Contract Management becomes top priority for the White House

Daniel Gordon, procurement policy administrator at the Office of Management and Budget

Dan Gordon, administrator of the Office of Federal Procurement Policy, has announced a range of initiatives to improve contract management practices between suppliers to the US Government and the way that Government Agencies administer and manage contract performance and obligations.

“Contract Management is front and center in our focus”, Gordon declared at a recent meeting on procurement reform.  Gordon and the Obama administration intend to root out negligent behavior in government acquisition by having agencies better manage the contracts they award.

“A company will no longer get a contract and then never again hear from the agency about the work”, Gordon said.  “Further the government won’t turn a blind eye toward schemes or well-known shady business partnerships”.

There are many examples of poor contract management practices in Government and organizations like the Project on Government Oversight (www.pogo.org) have made a significant impact in raising awareness of the need to not just negotiate contracts with third party suppliers, but also to track performance and monitor compliance to contracted obligations once the contract has been signed.

As contracting becomes more complex and more litigious (a recent study by Fulbright and Jaworski showed that the majority of corporate litigation matters now arise from contract-related disputes), it is crucial to keep track of what has been committed to in a contract.

The old world of throwing more resources at the problem of  contract oversight will not work anymore.  Qualified contract management resources are hard to find and manual tracking of contract milestones and obligations was too error-prone anyway.  What is required is a balance of technology solutions that support the contracting process and human oversight to enforce contracted terms and conditions.

Choosing the right technology solution is critical. Many Finance or ERP based contract database solutions fail to realise that government contracting demands automation and control at every stage of the contracting process from the creation of the contract, through to the tracking of obligations and the tracking of vendor performance. 

Some contract management software solutions, like Dolphin Contract Manager, automatically integrate with the Federal Acquisition Regulations (FAR/DFAR) list and allow government procurement managers to efficiently create contracts and ensure that commitments and obligations are effectively managed once the contract has been executed.

We believe that true transparency in government contracting can only be really achieved when you have total control over your contracts and obligations.  It is time for government agencies to embrace technology solutions to help them to achieve this.

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UK coalition government looks to improve contract oversight in public sector

One of the first actions of the new coalition government in the UK led by David Cameron in May 2010, was to enact new legislation to compel central and local government organisations to disclose details of all expenditure and contracts worth in excess of GBP 500 (USD 800).

In an environment where contract commitment management has been lax and almost non-existant (the National Audit office claimed that the central government wasted GBP 300 million each year on IT and Telecom contracts alone in 2009), this will prove to be a major challenge for local and central government organisations.

There is much fear at the local government level that this new legislation, aimed at “Labour’s secretive and wasteful contracts regime”, will add significant cost and workload at a time when budgets have are being cut as part of the Government’s austerity measures.

Proper contract oversight is always recommended, but never has there been a greater need in the Public Sector to get a handle on contracts and commitments.  A Freedom of Information search relating to contract search should take a matter of seconds to comply with, if an organisation has proper control over contracted milestones and commitments.  With more and more public services being outsourced (the BBC claims that Capita has gained outsourcing contracts worth in excess of GBP 3 billion in the public sector), it is becoming more and more difficult to adquately manage contract spend and obligations.

Now is the time for public sector organisations in the UK to evaluate the benefits of using technology solutions to manage and control contracts more effectively, so that adequate funds are put aside in the new financial year.  Contract Management software solutions play a key part in an organisation’s governance, audit and compliance regime.  In the public sector, there is a real need to extract more value out of contracts with external suppliers and service providers as budgets and tax revenues decline; as well as the requirement to avoid costly reputational damage when poor contract oversight is exposed through Freedom of Infromation requests or via the media.

Dolphin Contract Manager from Dolphin Software provides best-of-class contract management functionality across the entire contracting process to allow organisations to keep track of supplier performance, contract spend and control over contracted obligations much more effectively than can be achieved through manaual means or managing contracts by spreadsheet.

Download BearingPoint Consulting’s authoritative 2010 Contract Management study from www.dolphin-software.com to assess how contract management software can benefit your organisation.

Managing contract terms and commitments will be critical following the Government spending review

The United Kingdom, like many countries, is straddled with an unprecedented level of debt.  The UK’s debt currently stands at over £900 billion ($1.4 trillion), or £33,000 for every person in employment.  In an attempt to bring this national debt down to a manageable level, David Cameron’s government will publish the results of its long-awaited Spending Review on the 20^th of October.

The Spending Review will highlight areas where costs can be saved in central government departments and local authorities.  The United Kingdom will join counties like France and Ireland and introduce draconian austerity policies to reduce the national debt.

Much has been reported about Government quangos being abolished, defence cuts that will deliver new aircraft carriers, but with no aircraft and a winter of discontent with public sector workers planning widespread strikes in a move to resist the cuts.

Sir Philip Green’s report that was published last week provides an insight in to some of the areas of government where significant cost can be saved, namely more effective procurement and supplier contract management.

There is no doubt that if you are a department head or a manager in a central government department, local authority, university or hospital, you will be under more pressure than ever before to reduce costs and expenditure.  It is likely that spending cuts will lead to more services being outsourced, which will only lead to greater pressure to manage external service providers even more closely.

Contract Management software solutions should be able to offer significant value here.  Not only do Contract Lifecycle Management solutions help to streamline and control the contracting process with external suppliers, they also provide invaluable tools to make contract oversight and performance something that can be controlled and measured. 

If an outsourcing agreement includes complex obligations and service level agreements (SLAs), these can often be missed or poorly managed.  Solutions, like Dolphin Contract Manager, have been designed to make contract obligations and commitments more visible and better controlled.  A National Audit Office report last year highlighted over £300 million in savings in central government IT contracts alone, through better contract management. 

The British government should absolutely look to cut unnecessary cost from budgets, but it should also look to use technology in a smart way to improve the efficiency and effectiveness of government procurement at the same time.

Sir Philip Green highlights UK government procurement and contract management inefficiencies

Sir Philip Green, the billionaire boss of UK retail group Arcadia and Top Shop, has this week announced the results of his study in to UK government procurement.  The conclusions, he says are shocking.   His main conclusion is that the UK government is failing to take advantage of its position as a strong buyer with a top notch credit rating.

Sir Philip said that no business could survive the level of money that was wasted from the GBP 191 billion (USD 305 billion) of spending he reviewed.

The report suggests that billions could be saved by doing simple things like managing supplier contracts and spending more diligently.  “The process is shocking; there is no reporting, there is no accountability”, says Sir Philip.

So is this an issue of better contract management or an issue of management and the fostering of a culture oversight?

In reality, a successful outcome will involve a bit of both.  Contract Management software solutions, like Dolphin Contract Manager, can help to provide greater control over contracted commitments and spending by allowing business managers and procurement professionals to keep track of terms and conditions that were negotiated and agreed in the contract and then capturing performance related data (like obligations tracking, KPI management as well as invoicing and deliverables tracking) against expected behaviour.

Metronet collapse blamed on poor contract management

The UK Department for Transport has come under heavy critisism recently following a Public Accounts Committee report that found that the  £410 million ($612 million) collapse of Metronet, an organisation established to oversee the renovation of London Underground’s tracks and stations, was largely due to ‘inadquate’ contract management.

The government entered into three 30-year contacts to improve the tube network in 2003.  But in 2007, two of the contractors – Metronet BCV and Metronet SSL – went into administration, resulting in delays to the renovation programme and losses of between £170m and £410m.

The Department for Transport was particularly singled out for its ‘hands off’ approach to contract management, despite official warnings from the National Audit Office in 2004 that it should manage the Metronet contract more closely.

The report also pointed out that London authorities were unable to provide adequate contract oversight because they did not have timely information about the performance of the Metronet contract.

This situation is likely to be played out more and more in the future as central and local government authorities look to external contractors to provide key services.  It is common for organisations to put all of their effort in to the contract drafting and negotiation stage of the contract process, but not in the proactive management of contract milestones, obligations and commitments after contracts have been agreed to.

Contract Management software solutions like Dolphin Contract Manager, allow key stakeholders to better manage contract milestones, obligations and commitments by providing key stakeholders with timely management information.

Contract Management systems should include the following common features:

• automated contract authoring
• legal clause libraries
• central repository for contracts
• electronic workflow for internal reviews and approvals
• obligation and commitment management
• external workspaces for external party negotiation
• critial milestone alerts
• management reports and dashboards

Better contract oversight cannot be achieved using manual means alone and equally, contract management software cannot replace the requirement for contract managers, but together, the discipline of contract management can be made more effective.

Pentagon to withold payments to vendors with poor contract management systems.

Business Week Magazine reports this week that the Pentagon is proposing a rule in the Federal Register that will prevent or withold payment to defense contractors where poor contract management and oversight can be identified.

The proposed rule would give the Pentagon the right “to withhold a percentage of payments under certain conditions, when a contractor’s business system contains deficiencies.”

The rule would cover most defense contracts, as well as other contracts that reimburse companies for costs or pay incentive fees for hitting cost and schedule targets, or those that base payments on time, materials or labor hours.

This is seen as a move by US Defense Secretary Robert Gates to tighten up contract oversight practices to reduce contract overspending.

This clearly means that government contractors are going to have to have much greater control over their contract management processes and how they manage Federal Acquisition FAR and DFAR clauses and obligations.  Government contractors should urgently consider the deployment of contract management systems that will help them to streamline their contract processes and provide greater oversight in to contract obligations.  Solutions like Dolphin Contract Manager, provide full contract lifecycle management funcitonality as well as FAR and DFAR clause and Obligation Management.

Contract oversight for US Government contractors in the spotlight.

In the latest in a long list of poor contract governance and oversight examples relating to US government contractors, a report will be published early next week by the Special Inspector General for Iraq Reconstruction.

Stuart Bowen, Special Inspector General for Iraq Reconstruction, will strongly criticize the US State Department for failings in contract management and contract oversight in relation to the award of a contract to DynCorp International to provide training services to the Iraqi Police force.  The report suggests that some $2.5 billion has been wasted through poor contract management practices.

It is well known that there is a chronic shortage of qualified contract management personnel in the US Government.  Last year President Obama called for the recruitment of 19,000 new contract managers to improve government contract oversight with external vendors; but technology can also play a part in making government contract management more effective.

US government contracts are governed by a strict set of rules and regulations, called Federal Acquisition Regulations, or FARs.   FARs contain both clauses that need to be included in government contractor agreements (and in some cases, flow down to sub-contractors) as well as guidelines and regulations that need to be adhered to to.

Contract Management software solutions, like Dolphin Contract Manager, facilitate the effective management of FAR (and Department of Defense – DFAR) clauses and regulations through its unique FAR Clause Library and FAR Obligation Management functionality.  When coupled with contract milestone data management and management reports and alerts, contract managers are able to gain much greater visibility and control over contracted commitments and critical milestones.

Contract obligation management

If you were to disect the contents of an average contract, you will likely find a mix of  legal clauses, terms and conditions … and obligations.  Obligations that either you want a supplier or vendor to comply to, or obligations that you commit to from a customer or other third party.

Why is it then that contract obligations get such poor air-time from legal departments and other stakeholders who are tasked with contract management activities.

From Dolphin Software’s experience, Microsoft Excel appears to be the de facto contract data repository for most in-house legal departments, where key contract milestone data is held in a spreadsheet in an attempt to provide more structure and control over the tracking of contract terms and conditions.  Spreadsheets become limited in their ability to manage contracts when the volume of contract data gets too much, when managers expect to be proactively rather than reactively alerted to a key contract event or when you need to find the original or electronic copy of the contract in a hurry.

So what about contract obligations data and information – are these held in these spreadsheets alongside contract milestone data, like key dates, contract parties, monetary values, etc.?  In most cases, the answer is no.  This is probably due to the fact that the owner of the spreasheet is rarely the same person who is personally responsible for executing or overseeing the process of contract obligation management.

Contract obligations can include anything from service level agreements and delivery times to customer service targets and can be directly linked to penalties for non-performance; or even bonus payments for achieving targets.  This is what NASA has to say about contract obligation management:

Unrecorded or inaccurate obligation record keeping can distort the accuracy of available appropriation balances.  Failure to record obligations and adjustments in a timely manner increases the risk of overobligation and the risk that program officials will not have accurate information to use in decision making.

A contract obligation may be identified by a legal specialist or a contract manager, but in most cases the responsibility for ensuring on-time delivery or vendor invoice accuracy is not that of the contract manager, but of other business colleagues. 

Effective contract management systems should be able to provide greater visibility and control over the contract process by not only providing a more logical environment to manage contract documents and milestone data, but also an environment where contract obligations can be tracked and adhered to.

Contract Management solutions, like Dolphin Contract Manager, allow obligations to be allocated to business users, who are then automatically alerted when a relevant obligation is due.  Best-practice procedures and KPIs can be linked to contract obligations and these should form part of a comprehensive programme of contract obligation management.

 

 

 

Expected cuts in government funding for UK local government increase the need for better contract management

The writing is on the wall for UK Local Government organisations:  public spending will fall over the next three years regardless of whether Labour remains in power, or whether the Conservative party wins the next general election.  This will have huge strategic implications on how Local Government organisations provide services to the public and must surely now be the primary issue on the minds of local government Chief Executives.

The UK now has record levels of public debt, which is set to increase to £175 billion ($289 billion) in the current financial year.  Gordon Brown has recently been forced to modify his planned public spending efficiency gains, which aimed to save £35 billion ($58 billion) to extract even greater cost savings; while the Conservatives, under David Cameron, have already made clear that they intend to reduce the onus on the public purse to support services provided to the public.

Some local authorities have already acted in anticipation of wide-ranging spending cuts and lower tax revenues that have resulted from the current recession.

Norfolk County Council has recently announced plans to review the roles of 600 of its most well paid employees in an attempt to find additional cost savings; while Barnet Council announced plans last week to embark on a radical overhaul of it public service provision by reducing the services that it provides to a core, and charging fees for enhanced services – something akin to the low-cost airline industry.

In all likelihood, this will result in a much greater emphasis on the outsourcing of core services to external providers.  The need to manage these contractor contracts and agreements will be more important than ever.  A point not missed by Liberal Democrat MP, Paul Morse, who states:

“I have no problem with the vision, but what I can’t see is how it’s going to be delivered.  It seems like we are going to have further contracting out and if they are going to do that, they’ve got to improve their contract management”.

The UK National Audit Office earlier this year issued a damning report on Central Government mis-management of supplier contracts that has led to over £290 million being wasted on IT Services contracts alone, caused primarily through poor management of contract terms and obligations.

If more public services are going to be provided by external parties, then it is clearly critical to be able to manage and control those supplier contracts effectively to ensure the quality of service provided and to control contract-related costs.

Contract Management software solutions, like those provided by Dolphin Software, have the potential to help local government organisations to streamline and control their contract management processes by providing managers with the right management information to manage contract milestones and obligations, and to allow contracts to be managed in the way in which they were negotiated.

What will a new Conservative government in the UK mean for public sector Contract Management?

It is no secret that David Cameron, the leader of the main UK opposition party – the Conservatives, and likely next Prime Minister, will seek to reduce public expenditure by cutting central and local government spending.

If the Conservative party does get in to power after 12 years of Labour rule, it will have dramatic consequences for many people who have become used to public sector budgets and expediture balooning year on year under Tony Blair and latterly, under Gordon Brown’s ‘spend our way out of recession’ strategy.

The reality is that the United Kingdom now has unprecedented levels of debt, and coupled with the Conservative party’s strategy of reducing the reliance on central government to increase government spending, will mean that the next likely government in the United Kingdom, will have to reduce public expenditure significantly.

According to the UK Office of National Statistics, ‘Public sector net debt, expressed as a percentage of Gross Domestic Product (GDP), was 56.6 per cent at the end of June 2009, compared with 44.4 per cent at end of June 2008. Net debt was £798.8 billion at the end of June, compared with £641.4 billion a year earlier’.

So, what will this mean for central and local government organisations?

Almost certainly, it will mean that they will have to cut back core services, but it will also mean that they will have to streamline their processes and procedures to deliver public services in a more efficient way in the future.   Public sector organisations are already under pressure from the National Audit office to become more efficient and to ensure that public expenditure is properly managed – a report published recently highlighted that central government departments are wasting around £290 million annually in IT services contracts through poor contract management and enforcement of contract performance obligations.

Public sector procurement will come under much closer scrutiny after the next election.  This means that there will be an increased focus on how public sector organisations manage key contracts with external providers.  The recent MP’s expenses scandal has also focused attention on how public money is spent and justified.

Streamlining contract management processes and procedures will become ever more important and will become a central strategic issue for public sector managers. 

How can Contract Management technology solutions help?

Contract Management solutions help to streamline and manage the contract lifecycle process by ensuring that contracts are drafted and negotiated in an efficient manner.   They also enable key stakeholders to track and manage contract milestones and obligations that are hidden within contracts and that are rarely tracked and managed today.

You should consider investing in a Contract Management solution if you are unsure or not able to answer any of the following questions:

1. Do you know how many active contracts you have?
2. Do you always enforce contract terms and conditions that lead to penalties for poor supplier performance?
3. Do you know how much your organisation has contracted to spend and how much you have spent year to date against your budgets?
4. Do you know where your contracts are?
5. Do you always review supplier contracts coming up for renewal or termination?
6. Are you confident that your contracting process will stand up to the scrutiny of an official audit?
7. Do you pass on key information contained within contracts to other stakeholders in your organisation (like making the finance department aware of all contracts that contain non-standard payment terms, for instance)?
8. Do you feel that you and your colleagues have all of the management information to manage your contracts effectively?

Whoever wins the next general election in the United Kingdom, the writing is on the wall:  Public expenditure is going to diminish.  Now is the time to start planning for this new spending regime by putting in processes and solutions that will make public sector organisations more efficient.  Since contract processes are typically poorly automated and managed, and therefore represent the best chance to erradicate unnecessary costs and wastage, focus on improving Contract Management should be the primary strategy for Legal, Procurement and Finance managers in the public sector.