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 13 of the NAO insights (as they call them) – “Manage your own obligations” which is the first of four factors that come under the wider “Contract management” heading.
The government (customer) side of the agreement must meet its own obligations, says NAO.
“We often see government not fulfilling its own contractual obligations. Supplier performance can depend on government taking actions such as making critical decisions, designing a process, projecting forecasts or providing assets such as IT systems”.
If the customer fails, the result can be additional costs for one or both parties, or projects being delayed. And it is hard to hold the supplier to account if the customer is not acting as it should.
The root cause of this failure can be ambiguous responsibilities in the contract, or “poor management of multiple stakeholder dependencies”. In the case of complex contracts, there may be many people involved on the customer side who all have to fulfill their own obligations. So NAO recommends that contracts should include a schedule of customer obligations, and that should be carried through into a “project / programme management” plan , assigning milestones and responsibilities, with benefits realization also part of the picture.
The short examples given by NAO – all of them failures in this case – are interesting too. The MOD features twice, including the Army recruitment project I remember coming to the Public Accounts Committee; that programme “depended on the Department providing supporting ICT infrastructure for their new recruitment software by an agreed date. The Department did not provide this infrastructure which meant the supplier could not run the recruitment process as planned”.
The Cabinet Office’s fairly shambolic shared services programme is another example where the customer side has not performed; “Suppliers argued that government was responsible for some of the extra costs. Government and suppliers are in the process of renegotiating the contracts”
Much to consider here; but the key is simply to remember that a provider cannot do their best work if the customer is not playing their own part.
Public Spend Forum Comments
Many of us will have heard a supplier saying something like this – “well, we failed to achieve that KPI, but it was because your people didn’t do what they said they would”. It is very hard to take action against a supplier in that situation!
So the point made here by NAO is again a good one. Contract management to be effective cannot be simply about the supplier doing what they should be doing. The customer organisation must behave properly and professionally for the relationship and the delivery of the contract to work well.
In our experience, there are two main reasons why this factor too often comes into play. The first is simply a lack of contract and commercial management skills and knowledge in the customer organisation. Some genuinely do not understand how to run a structured contract management programme, or have a huge disconnect between “procurement” and the operational delivery side of the contract. So obligations for the customer agreed during the contracting process are either not understood or just forgotten. Or the contract manager may not have the skills to make sure colleagues fulfill their obligations.
The second and linked issue is lack of resource. Too often, even major contracts are not resourced properly. It can require a lot of effort to make sure obligations (on both sides) are met, and public sector organisations (and indeed private sector equivalents) often are loathe to put the investment into effective contract management. NAO has been saying this for years; but we are not convinced there has been a real improvement here in UK government.