NAO on Commercial & Contract Management – Know What Suppliers Are Doing

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 14 of the NAO insights (as they call them) – “Know what suppliers are doing”.

This is one of those headings that might raise a smile from many, as it seems so obvious and almost trivial. But the basics are vital. As the NAO says; “to manage a contract it is important to understand performance and costs”.  You can’t argue with that.

NAO thinks government has become more aware in recent years of the need for a “hands-on” approach, but more can be done. Getting aspects such as reporting right is key and customers need to understand issues such as when self-reporting from the supplier is adequate and when independent monitoring and detailed controls are needed.

“All major contracts need a bespoke compliance programme aligned to the risks of that contract. Supply chain assurance strategies should be set out early and included in the contract management plan”.

The issues can be even more complex where a whole supply chain is involved rather than just first-tier providers, and NAO mentions a couple of these as examples in the case-study section, including the Ministry of Justice “Transforming rehabilitation” programme – not a huge success, according to most press coverage.  But even where there is only a prime, there can be issues:

“In our 2015 report on the provision of out-of-hours GP service in Cornwall we reported that supplier staff had made unauthorised changes, which were inappropriate and lacked justification, to performance data. The Primary Care Trust relied on the supplier self-reporting and performance was overstated on multiple measures”.

Public Spend Forum Comments

Understanding service performance is clearly vital. If the organisation does not know whether the supplier is meeting the agreed contractual deliverables, then clearly there is a major issue.  But this is yet another area where problems have arisen in the past through both a lack of understanding and capability on the buy-side, and because of a simple lack of resources to execute what needs to be done.

Most experienced procurement practitioners are healthily sceptical – maybe even cynical – about supplier self-reporting, particularly when it is linked to revenues! There are many cases of suppliers misleading or even lying, to the point of actions being illegal.

But obviously measurement, compliance testing and so on if carried out by the customer require the organisation to invest time and effort, and we’ve seen many times how reluctant public organisations are to properly resource contract management activities. That must be addressed to make sure the buyer really does “know what the supplier is doing”.

Finally, this is one of the few times in this excellent NAO report where we have struggled a little to understand some of the advice. Perhaps because this point gets into some quite deep “audit” type issues, and NAO is fundamentally an “audit” body, there is a bit of jargon here.

When NAO says things like this; “Controls assurance is often less onerous, more efficient, improves understanding and can help indicate broader concerns that need to be actioned. However, controls testing requires more expertise to do properly” we do worry about how many readers will understand exactly what is meant. We’re not sure we do, for a start.