Performance management involves:

a.

Performance measurement: collecting accurate and timely data on the supplier's performance.

b.

Performance assessment: deciding whether the supplier's performance meets the standards contained in the contract.

c.

Performance adjustment: taking appropriate action such as understanding features of good performance, correcting areas of underperformance, or amending the contract requirements to meet changing needs.

Typical performance measures for a contract include:

a.

Quality: the quality of the goods or services delivered compared with the specified quality in the contract. For international or Australian standards, this may also require periodic auditing of compliance by an independent assessor (CPRs paragraph 7.26).

b.

Quantity: the number of items or volume of services delivered compared with the contracted number or volume.

c.

Cost: the actual costs compared to the cost specified in the contract.

d.

Responsiveness: the time taken by the supplier to respond to requests, compared with the contracted timeframes (eg in a service level agreement).

e.

Customer satisfaction: the degree of satisfaction expressed by people receiving goods or services under the contract compared with the expected level of satisfaction (eg in a service level agreement).

Modern slavery risks in procurement

The Australian Government is taking a global leadership role in combating modern slavery through its landmark Modern Slavery Act (Cth) 2018 (the Act). The Act, which entered into force on 1 January 2019, requires large businesses, and the Australian Government, to publish annual Modern Slavery Statements outlining their actions to identify, assess and address modern slavery risks in their global operations and supply chains. The Australian Government must submit its annual modern slavery statement by 31 December each year. Statements will capture activities undertaken in the financial year immediately prior to publication.

To support the Government's reporting obligations, entities should take action to identify and address modern slavery risks in their procurement activities. If your contract was assessed as having a high risk of modern slavery then there may be clauses in your contract that require the supplier to notify or report on any modern slavery identified in the supplier's operations or in their supply chain. This may involve the supplier ensuring that personnel have undertaken suitable training and preparing and implementing a modern slavery risk management plan. Contract managers should work with the supplier to implement and ensure compliance with these plans to manage identified risks.

The Australian Border Force (ABF) has produced a modern slavery procurement toolkit to assist procurement officers. This can be found at: https://modernslaveryregister.gov.au/resources/.

Managing supplier performance

Most contracts are completed without problems, but as a contract manager, you need to be prepared to address supplier performance issues as they arise. Many contract management problems can be avoided by developing an effective working relationship with the supplier.

Both parties should agree:

•  what aspects of performance will be measured

•  how they will be measured

•  how frequently they will be measured

•  who will do the measurement?

This information may be included in your contract.

The data that you collect about the supplier's performance can be used to identify any gap between the supplier's performance and the standards expected and defined in the contract. You need to be confident that the information you use to assess the supplier's performance is accurate, fair and complete.

If performance measurement indicates that there is a gap between the supplier's performance and the expected standard, you must work with the supplier to bridge that gap. This helps to ensure that the Australian Government is getting what it expects and what it is paying for (therefore achieving value for money).

Supplier underperformance can be minimised by having a performance measurement approach that allows prompt and ongoing feedback to the supplier about their performance, particularly regarding timeframes or deliverables. As contract manager, you need to be aware of any signs of potential underperformance so you can address them before they become serious. Prompt action can help prevent the problem worsening. It also lets the supplier know of any potential performance problems early and may make it easier for them to address the issues at low cost and with minimal disruption.

Performance management arrangements contained in your contract might involve:

•  discussions to hear the supplier's perspective on the performance gap

•  agreeing on corrective actions to get performance back on track

•  establishing a process for checking the required improvements are taking place.

Corrective actions could include the supplier replacing or using additional personnel, reporting back more frequently on progress, modifying processes or systems or clarifying the procuring entity's requirements.

Usually responding to issues will not involve a contract variation as the supplier is only providing what they originally agreed to provide for the price already set out in the contract.

Managing more serious underperformance

If the underperformance is repeated or is more serious in nature, you may need to take formal action.

Your contract will include provisions dealing with default and remediation, as well as termination.

Corrective action for serious underperformance could include:

•  withholding payments until performance returns to a satisfactory level

•  involving senior management from both parties in formal discussions

•  developing strategies to address the problem, formally documenting them and following up

•  implementing other formal mechanisms written into the contract.

You should get legal advice before taking any of these actions.

To protect the Australian Government's interests, payment for goods and services should always be linked in the contract with satisfactory performance. You should not accept, and therefore should not pay, for goods and services that do not meet the contractual standard.

Tip - managing supplier underperformance

Sometimes a supplier's apparent under performance can be caused by the procuring entity (eg if supplier does not get required inputs at agreed times, if supplier's employees cannot access the building, if there are changes to the procuring entity's requirements, if users are asking for services that are not included in the contract).

It is always sensible to approach a performance gap with an open mind - it could be a problem for the supplier to fix, but it may also be a problem for you to fix internally.