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Effective management of operational contracts
Trowers Public Insight

Effective management of operational contracts

In recent weeks several local authorities have allocated additional resource to managing their major contracts.  In these times of austerity and cuts, this blog considers the justification of this investment, how to best use this resource and points to consider during contract negotiation.

Benefits of Contract Management

Once a public authority enters into a contract with a provider, good contract management is critical to obtain the best level service and manage risks in the contract and achieve savings. 

Contract management allows unexpected issues to be dealt with quickly before they escalate and persistent underperformance to be improved.  It will also show whether further savings can be sought or obtained through the contract and allow the public authority to obtain the best value from the contract.

In addition, it provides background information to the public authority, which is necessary for strategic decisions regarding the contract and to put the public authority in the driving seat for contract renegotiations, either due to change in service requirements or to make further savings.  Any modifications during the term will need to be made in accordance with Regulation 72 of the new Public Contracts Regulations.

Resources for Contract Management

Investment in resource is required in order to obtain these benefits from operational contracts and, anecdotally, public authorities tend to find that the investment in contract management is repaid through improved contract performance and savings.  Effective contract management requires:

  • dedicated resource with time to manage the contract (eg regular dialogue with the provider, reviewing data, exercise of contractual remedies such as deductions); 
  • specialist knowledge - the team managing the contract needs to understand the contract, responsibilities and levels of performance.  This requires staff with specialist knowledge of the mechanisms in the contract (either internal staff or external advisers).  Training is vital for new internal staff members getting to grips with large scale contracts; 
  • senior level support - support from a senior level in the public authority as well as from members can assist with effective contract management, especially for the strategic approach to contract management and to support major decisions. 

Focussing Limited Resources

Whilst each public authority enters into hundreds of contracts a year ranging from small value to large scale, focussing contract management on the largest and most critical contracts will yield the greatest results for public authorities. 
Investment will be most effectively allocated according to the needs of the project and the existing resource in the public authority.  There have been a couple of recent examples in the press of authorities investing in the management of their operational projects:

  • Portsmouth City Council announced last week that it is planning to establish a new group to focus on how the contract can be managed better and how costs can be reduced in its highways PFI project; 
  • The Isle of Wight Council has also recently announced that it is employing an external technical adviser to clarify the responsibilities in its highways PFI to ensure the relevant services are provided under the contract and to put forward proposals regarding the structure of the Council's contract management team.

Negotiating a Contract to Allow Effective Contract Management

It is important to consider how a contract is going to be operated and managed by the public authority during project inception and contract negotiation, to ensure the contract provides a framework for effective management. This includes:

  • prior to issue of the OJEU notice, the public authority should consider the scope the contract and ensure it provides the necessary flexibility for effective contract management, e.g. the length of term, option to extend the term / break early, option to alter the services in the contract. 
  • during preparation and negotiation of the contract, the public authority should ensure the contract includes provisions to assist with contract management, e.g. transparency and information provisions, market testing and benchmarking provisions, deductions for underperformance, annual reviews, flexibility to make changes if circumstances alter (eg change control clauses and budget control clauses). 

If you would like to discuss any of your requirements in relation to the management of operational contracts and how we can assist, please contact Helen Randall and James Hawkins.


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