Figure 5

Departments need the right support for effective contract management

The following is based on the emerging best practice from departments' current reforms. It sets out the organisational architecture necessary to support good contract management as defined by our 2008 good contract management framework.1

Governance

Governance and accountability will be more effective if:

•  the senior leadership team has clearly defined responsibilities for championing contract management across the organisation;

•  a senior management forum scrutinises and challenges contract teams to continuously improve;

•  senior staff manage relations with key suppliers, assisted by both commercial and operational staff;

•  departments allocate contract management and oversight resources to individual contracts, based on operational risk to the organisation;

•  clearly defined systems of problem escalation support senior engagement at a level that mirrors the contractor;

•  internal audit skills and capacity are sufficient to give the accounting officer assurance that contract management is effective. Internal audit work on contract management is proportionate to the risk; and

•  commercial directors retain control of commercial levers. For instance, penalties should always be applied unless the commercial director signs off that there is good reason not to.

Visibility

Departments could improve their use of contract information if:

•  information to manage the contract is stored in an integrated information system. This includes financial, performance, risk and project management information, information about the contract, supplier information including correspondence, and vital guidance materials;

•  contract managers share contract risk management strategies within the organisation and with suppliers;

•  departments review and verify performance data in a way which is commensurate with contract risk;

•  cost data is used to ensure costs are competitive and that incentives are aligned to reduce costs; and

•  contract data is aggregated and reported clearly to support senior management scrutiny of the contract and its risk.

Integration

Contract management will be well-integrated into the business when:

•  contract management is recognised as a cross-organisational competence, supported by policy, operations, finance, legal, human resources and commercial functions;

•  the contract is led by an owner within the business, who ensures the contract is aligned with service user needs. Commercial and other functions then support the contract manager and hold them to account;

•  the contract management approach and resources are planned during the approval of the procurement. For example, they should be included in the business case;

•  lessons from contract management are captured and fed back into policy and commissioning design; and

•  contracts are reviewed periodically, so they meet business needs. Change management systems and governance reflect the likely pace of business change.

Capability

Departments will have made best use of their resources when:

•  contract management skills and roles are defined and understood with regular skills audits of commercial and operational staff;

•  resources and expertise are allocated by risk, and the return on investment for resources deployed is understood;

•  professional development for contract managers is aligned with the cross-government contract management profession, with tailored development for specific contexts where required;

•  contract management staff are incentivised through objectives and performance management to continuously improve contracted services; and

•  senior contract management staff can challenge senior internal and contractor staff on an equal basis.

Note

1  National Audit Office, Good practice contract management framework, December 2008.

Source: National Audit Office analysis of contract management good practice