As published in The Mandarin September 10, 2024 by Kiah MD John Glenn 

I know I’m a heretic. Surely, it’s obvious we need good contract management.

The Department of Finance has a well-meaning 50+ page guide to managing contracts. ANAO has a web page providing advice on better procurement and contract management (ANAO Insights: Audit Lessons – Procurement and Contract Management). Every department, state and federal, in which I have worked has a set of policies and directives on contracting and contract management.

Almost every contract has a contract management plan.

Yet we continue to get it badly wrong.  Look at Home Affairs latest shellacking about not being able to reasonably prepare for the end of a contract (Home Affairs Capability Review May 2024), along with a host of other procurement and contract issues. One would think being prepared for a contract ending is a simple outcome of a contract management plan, but time and again we kick that “own goal” of too little, too late. It’s not as if there isn’t fair warning – sometimes years. Home Affairs is not on their own.

ANAO has literally hundreds of reports addressing poor contracting in government, excessive variations, incomplete processing, failure of contractors to meet performance requirements. The list is seemingly endless.

Why would I imply there is something wrong with contract management? Because the evidence is, that despite the reviews, the reports, the poor contracting outcomes, contract management simply isn’t working.

Why not?

Here’s the heresy

We think about contracts the wrong way. We think we are buying something, that we have control, that the contractor just needs to do what they promised. We see them as a servant.

Contract management is, then, a matter of performance and punishment. To report, assess, measure and pull the levers available if there is non-performance.

Ideally the performance framework will encourage the contractor to deliver on time, particularly if delivery is all in their control. Contract management is a reporting and control framework, driven by compliance.

Sometimes that’s true, but mostly only for commodity products, a simple transaction, but often that’s not what we do. Contracting is about business outcomes, not legal and procurement processes.  In this I use the term “business” to mean the business of the public sector.

Here’s an alternate picture, more relevant for complicated products and services (adapted from Porter’s Value Chain to be applicable to the public sector). You are not simply buying a product or service; you are integrating a contractor into your value chain.  If you own a business outcome, you cannot transfer the risk or responsibility for that outcome to a contractor. It is always yours!

You need to ensure that the contractor and you can be successful, and that you can use their success to deliver your outcome. You are responsible for creating the conditions for the contractor’s success, and for ensuring their outputs integrate into your service delivery. They are responsible for the processes in their “box”. You are responsible that the “box” fits. These are the mutual obligations.

I’m not saying that contractor’s performance doesn’t need to be visible, or that there shouldn’t be consequences for non-performance. But those issues don’t stand alone, they live in the context of your service delivery. Here are a few reasons why command and control contract management doesn’t work:

• The contract management is an annoying activity not central to business delivery. So, it doesn’t get done as a mainstream activity, but put aside for other priorities.
• You measure contractor performance, not the value chain. The activities of the contractors and yourselves are linked. Your performance, and theirs needs to be measured, and how they impact each other understood. Then we can look at what might be changed to deliver improved outcomes. Otherwise, the contract management is a process, not a value-adding activity. See point one. 
• Contracts are thought of as stable, resistant to change, not as a live reflection of how you work together. Circumstances, needs, and priorities change through the life of a contract. Contracts need to change too. The focus is on compliance not outcomes and effectiveness.     
• Contract changes are frightening. The buyer thinks they open up to price increases. The vendor thinks changes are aimed at margin reduction. Sometimes both are true, but not necessarily in service contracts.  Focus on cost of delivery, you can both drive those down to each other’s benefit.

What’s a heretic to do

A few things will make a difference:

• Own the business outcomes and think of the contractor as part of your business. Business management is not the place for lawyers and procurement staff. They can help, but they don’t lead. They support you to get what you need, and if they aren’t supporting you to run a better business with your contractor, they aren’t helping.
• Understand and measure the mutual obligations, don’t shy from them. Lawyers discourage mutual obligations; they want the obligations to be one sided. That’s not a relationship. Own the things that are properly yours, make the contractor own their responsibilities.  
• Measure, report and manage the entire business, including the contracted services. That brings contract management to the mainstream, out of the back-room and the bottom drawer. Pay attention and others will too.

Some other things too

There are other things to do that will make contract management more valuable:

• Make what’s required visible and clear. Who needs another document that just lists the obligations in the contract, just read the contract. People change. New people don’t read contract management plans but ask. The processes are passed down by word of mouth, with all its intrinsic errors. There are better, more effective ways to achieve consistency.
• Relationship and performance contracting are not mutually exclusive, you need both. Relationship management takes effort, and you can retrofit an approach post contract if it is absent. Make it more than a half yearly meeting and shared values statement. Make it meaningful.  
• Performance measures that work but you have to know what they are saying. Understand the pitfalls of traffic lights, and the weakness of non-performance payments. Shine the light, though. No one wants poor performance visible. It’s powerful.

There are other things to do.

• A Kiah program on service delivery through contracting (aka contract management on steroids), for you and your team. Understand the meaning behind the words, how to look at getting better service not just compliance.
• In a pickle now, and don’t know what to do? Gain clarity you what you need, how much and when by engaging in a Rapid Review. 
• Call Kiah