contract management: three questions to ask yourself

16-4-14

by Jay Hussain, Director, Moore Stephens

There is a growing divergence between increased outsourcing of public services and the capability and capacity of the customer to manage outsourced contracts. The evidence is that the quality of client side contract management has not kept pace with increased outsourcing.

In central government, how well, or poorly as the case may be, contracts are being managed has been the focus of intense discussions, led by the Public Accounts Committee. The recent Cross Government Review of Major Contracts provides clear and up-to-date evidence that contract management arrangements need improving; and outlines a series of recommendations that can apply to all organisations that are stewards of taxpayer monies.

For these organisations a potentially eye opening way to take these recommendations forward is to distil them into three key questions which they should ask of themselves:

  1. Are we in control of our suppliers? (Leadership)
  2. Can we be certain we are paying the right amount and receiving the services that we are paying for? (Accountability)
  3. Can we easily demonstrate to the taxpayer that they are receiving the expected return on investment from outsourcing? (VFM)

Public sector bodies need to gauge whether they can answer these questions positively and comprehensively. Sound governance and robust systems have always been and will continue to remain, key to successful contract management. Senior management need to be more involved, more of the time, in the contract management regime. All too often contract management is left to middle management personnel who have to grapple with day to day compliance duties as well macro level strategic challenges, including commercial issues (such as material contract changes). There should be clear and continuous strategic control over contract management, an especially vital requirement during periods of transformation and organisational development which many, if not all, public sector bodies are and will be going through.

Commercial capability should increasingly feature in arrangements in order that the client is able to effectively negotiate and re-negotiate contract terms so that the best value is obtained throughout the life of the contract. Contracts are not static, they need to be developed in line with service demands and user needs. Failure to do so could result in significant reputational damage to the organisation and its senior officers.

Sitting above, within and at the base of any contract management regime should be an effective, dynamic and fit for purpose assurance framework. Notably, the Cross Government review singled out the importance of internal audit in providing:

 "...assurance….that all is in order on…contracts around performance management, senior oversight, financial control, assurance and transparency, incentives, change management, transition (from pre-procurement), and resource allocation."

Just as those responsible for contract management should increase their commercial and wider capabilities, so too must internal audit functions. Perhaps the most empowering clause within most contracts is that relating to open book accounting. Clients, possibly through their internal audit functions, need to invoke this clause more; but to do so will require an enhanced understanding of financial accounting and interpretation of the numbers. This capability, once it is in place however, will allow clients to understand better the financial performance of their providers, paving the way for more informed discussions around for example gain share provisions. It will also help to foster greater joint understanding of each other’s businesses. This will bring reality to contractual relationships which are often badged as partnerships.

Good contract management has never been more important to public sector organisations. At the same time there is an expectation that contracts should be:

 “...audited consistently all the time, over time” (Margaret Hodge, Chair of the Public Accounts Committee.)

To meet this expectation internal audit needs to shift up a gear in order to be able to deliver rounded, commercially incisive business advice to senior management and contract managers.

  • Jay Hussain, Director, Moore Stephens, was speaker at the CIPFA Audit Conference in May and lead for the Cabinet Office Cross Government Review of Major Contracts

Jay Hussain, Director, Moore Stephens

Jay Hussain, Director, Moore Stephens

Jay is an experienced business assurance advisor, having spent the past 17 years delivering governance, risk and advisory services to public, private and not for profit organisations. He has a substantial track record of delivering high profile engagements, the most recent of which was the Cabinet Office Major Contracts Review.

Having started his career as a CIPFA trainee at Stafford Borough Council Jay moved to KPMG where he delivered external audit, VFM and advisory services. He then joined Haines Watts where he led on high profile contract reviews and the statutory VFM studies for the NAO and Audit Scotland. As a director within Moore Stephens’ Public Sector Group, Jay has developed a progressive approach to internal and contract auditing, working closely with the firm’s international team to draw out wider best practices from work in areas such as institutional risk assessments, capacity and capability support to government ministries, as well as performance and efficiency reviews of funding institutions.