By David Bentley, CIPFA Head of Asset Management
The ongoing severe recession and budgetary constraints are increasingly forcing many authorities to invest in contract management to help manage costs and maximise returns with more efficient delivery of services.
The ongoing Olympic security with G4S has raised questions about the coalition government's plans to outsource more public sector services to the private sector. Some may claim that outsourcing is a proven method of driving efficiencies in the public services. According to research undertaken by YouGov for Interserve, outsourcing accounts for 26% of all council services, up 6% in the last 12 months with authorities planning to outsource 32% of all services by 2014/15.
Others, however, would equally claim that it can be a colossal waste of money with numerous past fiascos offered as evidence: NHS IT, Sats testing, the rural payments agency, the child support agency and some, but not all, health service PFIs. In Cornwall a PFI for 28 schools collapsed, costing the council £10m whilst Somerset council and police outsourcing left losses of £31.5m.
Putting aside the pros and cons of outsourcing, what is definitely required is for organisations to move away from the ‘let and forget’ syndrome that has castigated so many contracts and relationships over the years.
Contract management is about resolving or easing tensions in contracts to build a relationship with the provider based on mutual understanding, trust, open communications and benefits to both customer and provider – a win/win relationship. To achieve those goals, five steps should be considered to achieve successful contract management:
Firstly, acknowledgement needs to be made for active contract management setting an organisation on the path to getting to know their service providers and developing constructive relationships.
For effective contract management, it is important that this stage is considered at the initial identification of need (when developing the business case) and the contract caters for all foreseeable occurances. The contract should include relevant terms and conditions as well as key performance standards (which can be measured), remedies, monitoring procedures and notice provisions. The contract terms should also be transparent and effectively negotiated.
Organisations should consider appointing a contract champion in the organisation who has a strategic role in keeping an eye on all contracts and producing an annual report with key performance, issues and ongoing risks. It is crucial to ensure that the right people, with the right commercial, interpersonal and management skills are involved in contract management.
Generally, organisations make limited use of service credits and other financial incentives to drive supplier performance. Although many contracts include relevant terms, service credit deductions for underperformance are often not invoked by contract managers. The main reason cited is that this could damage the customer’s relationship with the supplier, or would not improve supplier performance.
A simple way to overcome this reluctance is to provide for automatic deductions - with the possibility of earn back over a period of time. This would however be subject to a comprehensive dispute resolution mechanism.
Develop a proactive approach to meet with your suppliers and not wait until something goes wrong. Time and resources need to be invested into developing a relationship with the supplier that results in better service delivery. While it is important to develop and maintain effective relationships, public sector organisations must not forget that they need to maintain commercial confidentiality to ensure taxpayers money is widely spent.