In 2015, the National Audit Office (NAO) found ‘systematic weaknesses’ throughout Government Commercial as it relates to ongoing management of contracts. Eight years later it is widely acknowledged that, although good progress has been made, effective Contract Management is still inconsistently achieved throughout Departments’ Commercial Functions. It is a key area of improvement already identified and targeted by the Government Commercial Function – and will become especially critical when the new Procurement Regulations come into force late 2024, with the associated obligations of contract KPI reporting.
Proxima defines contract management as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximising financial and operational performance and minimising risk. Whilst there are a number of other definitions of contract management (which focus on activities after contract award), in our view, contract management is most effective where there is close alignment of pre- and post-activities.
There are approximately 30,000 civil servants, spread across every government department working in policy, digital, project management, operational delivery, HR, and many other job roles, who have an input, directly or indirectly, in managing contracts. Together, these staff touch around £49 billion each year being spent on contracts with third-party suppliers, often on life-changing goods and services for the public. Therefore, effective contract management has a major role to play in the effective delivery of government services – especially in a tight fiscal environment.
Why is effective contract management such a challenge?
1. It’s misunderstood
There is a common belief that contract management is all about disputes and arguments surrounding contractual obligations: Has the supplier done what they said they would? What is the penalty if they haven’t? And so forth. In reality, it’s much broader – contract management includes every aspect of both the value and the risk arising from the contract. It is much more than just managing the specific words and clauses on paper.
2. It’s highly-dispersed
In many government departments, contract management activity is spread throughout the organisation, involving many different people in different roles, and at different distances to the front line. Whilst at one level that makes a lot of sense, and allows contracts to be managed by those close to the point of delivery, the challenge is that effective contract management requires a much broader set of commercial considerations. The commercial function is arguably best place to see the bigger picture and influence the commercial levers, but often lacks the business partnering behaviours that can assure effective contract management across an organisation.
3. It’s complicated
Effective contract management requires a challenging and quite complex set of skills. There may be technical aspects (understanding the detail of supplier performance in the case of a complex IT contract, for example), as well as more generic technical skills such as negotiation and project management. A good contract manager also requires a range of softer interpersonal skills: persuasion, listening, tenacity, independence, and the list goes on. Good quality contract managers often rely on experience – not on theory – meaning they can be hard to find, or a costly part of the workforce.
4. It defies assessment
What does success look like? Identifying the tangible benefits of good contract management is, unfortunately, more difficult than when it goes wrong. If the supplier delivers the contract perfectly, everything works well; risks are avoided and managed, then often, nobody notices! The business case is not based upon a dramatic “saving” or headcount reduction. This too, contributes to the elusive nature of good contract management.
5. It’s undervalued
That brings us to our final point: because it is so misunderstood and its benefits are so hidden, contract management is still not valued as highly as it should be. Essentially, value delivery starts in pre-procurement, but it is not optimized until a contract is effectively managed. It’s critical that commercial functions, and broader organisations, understand that and value their contract managers more.
What are the opportunities for procurement organisations?
Effective contract management can deliver a wealth of benefits to Departments – and will be become increasingly important as fiscal conditions tighten and drive the need to do “more with less”. The advent of the new Procurement Regulations in 2024 will also shine a light on contract management capability with the formalisation of post-contract KPI reporting. Departments should, therefore critically evaluate their capability in this area to ensure they have the resource and skills in place to deliver this key service into 2024 and beyond.