Good Practice
NAO on Commercial & Contract Management – Be An Intelligent Client

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 number 7 of the NAO insights (as they call them) – Be an intelligent client. This falls under the “market management and sourcing” wider heading.

That phrase (intelligent client) must be one of the most used and probably most over-used in the commercial world in recent years. But there is a reason for that; it contains a real and deep truth. If you are not intelligent, then the chances are at best you won’t get good value from your supplier and at worst they will exploit your lack of intelligence with potentially serious consequences.

The NAO puts it well here –

“Far too often, we find that government does not understand what it means to buy and what this should cost, or what it has actually bought for the price paid. Without this understanding, government exposes itself to a risk that it will not achieve its goals or that its contracts will be ineffective and inefficient.

In putting itself in the best position to negotiate or understand how contractual changes affect service and price, government needs to understand both the specification and how the price offered by suppliers relates to its understanding of costs”.

There is also a very useful table in this section of the NAO report which covers the whole range of “intelligent client” activities. It describes the elements of what an intelligent client “should maintain” (for example, a should-cost model and a contract cost schedule), examples of how those tools can be used through the contract lifecycle, and aspects relating to the specification – all laid out against different aspects such as “contract approach” and “lifecycle management”.

This single sheet (page 34 in the document) contains a cast amount of wisdom, ranging from common sense elements to really quite deep insight – it is very impressive.

As throughout the whole document, the case studies given to illustrate these points are also very useful and enlightening to anyone who is interested in public procurement. They give both good and bad examples of previous public sector contracts, particularly issues around understanding specifications and bids.

Public Spend Forum Comments

There is a particular focus in the NAO remarks on the tender specification and understanding how this relates to supplier costs. That is an important topic, but arguably the “intelligent client” covers a whole range of areas, many of which are included in the NAO guidance under different headings. So they are in effect narrowing down the definition here in terms of defining “intelligent client” although the excellent “page 34” we mention above does get into the wider issues.

But nonetheless there are some critically important points made here. If the buyer does not understand the supplier’s bid, the costings and assumptions made within it, there is a high probability that this will come back to bite later. Allowing the supplier to make false assumptions which drive a lower price but again will later cause problems is something else we have seen in many contracts over the years (both public and private sector) and is not good practice

Indeed, that issue of understanding runs through the whole contract lifecycle, or at least it should. Clearly, the level of “client intelligence” needed will relate to the size, value (in the broadest sense) and risk of a particular contract. But while buyers and contract managers don’t need to know as much as the supplier in terms of the detail of delivering the contract requirements, we do need real intelligence. We need to understand the link between costs and specifications, overall supplier cost structures, market issues, the supplier’s own situation … being an intelligent client requires a range of knowledge and skill that is often under-estimated.

First Voice

  1. Digby Barker says:

    I’d pick out two elements of your article, Peter: “should-cost” & “assumptions”; the first because an under-recognised reason for ‘cost overruns’ and therefore (apparent) ‘poor performance’ is unrealistic estimates – not helped by bureaucratic pressure – at the Budgetting stage; and the second because too little attention is paid by Buyers to recording their assumptions as a precursor to requiring bidders to provide theirs & then critically reviewing both as part of a Risk Analysis associated with bid evaluation. Also, as a sweeping generalisation, I think Buyers have too little appreciation of the role of overheads in companies’ costs and how their actions – or lack thereof – can influence them although I realise that this point is more about ‘knowledge’ than ‘intelligence’