Book News: February 5th, 2009

This report from the National Audit Office is based on research across central government, but it has messages for all public service procurement.

Contract management is not given the priority it deserves. There is often no one individual with overall responsibility for contract management across an organization. There are few documented plans for managing individual contracts and in over a quarter of cases where plans did exist, supplier input was limited. There is a lack of structured training programmes and few contract managers hold any formal commercial qualification, for example, membership of the Chartered Institute of Purchasing and Supply.

There are weaknesses in key performance indicators and limited use of financial incentives to drive supplier performance. By and large, organizations collect performance information and discuss supplier performance regularly, but there are few formal performance measures. Where financial incentives were in place, 38 per cent of contract managers did not always invoke payment deductions in the event that supplier performance fell below the specified standard.

Many contracts did not have in place some or all elements of good practice risk management processes. For example, 37 per cent of contracts did not have a risk register and 56 per cent did not have a contingency plan in case of supplier failure.

Value for money testing can result in significant savings but the extent to which tests are applied is variable. There is little evidence that organisations are regularly working with suppliers to secure performance improvements, but where this does happen, much of the activity is uncoordinated with only 53 per cent of contract managers having a formal plan for supplier development. Less than half of organizations had implemented a supplier relationship management programme despite what appear to be clear benefits. Eighty-three per cent of suppliers involved in such a programme considered it had helped to improve.

Nearly all the organisations surveyed thought that value for money could be improved through better contract management, in terms of more or better services, or lower costs.

Management of Service Contracts is available from the NAO.