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.
We are on the home straight now and today we will look at insight number 19, which comes under the “transition and termination” heading – “Think about contract end upfront”.
From the earliest stages of running the procurement, designing the contract and then negotiating agreement with the supplier, the buying organisation should be mindful that at some point, the contract will be completed or transition to a different supplier will take place. So from the beginning of the contract, as NAO says, government needs to be thinking about its end.
However, in practice, “We see termination rights vary in how they are stipulated and used, and it is not always clear why. The questions we ask include – in what circumstances could a contract be terminated? Or extended? What can be learned from the contract and how will this be captured? What information and data will be needed so that a subsequent supplier could take over”.
Poor practice can lead to new suppliers not having the information needed for a smooth transition, performance dipping towards the end of contracts, or arguments about termination charges, transition process or final costs. As usual, having enough time is key, which comes back to some fundamentals of end-to-end contract management – good planning and realistic timescales at every stage.
One of the case studies given by the NAO is around the Department of Work and Pensions Work Programme. In a 2014 report, NAO “recommended … that the Department should develop a clear approach to making any future termination decisions. After agreeing termination costs, the Department should evaluate the impact of terminating a contract; set out clear principles for making future termination decisions using break clauses in the current contracts; and include relative as well as better absolute measures of performance in setting the conditions under which it could terminate contracts at no cost”.
Public Spend Forum Comments
I wrote the National Audit Office “Good practice contract management framework” way back in 2008. That document has stood the test of time pretty well and much of its content is included in the recent and fuller document that we’re reviewing here. But when the Framework was updated in 2016, probably the biggest area of weakness identified in the original was around this area of transition and termination.
I accept that was a bit of a gap in my original work, so it is good that NAO is highlighting the importance of these issues. In many cases, the public never hears about problems (and costs) connected with transition, because an existing contract is just quietly extended when the new supplier can’t get operational as rapidly as hoped. But that is never a good position for the buyer to be in; there is zero negotiation leverage with an outgoing supplier, and there are always additional costs when transition does not go well.
Getting people to think about those issues upfront though is in part a psychological issue. Everyone involved in a major procurement tends to be focused on achieving implementation of a new contract on time, and that in itself is a considerable task in most cases. Thinking about the end of the contract seems somewhat negative, as well as just not particularly high on the priority list as everyone scrambles to “get the deal and contract done”. But as NAO rightly says, this should be a vital part of the wider contracting and contract management process.
Finally, we were amused by the NAO’s use of rail franchising as an example of good practice under this heading.
“The Department for Transport is committed to continuously improving its rail franchising programme (2015 report) and has embedded a structured approach to learning lessons and responding to feedback from operators and stakeholders … As a result, the Department has made changes to simplify and improve the bidding process and encourage new entrants”.
Well … maybe. I’m not sure many of the UK’s rail travellers would be totally convinced that this has made a positive difference to their experience (see our recent rant here).