A recent report published by the National Audit Office estimates that up to £290 million ($425 million) could be saved each year through better management of Government service-based contracts.
The report concludes that the UK Government spent over £12 billion ($18 billion) on Service-based contracts in 2007-08 primarily in the areas of information and communications technologies and spent around 2% of the total contract cost (£240 million/$350 million) to manage and administer those contracts.
Since the publication of the 2004 Gershon Report into public spending, UK central and local government organisations have been encouraged to provide greater visibility into their contract spend and on the value for money that public funds are used for in government projects.
The National Audit Office goes further by stating that:
The delivery of public services, protection against failure and achievement of value for money are all dependent on effective contract management.
Poor contract management has been cited as the cause of a number of embarrasing and costly public project failures in recent years, like the difficulties experienced by the UK Rural Payments Agency to pay British farmers compensation, to the problems at the UK Passport Office that cost over £12 million in one instance when a new computer system failed.
The National Audit Office says that ‘contract management is especially important where suppliers are engaged to provide services over a long period of time and customers need to ensure that service levels and value for money are maintained over the duration of the contract’.
Key findings of the report:
- Contract Management is not always viewed as being strategically important
- There is rarely a single person with overall responsibility for Contract Management in an organisation (interestingly, we wrote an article about this issue in the commercial world a few weeks ago)
- Government organisations do not allocate appropriate skills and resources to contract management
- Poor management information and enforcement of contractual obligations: 38% of contract managers did not envoke contract penalty clauses when supplier performance fell below specified levels
- Poor risk management of contracts
- Value for money testing can result in significant savings but the extent to which government tests the value for money of ongoing services and contract changes is variable
Whether you are looking at Contract Management in the public sector, as in this case, or whether it is in a commercial context, there is unlikely to be single solution to better contract management.
The key things to get right however are:
- Define your contract management process
- Establish clear policies and procedures for creating, approving, archiving and managing contracts
- Appoint someone to have overall responsibility for contract management in your organisation
- Consider the use of technolgy solutions (like Contract Lifecycle Management solutions) that help to support and manage the contract process