The public sector is under pressure to makes savings of £12 billion within the life of the current government.
Departments and public bodies will need to make savings of up to 40 per cent beyond the savings made during the last administration. These austerity measures will be achieved by providing services more efficiently and by extracting savings from suppliers.
As a timely reminder of the important role that contract management has in achieving these measures the Crown Commercial Service (CCS) has recently updated its contract management principles. The principles set out 11 common sense approaches that should be taken into account during the development of supply contracts and the procurement of goods and services.
CCS and the Cabinet Office have developed a number of protocols, tools and guidance, such as the lean procurement methodology, that support the procurement process. The lack of similar guidance and support for contract management reflects the lower esteem in which this role is held within government procurement.
However, hard won concessions achieved through procurement can be quickly lost by a failure to enforce contractual rights, a failure to understand the commercial imperatives or even simply to apply commercial diligence to contract management. The National Audit Office report on transforming government contracts, published in September 2014, identified that just two suppliers were overpaid by nearly £200 million as a result of poor contract management.
Contract management is frequently confused with "relationship management", with the result that the desire to deliver or maintain good relations with strategic suppliers is given priority over commercial, regulatory or service delivery risks. Prioritisation of commercial risks also places greater importance on the avoidance of legal challenges, with the consequence that commercial rights are not adequately or appropriately enforced. Paradoxically, good contract management leads to good supplier relationships.
These issues can be overcome by appointing consistent senior leadership throughout the commercial life cycle, including pre-procurement, procurement and contract management phases, and by integrating financial, commercial and operational functions as a team holding joint responsibility for successful delivery.
The contract management team needs to own the delivery, with appropriate communications across departmental boundaries and the receipt of independently verified management information regarding supplier performance; it is not sufficient to rely solely on supplier provided information.
Unfortunately, contract management is perceived to be enormously dull. Managers allocated to the role lack the appropriate skills and development programmes are generally poor. Government could make big steps to achieve its austerity measures by reversing these perceptions.
☛ Stewart James is a partner at law firm Ashfords