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 look at number 15 of the NAO insights (as they call them) – “Show what you care about”.
That is perhaps one of the more unexpected definitions in the document, but it is a direct way of making a good point. What NAO is getting at is the need for clients and a client leadership that “encourages emphasis on the right business outcomes”.
Leadership seems to be the key word here. If both parties understand the desired outcomes, then NAO believes that “strong client leadership can help to overcome poorly designed contracts and the limitations of formal performance measures”.
We don’t think NAO wants “poorly designed contracts”, but this is an acknowledgement that very effective contract management can overcome even a poor procurement and contracting process. So effective leadership should “keep suppliers focused on what really matters to them and service users. Suppliers react to what clients pay attention to”.
Suppliers will take their cue from leadership as much as from the formal contract, the NAO believes, and they may even “go beyond the contract if they believe that it will win them merit with the client.”
NAO stress the importance of planning, and making sure that suppliers understand the business outcomes that are most critical to service users, and that government cares about. Then once the contract is live, there is good advice; “Clearly and consistently communicate to suppliers what really matters through progress meetings, site visits, and information requests, to improve contract compliance and ensure outcomes achieved. Work closely and flexibly with suppliers through progress meetings to ensure that service is in line with the contract”.
Perhaps because this is a somewhat intangible insight, the case studies given here by NAO are interesting but we are not clear they really illustrate the point. For instance, this one (relating to National Savings’ operational services contract with Atos) arguably demonstrates other points, such as use of incentives and penalties. It might also suggest the performance regime is not fit for purpose in the first place (if we were being cynical)!
“NS&I can reduce the amount paid to Atos where performance indicators are missed with deductions escalating if targets are repeatedly missed. However, instead of automatically applying maximum deductions where an indicator is missed, NS&I prefers to discuss with Atos the circumstances of the failure, waiving or reducing the deduction if they are satisfied with the action taken. This protects the customer by ensuring the supplier continues to focus on service quality and continuity in areas where a key performance indicator target is likely to be missed”.
Public Spend Forum Comments
While this insight perhaps overlaps with some of the others which also make points around clarity of outcomes, and positive relationship management, there is more good thinking here. The comments around how strong contract management leadership can even overcome a poor contracting process is something we have been saying for years.
Indeed, it forms the basis for a presentation slide we use that procurement people hate – we argue that great contract management can rescue poor procurement, while poor contract management can wreck even the best procurement. Hence contract management is (arguably) “more important” than procurement!
We agree with this NAO insight, but like many of their recommendations, it is easier to say than to deliver in practice. For the practitioner procurement or contract management professional, getting the “leadership” on board, willing and able to play this role is a real challenge. Just having senior management focus on contracts and suppliers is not easy in many organisations, as past NAO reports have highlighted (the “let and forget” contract management syndrome).
But there is also a fine line here. Getting the appropriate leader or leaders involved and knowledgeable enough to impress suppliers and drive their focus is difficult enough, but achieving that without the leader going rogue and starting to re-negotiate the contract or re-define specification is tricky in our experience. “Controlled” interest, attention and leadership from senior people is what we generally seek. Relating that to outcomes is always the right approach – and communicating those outcomes clearly to suppliers must always be a priority.