Valuable Contract Management Lessons from Down Under

Contract managers and procurement professionals will discover much of interest in the New South Wales, Australia, Auditor-General's report on its recent performance audit, “Making the most of government purchasing power – telecommunications."

The auditors reviewed telecommunications purchasing by six New South Wales (NSW) agencies under the statewide Government Technology Agreement (GTA) in effect from 2007 to 2014, and the new state telecommunications procurement framework which took effect in April 2014. The report found that while “the main determinant of whether agencies achieved value for money is how they managed their procurement processes, contracts and expenses," only one agency did this well and could demonstrate that it was getting value for money.

The Road to Savings – Or Not

The GTA paved the way for savings by establishing standard contractual terms and conditions, and providing for centralized validation of supplier’s insurance coverage. However, to achieve savings beyond the ceiling prices established in the GTA, individual agencies must negotiate with suppliers while employing best practices in procurement and contract management. Some agencies did this, though not consistently. For example, in the case of NSW Fire and Rescue, the performance audit found that “elements of good contract management practices are evident for telecommunications contracts, such as supplier performance reviews, risk assessment and contract reviews. Fire and Rescue has achieved value for money by negotiating a contract renewal with improved services at lower cost, and by leveraging an existing contract to reduce implementation costs in another contract." But, the report noted, “Fire and Rescue does not have a contract management framework, contract management plan or contract manager assigned for any of its telecommunications contracts." Without these things in place, the report expressed concern that the savings achieved by procurement could be eroded over time. In a similar vein, the report observed that the Department of Education and Communities “demonstrated that it achieved value for money in its telecommunications arrangements for data services, worth around $67.7 million per annum," but had “foregone savings in the last three years as a result of weaknesses in its procurement and contract management processes for fixed voice and mobile services." These weaknesses may have resulted in $2.81 million in lost savings since 2011.

At each agency, the auditors were seeking not merely savings but a consistent practice that would insure demonstration of value for money – a contract management framework. In the report’s words, “Selection and implementation of telecommunications services can result in long term relationships with suppliers beyond the initial contract period. Effective contract management requires an appropriate contract management framework that addresses governance arrangements, skills, roles and responsibilities, and policies and procedures." One agency, Essential Energy, showed that it had such a contract management framework in place.

How Contract Management Systems Can Help

The NSW Auditor-General's report does not examine the role electronic contract management systems; its focus was on professional practice and the use of frameworks to insure value for money. Indeed, contract management systems cannot replace the professional acumen that led to individual cases of savings at the agencies described above, but such systems can make success more likely. A central repository for contracts makes it more likely that managers become aware of pertinent terms and costs among similar agreements. Ceiling prices can be recorded as such - signaling to contract negotiators and approvers that further potential savings are possible. Managers (whether in procurement or contracts) can use dashboards to assign review of existing agreements to individuals with requisite commercial skills, industry expertise, and awareness of the technical landscape. Periodic review of both contracts and terms can be scheduled to occur automatically, as can review of the market and vendor performance, before the current contract expires.

Of the many areas for improvement noted in the Auditor-General’s report, several could certainly be addressed by a combination of professional practices and a contract management system. Some examples from the report:

One state agency’s telecommunications contract had expired in 2012 and continued to run on a month-to-month basis for years  – often a very expensive mistake. Additionally, the audit discovered that “some of the supplier’s contractual obligations under this contract have not been performed in the last two years." With a contract management system, contract expiration dates can be used to trigger a reminder to renew or renegotiate a contract well before its end date. Tracking of counterparty obligations can be assigned to staffers with industry expertise. In this case, automating either renewal alerts or obligation tracking might have brought the other issue to light.

Another state agency had failed to coordinate its client agencies’ contracts for mobile voice service. As a result, access cost per mobile voice service varied hugely between separate contracts among the client agencies – with the access cost per mobile voice service varying from $1.29 to $42.10. The report notes, “This variation is related to the volume of mobile voice services rather than location and geographic spread, and indicates there is an opportunity to leverage buying power to get better rates for the agencies in the group with lower volumes." Isolation of contracts in silos can make it harder to compare costs contract to contract, or even simply to manage such contracts. Use of a contract management system puts this sort of comparison within reach of an observant manager, who can report across contracts and catch the opportunity to leverage an agencies buying power.

A third agency faced a problem of distributed responsibility: having negotiated rates for fixed voice and mobile services for individual schools, the agency relied on the schools to review their monthly invoices and identify errors. The audit report found, however, that the contracting agency “cannot be certain that every school and manager reviews their invoices to identify incorrect charges, to check that cancelled services are not being charged, or whether correct rates are being applied." With a contract management system, the approved rates could be selectively shared with school personnel, a reminder to compare rates with the invoices (along with procedures for checking cancelled services) generated on a dashboard or sent by email, and – in a SharePoint-based system – a secure site set up for school personnel to actively confirm expenses or enter discrepancies with regard to the contracted rates.

The entire Auditor-General’s report is available online and worth reading for those interested in improving contract management and procurement processes. And for those professionals whose contract management follows the best practices recommended in the report, consider one added value to using a robust contract management system: system-wide reporting on contracts will allow you to demonstrate your success in monitoring compliance to terms and capturing potential savings.