Good Practice
National Audit Office Best Practice Guidance (Part 4) – Tailor Capability to Risks & Opportunities

At the end of last year, the UK’s National Audit Office issued a very useful document titled “Commercial and contract management: insights and emerging best practice”. We did provide an initial overview of it here, and now we are into a more detailed review of its content and findings. For each area the NAO has covered, we will look at their content and then give any additional analysis or thoughts we would add to the mix. Today, we will take a look at the third of the NAO insights (as they call them) – “Tailor capability to risks and opportunities” .

So this is the first of three insights that fall under the heading of “commercial capability” and covers issues around resource allocation. NAO recognises that no organisation even has enough resource to do everything it might like to in the commercial field, so “needs to ensure that resources are allocated where they are needed most and where they can achieve the most impact”.

This is made harder, they explain, by the lack of benchmarks or models for determining appropriate levels of commercial and contract management resource. So “organisational and contract perspectives need to be considered in establishing a staffing model”.

That means understanding the portfolio of contracts that need managing and the wider staffing issues, then identifying the return on spending in this area, and tailoring resources appropriately. Quoting from the 2008 NAO good practice contract management framework (which I largely wrote), NAO suggests that the:

– Contract manager has appropriate skills with access to relevant training and development.

– Experienced contract managers are used on key contracts.

– Balanced contract management teams are brought together, with a range of skills.

– Contract management is adequately resourced in proportion to the importance of the contract.

The warning signs when the NAO undertakes reviews are pretty obvious really; factors such as a lack of planning in terms of resource, contracts understaffed at key stages of the process, and a lack of consideration around return on investment in terms of resource allocation.

Public Spend Forum Comments

In our experience, it is probably more often at the contract management stage rather than contract letting that the issues of resource levels really come into play. If a procurement exercise is not resourced properly, it may well just collapse. But the largest contract will carry on delivering with a bare minimum of management, because it is in the supplier’s interest to make sure it does – but the value to the customer may be falling or no-existent because of that lack of management.

However, it has always proved very difficult to advise clearly on the “right” levels of contract management resource, and while the NAO comments here are relevant and helpful, they don’t go far towards answering that tricky question. One problem is that much contract management is around risk mitigation; so investing money and people might mean that bad things did not happen – so costs or other negative outcomes are avoided. But that is a lot harder to work into a business case than an activity that has a clear savings or benefit as a return.

Yet anyone who has been around the commercial world knows that poor contract management can have hugely negative effects, and many of the disasters of public procurement in recent years have been at least as much about contract management as the up-front procurement.

We have heard numbers being quoted such as “you should spend 2% of the contract value in contract management”. But that is clearly nonsense or at best too broad-brush to be effective; it ignores economies of scale and even more importantly, it ignores the factors of risk and opportunity. Clearly, we should put more resource into contract management when there is either major opportunity to extract more value from the contract, or we need to manage serious risks.

Perhaps we need a “cognitive tool” that would take key information about a contract and calculate how much should be spent on contract management – a sort of automated business case calculator? There’s an interesting project for someone.

Voices (3)

  1. Digby Barker says:

    I may have misunderstood something but I’m not sure I agree with “….it is probably more often at the contract management stage rather than contract letting that the issues of resource levels really come into play”. Effective Contract Management depends on effective Monitoring and its foundations are therefore laid at the ‘contract letting’ (i.e. procurement) stage, for example by specifying in the Procurement Documents the information (and its format, quality & frequency) that the Contractor will be required to provide to enable the Authority to monitor the Contract after it has been let. So if resources are inadequate at the procurement stage there is probably very little in the way of effective contract management that can be done regardless of the resources that might be made available after contract let.

    1. Dan says:

      Contract Management is more important than procurement. A well-procured contract can become a failure due to poor contract management, while effective management of a contract can rectify issues caused by poor procurement.

    2. bitter and twisted says:

      Surely if you are relying on the supplier to show they are performing, you have already lost. What matters is the users’ experience.