Setting Your Standards: The importance of Contract Management

Written by: Synergy Law at Synergy

It’s commonly joked about that once a contract is signed, the contract is thrown into the bottom desk drawer and only retrieved if there is a major dispute between the parties. While this is a hazardous approach for many reasons, the ANAO has recently highlighted that government departments need to be proactive in their plans for contract management, and be cognisant of contract management matters, such as performance management, from the outset of the procurement process.

The recent ANAO audit of the Procurement of Delivery Partners for the Department of Industry, Science, Energy and Resources (DISER) Entrepreneurs’ Programme examined whether the design and conduct of the procurement process complied with the Commonwealth Procurement Rules (CPRs), and whether the signed contracts were being appropriately managed.

To form a conclusion, the following high-level criteria were applied:

• Did the procurement process demonstrate value for money?
• Are the contracts being managed appropriately to achieve the objectives of the procurement?

The ANAO’s conclusions

The ANAO concluded that in the design and conduct of the procurement process, DISER did not demonstrate achievement of value for money, and DISER’s conduct of the procurement process fell short of the ethical requirements set out in the CPRs. More detail about the deficiencies of the procurement process can be found in the ANAO’s full report.¹

The ANAO also concluded that the signed contracts were not being appropriately managed. The ANAO found that the contract management framework was inadequate, and the department’s approach had not resulted in contract deliverables being provided on time nor required that service provision was to an appropriate standard before payments were made. The contracts also did not include an effective performance management framework.

While there is always a focus on procurement processes, their compliance with the CPRs and highlighting where the processes fell short in relation to their compliance, there is generally far less of an emphasis on contract management and any shortfalls in that space.

The ANAO’s audit reinforces that departments need to be diligent in their planning for contract management, and properly follow those plans to ensure effective contract management while the contract is on foot. Additionally, activities such as performance management frameworks need to be appropriately developed from the outset of the procurement process. This will ensure that the value for money achieved throughout the procurement process continues to be achieved for the term of the contract.

Contract management frameworks

In concluding that DISER’s contract management framework for the program was inadequate, the ANAO noted that no contract management plans were developed for any of the contracts, and accordingly, the department’s approach (or lack thereof) to contract management did not secure:

• provision of contract deliverables on time;
• provision of services to an appropriate standard before payments were made; and
• appropriate management of all identified conflicts of interest.

The ANAO recommended that the department:

• develop contract management plans for each of the delivery partner contracts;
• adopt a proactive approach to managing delivery partner conflicts of interest; and
• strengthen its management of the delivery partner contracts, including by taking prompt action in circumstances where delivery deadlines are not met and verifying that services have been provided before payments are made.

Contract management plans are useful tools for managing risks to the success of the contract, and for ensuring that what is negotiated as value for money is achieved.² Contract management plans should be consistent with the department’s overarching contract management framework, and at a minimum, should set out key contacts, communication management, milestones, requirements for contract deliverables, processes for verifying the delivery of goods or services before payments are made, and performance of specific obligations. They should also set out the processes that are to be followed if contractual obligations are not met (e.g., missed delivery deadlines). The Australian Government Contract Management Guide contains more detailed information about what should be included in contract management plans for different types of contracts.³

It is imperative that departments consistently and actively manage contracts in accordance with approved contract management plans, which should be in accordance with the contract terms. This ensures that supplier performance is satisfactory, stakeholders are well informed, and all contract requirements are met, thereby ensuring that the contract delivers the anticipated value for money outcome.⁴ It will also ensure that processes set out in the contract are followed, which minimises the risk of departments incurring liability, or unintentionally waiving or varying rights under the contract.

Performance management frameworks

Performance management is key in delivering value for money and involves ensuring that goods or services are delivered as required under the contract.⁵ The ANAO concluded that the delivery partner contracts did not include an effective performance management framework, and in particular, did not contain:

• specific service levels that each delivery partner must achieve or exceed;
• any performance measures and related targets to assess delivery partner performance; and
• a means to adjust payment based on the performance of delivery partners.

The ANAO recommended that when contracting for the delivery of services, DISER apply competitive pressure when establishing performance expectations, and how these will relate to contractual payments.⁶ This can be achieved by setting out expected performance management systems and standards in the approach to market documentation, or by asking respondents to set out their proposals to inform a comparative evaluation.⁷ We recommend this be done at the outset of the procurement process as this is when government departments have the greatest negotiating power when it comes to matters like performance management. Leaving this to be negotiated once in contract makes it much more difficult to obtain the same results as if it were negotiated pre-contract award, as departments have less leverage to introduce regimes into a contract that affect supplier performance expectations or profits.

So, the key takeaway from this ANAO audit for government departments is you can’t leave thinking about contract management until you are in contract. The more planning and preparation undertaken, including the development of performance management and contract management frameworks, will ensure expectations are clear and disappointment is kept to a minimum.

How Synergy can help

Synergy Law is a Synergy Group legal offering, specialising in Government law and legal advisory services.

We have a deep understanding of the Commonwealth procurement and contracting framework. Our team has strong experience in drafting approach to market documentation and contracts, drafting and implementing contract management frameworks and plans, and advising on issues that arise once in contract.

If you would like to know more, reach out to Synergy Law Partner, Bobbi Campbell (bcampbell@synergygroup.net.au).

¹ Australian National Audit Office, Procurement of Delivery Partners for the Entrepreneurs’ Programme, Performance audit (No 42 2021–22) 24 June 2022 (‘Procurement of Delivery Partners’).

² Ibid 56 [3.6]

³ Department of Finance, Australian Government Contract Management Guide, December 2020.

⁴ Ibid

⁵ Procurement of Delivery Partners (n 1) 64 [3.46].

⁶ Ibid 68 [3.63].

⁷ Ibid

NOTE: The content of this article is intended to provide a general guide to the subject matter, and specialist advice should be sought about your specific circumstances. The content must not be relied upon as legal, technical, financial or other professional advice.