Contract management

Contract management is a critical function in the UK government sector, where large-scale projects and public services often rely on third-party providers. Effective contract management ensures public funds are spent efficiently, services are delivered to high standards, and projects meet their objectives. However, this area is fraught with challenges, particularly in navigating complex regulations and avoiding pitfalls that can lead to cost overruns and reputational damage but to name two major implications of getting it wrong.

Contract management encompasses the entire lifecycle of a contract, from planning and tendering to monitoring performance and final evaluation. For the UK government, this function is particularly important given its commitment to value for money, transparency, and accountability in spending taxpayer funds.

In 2022-2023 alone, the UK public sector spent over ￡300 billion on procurement, emphasising the scale and impact of effective contract management. This substantial budget underscores procurement's critical role in public service delivery and economic influence. As such, it is vital to have robust systems and practices to ensure outcomes align with policy goals, including sustainability, innovation, and social value.

Clear objectives and scope

Contracts should have well-defined objectives and measurable outcomes. Ambiguity in scope often leads to disputes or scope creep, increasing costs and delays. Contracting authorities should have a clear understanding of the type of specification they are developing (eg, outcome-based, technical, task-based etc) and must be clear at the outset of what they are trying to achieve. This point is of critical importance as any decision to let a contract for services is (at some level) a conscious organisational decision to transfer risk.

Align contract objectives with broader public sector priorities, such as net zero goals and inclusivity.

Risk management

Identify potential risks early, including supplier financial instability or delivery delays, so getting the initial supplier qualification right is a critical factor in any procurement, especially where you’re going to market (as opposed to using an existing framework arrangement).

Implement mitigation strategies, such as performance bonds or step-in rights, and establish clear escalation procedures. Managing internal risks (across your business community and end-user stakeholders) is as important as having a good risk management strategy for suppliers.

Effective supplier engagement

Where you’re running a procurement, ensure that you plan it well so that you allow enough time to engage with the market.? This phase can often be overlooked but can yield positive benefits, especially in socialising the draft scope and evaluation criteria.

Regular communication with suppliers ensures alignment on expectations and fosters collaborative problem-solving.

Robust performance monitoring

Develop Key Performance Indicators (KPIs) and Service Level Agreements (SLAs) to assess progress. Ensure that you understand the differences between KPIs and SLAs. A KPI is a specific metric or measure used to evaluate the performance of a service, team, or individual against predetermined objectives. KPIs are tools within the SLA to monitor and assess performance. It is best practice to align KPIs to existing corporate and/or business unit objectives.

An SLA is a formal contract or part of a contract that defines the services to be provided, the standards or levels of performance expected, and the consequences if these standards are not met. It sets the benchmark for service delivery. An SLA is not an absolute guarantee of service levels being met, but it will provide you with the contractual clout required to ensure that the supplier is incentivised to deliver your expected service levels, so as to avoid service credits/liquidated damages which will hit them in the pocket!

Utilise technology, such as contract management software, to streamline reporting and identify deviations early. This also ensures that there’s only one version of the truth when contracting authority and supplier meet to discuss contract performance.

Capacity building

Equip procurement teams with the necessary skills in negotiation, legal compliance, and project management. Once a contract has been let, ensure that the Legal team are aware of their responsibilities to support and enable robust change control.

Share best practices across departments to enhance institutional knowledge.

Pitfalls in contract management

Despite best efforts, several common pitfalls can undermine contract management in the government sector:

1. Insufficient Planning: Poorly defined contracts can lead to significant delays and unanticipated costs. Many organisations still fail to produce any form of business case or project brief etc.? This can often lead to problems downstream where the organisation has conflicting views about the price to be paid for a service and indeed what problem they are trying to solve.? At the pricing evaluation stage, unless the organisation has (working with Finance) developed a “shadow” or “should cost” model, they often find it difficult to undertake an objective evaluation of the pricing data when the tender responses are returned.
2. Lack of market understanding: Overestimating supplier capacity can result in failed delivery, especially for innovative or large-scale projects.
3. Inadequate oversight: Failure to monitor supplier performance effectively can lead to non-compliance with contractual terms. This can become a major issue when the contracting authority gets into dispute with the supplier and especially where proper performance records have not been kept, or where contract management is not performed as expected. Having an “obligations matrix” which identifies the key contractual obligations, associated risks and responsibilities is critical to ensuring that you’ve got all key aspects of the contract covered.
4. Complex governance structures: Fragmented accountability can slow decision-making and reduce responsiveness. Ensuring that you have the right governance and decision-making processes relating to changing the contract (and approving new work etc) is critical to ensuring that the contract is managed effectively and efficiently.

And finally “the operation went well, but the patient is dead”: Just like a successful operation can be clinically perfect while failing to save the patient, a contract can achieve all its technical requirements yet fail to deliver value if outcomes aren't prioritised. Contract managers may become so focused on ensuring compliance with SLAs and KPIs that they overlook whether the contract serves its broader purpose.

An example of this might be where a project meets sustainability benchmarks on paper but does not meaningfully reduce environmental impact due to misaligned measures. In summary, contract management should aim not just for operational success but for meaningful outcomes that align with strategic objectives - ensuring the "patient" is not only treated but also thriving.

Fred Lynch is an accredited contract manager and leads the teaching of several modules on CIPFA's post graduate Diploma in Contract Management.