The organisations should define and identify a set of organisation wide critical success factors (CSF) and principles that should underpin their approach to contract management. Examples of good practice CSFs and principles are outlined below:
- Create a contract management function: A contract management function will help create a consistent approach to managing contracts within the organisations; shared good practices; a source of challenge, support and guidance; standard training processes and a culture which takes responsibility for contract management.
- Contracts should be categorised: This will enable the appropriate level of contract management resource is allocated to ensure that contract management activities are proportionate to the potential benefit and underlying risks for contracts. Therefore, the organisations should develop a contract categorisation approach/tool and categorise contracts in line with pre-defined criteria including the contract value, political interest, business value, potential impact, sourcing complexity, contractual complexity and performance assessment complexity etc.
- Establish and use strong governance arrangements to manage risk and enable strategic oversight: Organisations should ensure that the governance structures are proportionate to the size and risk of contracts, and that they are suitably empowered to support the business outcomes and objectives. There should be some level of consistency around contract management governance to enable strong decision making and should hold suppliers to account for poor performance. In our experience the governance should be defined at the following three levels:
- Level 1: Strategic contract management governance: Organisations should define a senior accountable officer for each significant/high risk contract. This officer must be accountable for the delivery of business strategy, benefits, supplier performance and is ultimately responsible for the decision making for the contracts they are accountable for.
- Level 2: Contract management governance for each contract: Organisations should adopt a standardised governance structure which is flexible for application to all contracts.
- Level 3: Individual contract management roles and responsibilities (R&R): Organisations roles i.e. contract manager, accountable officer, client lead etc. need to be defined and communicated to all teams and stakeholders. The key contract management activities should be mapped and ownership should be determined using a Responsible, Accountable, Consulted and Informed (RACI) matrix.
- Invest in commercial capability and capacity: Organisations should clearly define the contract management skills and experiences required at different stages of life-cycle contract management, and actively recruit or train to acquire these skills within the organisation.
- Proactive management of risks and opportunities: Risk and opportunity (R&O) management should become an integral part of contract management. The organisations should analyse, mitigate and manage contract related risks and opportunities throughout the contract’s life cycle. This process should start the tendering stage to ensure the risks are placed with the party best able to manage it. Organisations should also analyse opportunities throughout the contract life cycle to capture additional value and to ensure dependencies and interdependencies are captured and managed.
Risks should be placed with the party best able to manage it.
Progress up to now
A considerable amount of work has been undertaken across the emergency services sector in recent years to bring third party spend under control and effectively manage the needs of organisations and the wants of their suppliers. In 2014-15 UK police forces collectively planned £474m of savings from better procurement of all goods and services, and the National Fire Chiefs Council have implemented a Commercial Transformation Programme to standardise requirements, aggregate volumes, and manage contracts collaboratively. This work will be ongoing as organisations and teams get to grips with the crucial role of life-cycle contract management and prepare themselves for even bigger challenges in the future. The question is: Have you done enough to ensure your contract management function is ready to play its part in making savings and help the organisations deal with future challenges? The following questions, that Audit Committee members might ask about their organisation’s life-cycle management arrangements, may help you make this assessment:
- How much are we spending with suppliers as an organisation?
- Do we have a robust contract register which gets updated on a regular basis?
- Have we got an organisation wide contract management guidance and processes? If yes, how do we monitor compliance?
- How do we know if we are getting value for money from our major contracts?
- When was the last time we carried out a commercial review of our contracts and what was the outcome?
- Do we have open book clauses in our contracts and when was the last time we invoked these clauses?
Our contract risk advisory team works with a range of clients to help them benchmark their contract management function against a best practice framework; and to support and help them improve their contract management from these findings.
Our report identifies good examples of critical success factors which organisations should consider, download it here.