Performance assessment is undertaken on the basis of information collected during the monitoring process. It is important that during this process feedback is provided in relation to good and poor performance, and that any performance problems are addressed promptly.

The basis for performance assessment, that is, indicators with related targets, and standards should have been set out in the contract. Where performance information is difficult to establish at the contract development stage, it may require further development over the life of the contract. The contract provisions should have been framed to allow this. Developing indicators further during contract management can draw on actual results achieved, research and feedback from stakeholders.

For performance management to be most effective, responsibility needs to be shared between the contractor and the acquiring entity. From the acquiring entity's point of view, the primary responsibility for performance rests with the contract manager or team. It is in their interest to work actively and positively with the contractor to achieve outcomes in a value for money way. Performance management should ensure that standards and targets are met on time and within budget. It should also contribute to, not distract from, the contractor delivering contract outcomes.

Revisions will need to be made if data being collected is not providing adequate information to assess performance, performance measures have not been fully developed or are found not to be suitable for the particular contract. It is important not to change arrangements to mask poor performance by the contractor or a lack of skill by the acquiring entity. Judgement will need to be exercised to determine whether changes or reinterpretations are needed.

Contract managers need to have assurance that the information used to assess performance, and to make or withhold contract payments, is accurate. This material will also be used to inform senior management and other stakeholders regarding progress. Inaccurate information may mean that an actual understanding of performance is not being obtained and/or poor performance is being masked.

Once information is collected it should be analysed to allow an assessment of specific or related matters. For example, under-performance may trigger the application of service credits or some similar action. Satisfactory performance may trigger payments of regular fees or milestone payments.

It is possible at this stage that technical advice may be needed to assess particular aspects of performance, for example, compliance with specifed standards for construction work, or whether IT systems deliver the required functionality.

The basis for performance assessment should have been set out in the contract.

Contract managers need to have assurance that the information used to assess performance, and to make or withhold contract payments, is accurate.

Good Practice Tip: Accessing professional advice

In managing the contract, if professional advice is likely to be required, consider pre-arranging access to this advice through a retainer or other similar arrangement. This can speed up access to advice when needed, and provide some continuity of understanding of the context in which the advice is required.

Reports provided to senior management and other stakeholders should be a balanced account of performance achieved and any identified shortcomings. If there are identified shortcomings, proposed action and a timeframe to address them should be included in reports to senior management.

Honest and balanced feedback should be provided to the contractor. Where performance is satisfactory or above standard, positive feedback to the contractor can be beneficial to maintaining the relationship. It is also at this stage that any bonus or incentive payments linked to performance should be made in line with contract provisions.

In cases where performance problems have been identified they should be dealt with promptly. This means discussing the issues with the contractor in a professional manner as soon after they arise as possible. When performance problems are addressed as a normal part of contract management, it should not have an ongoing negative impact on the relationship between the acquiring entity and the contractor.

In some cases, informal remedial action may need to be undertaken. In other cases, more formal action for under-performance may need to be taken and this is discussed below.

Reports provided to senior management and other stakeholders should be a balanced account of performance achieved and any identified shortcomings.