Good Practice
NAO On Commercial And Contract Management – Organisational Capability

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 fifth of the NAO insights (as they call them) – Maintain “organisational capability”.

This falls under the wider heading of  “commercial capability” but looks at the capability issues beyond those related to people and skills. So the key areas of interest are governance, systems, processes and data. As the NAO says, “this is an area where we have seen some of the biggest changes in government departments over recent years, but no-one yet says they have a fully mature organisational model”.

Under each of those four headings, NAO makes generally sensible comments and suggestions. Contract ownership should be clear of course, and good governance needs roles, responsibilities and processes to be in place from early in the lifecycle. There is a suggestion of “executive champions” who would report to organisational committees with “oversight of the commercial portfolio”. (Perhaps that should simply be the Board)?

The short paragraph on IT systems mentions something that would “produce electronic invoices” which is somewhat odd – isn’t it usually the supplier who is producing invoices, rather than the buy-side? Data and processes sees NAO on firmer ground, talking about the need to “collect and use information to make decisions across contracts, categories and the organisation”.

Visibility is another key point, with the need to keep records of contracts, performance and “pipeline of forthcoming work” as NAO suggests, slightly confusingly. (We’re not clear whether they mean work connected with the specific contract or more generally future procurement opportunities?) But more immediately understandable is the NAO demand that organisations understand their future needs and work towards meeting them in capability terms.

Public Spend Forum Comments

There are some vitally important issues under this heading. Governance – or rather poor or non-existent governance – has been the source of some very significant public sector commercial “disasters” in recent years, as the NAO also highlights in their case study section here. (For example: “Significant changes, such as to the volume and contract price, were not consistently recorded. These governance shortfalls contributed to control problems, leading to pricing disputes and the ultimate early termination of the contract”).

Too often, problems have not been handled properly at operational level, and the processes for escalation and review by more senior people (often on both sides of the contract) were simply not in place. There is often a game played here which does no favours to the taxpayer ultimately. The junior staff don’t want to be seen as failing, and senior staff don’t want to know – because if they know, they will have to do something. It is easier to claim ignorance later rather than be exposed for inaction or incompetence.

The political dimension comes into play here as well sometimes, with the same principle applying to politicians. As long as they don’t know, they can claim ignorance in Parliament, and sound shocked when the terrible contract failure is finally “exposed” But if the officials tell them, then they have to either do something or lie to Parliament later. So better not to know, better not to ask too many questions.

The issues and opportunities around technology are not really explored in the NAO report – perhaps not surprisingly, given the pace of change in the market and NAO’s remit. Contract management software is now proving useful in areas ranging from contract drafting, through performance management and tracking of obligations, and even encompassing advanced supplier relationship programmes and objectives such as capturing innovation.

Given the criticality of many public sector contracts once in place, the public sector really should look to be early adopters of the best contract management technology. We don’t see this happening in many cases, which is a shame. Whereas eSourcing technology has achieved a decent level of penetration into the UK public sector, the same is not true of contract management tools – there are certainly opportunities here.