearly defined contract performance criteria and requires early agreement on objective measures of the key performance criteria. Performance monitoring generates key data for input to payment mechanisms and highlights areas for essential corrective action.
Financial monitoring is important as dependence on contractor’s data is always open to challenge. The objective validation provided acts as an effective two-way check and demonstrates prudence in spending public money. It supports the control of disputed amounts process and provides comparison of actual expenditure against financial model forecasts.
Compliance monitoring enables identification of early corrective actions. It comprises of the analysis of obligations and rights of both parties. This includes understanding entitlement to secure full value and use of embedded remedies to incentivise performance.
It is essential that all change is controlled to ensure that an effective balance between compliance, performance delivered and finances is maintained. Change control is essential to manage identified opportunities for improvement and correct omissions and errors. The project agreement should be kept current through contract variation to ensure enforceability of terms throughout the term.
Risk management is essential for the assessment of the risks against compliance, performance delivered and finances. The development of action to mitigate the significant risks is key and the monitoring of progress against the mitigation action plans. The identification and escalation of issues which affect delivery of the services are key to effective risk management.
The objective is to maintain an effective business-like relationship between the authority and the contractor which delivers the services for the agreed tariffs in full compliance with the contract terms. The relationship must be based on the objective measurement of performance and compliance by both parties with the contract terms.
By using this framework, public sector bodies can take the first steps towards realising the benefits of effective contract management. Implementing an effective contract management program requires support from stakeholders within the organisation, significant change management and coordination with suppliers. But, if done correctly, the benefits are significant and well worth the investment in time and resources.