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 of the 20 areas the NAO has covered, we will look at their content and then give any additional analysis or thoughts we would add to the mix. NAO insights 17 and 18 come under the wider heading of “Contract Lifecycle” and today, we will look at number 17 – “Plan for uncertainties”.
As NAO says “Government works within a constantly evolving environment, which it can struggle to reflect in contracts. For many contracts, some uncertainty will be expected when the contract is signed. Customer behaviours can be difficult to predict, public policies can change or requirements may need to be refined where contracts introduce new processes and systems”.
All this means that many contracts, often the larger and more sensitive, need to adapt through their lifetime. But if the contract is not well designed up front, that can be difficult or even impossible. Even where changes can be made, that might be at the expense of cost or delivery.
So, as usual, the NAO advice is very sensible. Think hard and as early as possible about the uncertainties and what possible changes might be needed down the line. That might be around the need to reflect user needs, different political imperatives or priorities, or other factors. Then build the scope to manage those changes into the contract design, terms and conditions. Try and develop a positive relationship with the supplier, (which relates to several of the other “insights” too), which will make it easier to negotiate change.
Then monitor risks and uncertainties, be open with suppliers and be ready to handle any necessary changes. There needs to be strong governance around contractual change management, and if possible, the contract should include up-front agreement on how issues around additional costs (or indeed savings) will be handled.
The four short case studies in the NAO document quote a mix of successes and issues – are all hugely important contracts. This is one:
“For the Yarl’s Wood Immigration Removal Centre (2016 report), some users’ needs were not being fully met. We recommended that when designing contractual arrangements, departments should consider including arrangements to assess users’ initial needs, and any that develop while using the service. They should ensure that there are mechanisms for varying the contract or buying more services if necessary”.
Public Spend Forum Comments
Experienced contract managers and many procurement people will know that this particular NAO insight gets to the heart of perhaps the most common source of contract management arguments and issues. Something changes in the buying organisation’s environment, which means an important long-term contract is no longer quite fit for purpose. The buyer asks or tells the supplier about this and discusses a change to the service (or product sometimes) being delivered. The supplier shakes their head and says, “not sure we can do that…” or perhaps, “we can do that but it will cost you …”
In the case of major contracts, and perhaps even more in the public sector than the private, uncertainty is always present. The additional factor in the public sector is the political dimension – often the uncertainty and the required changes are driven by politics, not operational requirements. And this does not only happen when there is a change of government. A new Minister can have very different views from their predecessor about an entire policy, let alone how it is to be delivered. One of the difficulties around the UK Identity Card programme back in the “noughties” was that each successive Minister (Home Secretary), and indeed sometimes junior minister, had a different idea about the aims of the programme. And there was a steady turnover of ministers …!
We have also seen a lack of foresight or perhaps imagination in the planning of contracts and a failure to build in flexibility. For instance, one reason for the failure of multiple major business process outsourcing contracts in the UK local government space in recent years may be that when they were negotiated, the buyers assumed that the income of the government body would always rise year on year. When “austerity” started to bite, those contracts were not flexible enough to adapt to the different situation.
So, plan for uncertainties including potential political changes in direction as far as you can, and be imaginative in working out what those other “uncertainties” might include. It isn’t a fool-proof approach but it is better than simply hoping that nothing changes through the contract life.