In many cases contracts are completed without problems, but contract managers need to be prepared to address any problems promptly as they arise in accordance with agreed procedures.

Many contract management problems can be avoided by managing the relationship well. Underperformance can be minimised by having a performance regime that allows prompt and ongoing feedback, particularly in relation to critical timeframes or deliverables. The contract manager needs to be aware of any signs of potential underperformance and be able to address them, to the extent possible, before they become serious. Addressing underperformance in this way can avoid the problem worsening and/or the contractor being confronted by a problem that the acquiring entity has known about for a period of time. Providing the contractor with early warning may make it easier to address the issues at low cost and with minimal disruption.

At the early stages of underperformance, agreeing informal remedial action will often be the best approach. Such action could include replacing or using additional personnel, reporting back more frequently on progress, modifying processes or systems or clarifying the entity's requirements.

Depending on the seriousness of the underperformance, the action taken may need to be more formal and could include:

•  withholding payments until performance returns to a satisfactory level;

•  involving senior management from both parties in formal discussions or written communications;

•  developing strategies to address the problem and formally documenting them, and tracking whether they are working in practice; and

•  implementing other formal mechanisms included in the contract.

Formal approaches to end contracts, including for underperformance, are discussed in Part Six of this Guide.

At the early stages of underperformance, agreeing informal remedial action will often be the best approach.

The following case study discusses a situation involving 'hidden' underperformance.

Case Study: Hidden underperformance

An entity had contracted out a help desk function for services to staff. The contract specified expected resolution times for calls logged with the help desk. The monthly performance indicators showed satisfactory performance, but the bi-annual staff satisfaction survey showed a marked drop in satisfaction with resolution times.

The contract manager investigated and found that the contractor was using the contractually specified measure of resolution time, based on when the call was logged in a register by the help desk. However, the contractor had been encouraging staff to log requests to an email address. When the help desk was busy, there could then be a long delay before the emails were entered into the help desk register. The automated reporting system used the date of entry to the register as the start time-not the time the email arrived. This meant delays experienced by the help desk clients were not properly reflected in reports on performance. Taking this into account showed significant underperformance.

The contract manager treated this as two areas of underperformance.

Firstly, the contractor was obliged to improve the resolution times to those specified, which meant some increase in staffing of the help desk.

Secondly, it appeared there was either deliberate or inadvertent manipulation of the performance measure. This was a breach of a contract provision specifying a high level of professional care and conduct. Given the ambiguities of the cause of the concern, and otherwise satisfactory service, the contract manager handled the problem with a personal discussion with the contractor expressing the agency's disappointment with the episode. This was followed up with correspondence setting out the key facts and expectations for the future.

Comment: Underperformance issues sometimes do have ambiguities about the underlying causes and intentions. It is still important to act to avoid a continuation of problems. Failing to do so can be seen as de-facto agreement to a situation.