The Contract Management Plan for Commonwealth Projects

TRANSCRIPT OF VIDEO

What should be in your contract management plan? Good question. Stick around and I will let you know.

Hi everyone. Simon Zarifeh here from Shrewd. We provide commercial support to the Commonwealth to help the Commonwealth successfully deliver value for money projects.

Okay, so you've done the hard yards. You've gone out to tender. You've negotiated a contract. It's all been signed. Now you need to manage that contract. What should you do?

Well today, I want to talk to you about contract management plans and what you should capture in your plan to make sure you are appropriately managing the contract.

Now, I can't take any credit for this. It comes from the Department of Finance. They've got a guide out there on their website called the Contract Management Guide. And this information comes from page 16 of their guide. And it is a good document in total. And this page and a half is very good too. So, Chapeau, or hats off to the team at finance. The Department of Finance have done a good job on this one.

So, I will provide a link down below where you can access the guide, but let me just run through a few key things you need to be aware of, you need to ensure that are covered in your contract management plan.

Now there's a whole list of things here, A to N, of things you should include but I think some of these are a little bit more important than others.

Key Activities

For instance, key activities. Look that's important, but that's going to be covered in the contract. But what you do want to do is you want to diarize certain key dates. Like when the term ends, when option periods need to be extended and those sorts of things.

Also diarize when milestones are meant to be delivered. So that way you'll be able to satisfy yourself that you can go checking on the relevant date as to whether milestones have been delivered or whether you need to exercise any options to extend.

And obviously if you are going to diarize information about an option to extend, make sure you give yourself enough notice to get what you need done in the background, like spending proposals and that sort of thing. So that when it actually comes time to exercising the option, you can still do it within the timeframe specified in the contract.

One thing I should mention before I go on is, try as much as you can not to just cut and paste large slabs of the contract into your contract management plan, otherwise you'll just end up with a mini version of the contract, which is about as useful as a, I don't know, a wheel on a walking stick or an ashtray on a motorbike if you know what I mean.

So try and use some judgment, try and make it as pithy and precise as possible. That will help you, and it will help everyone else that needs to manage the contract if you were to ever depart the relevant organization.

Risk Management Plan

Now finance here talks about, you need to identify and manage the relevant risks. And they talk about, from page 17 in their plan, what you can do to develop a risk management plan. That to me is a tough one because capturing and dealing with all the risks can be extremely onerous because there could be so many. But look, it is something you should turn your mind to.

In terms of contract governance. This to me is not such a key one because it should be detailed in the contract, what you need to do in the event of dispute and how it all gets escalated.

Supplier Reporting

What is a big one for me is supplier reporting, because you need to make sure, that from the Commonwealth perspective, that whatever the supplier has guaranteed or promised you in terms of reports, that they then provide that information.

So you need to diarize the fact that every month or whatever it is in the contract, whatever that time period is, that the supplier will be providing you a report and those reports should cover certain information.

Now, when a contract kicks off, there may be a little bit of tension between you and the supplier as to the content of those reports. And usually what happens is, month one they provide their report, month two they provide the second report and by then you go, "Actually, that's not really what we want, we want it to change."

And it won't probably be until month four or five, assuming a monthly reporting cycle, but it won't be until month four or five, that you're actually starting to get the content and quality of the report that you want.

So just understand that that process is going to take some time, but also understand that whatever is in the contract in terms of what reporting obligations are imposed on the supplier ... let's say they're obligated to report on X, if you want them to report on X and Y, then usually that requires more effort from the supplier and more effort means more additional bums on seats doing work.

So in my view, it's fair that you then pay for that work because strictly it's not what you've contracted for. You've only contracted the supplier to provide a report that covers X. If you now want them to do X and Y, assuming it takes more effort, you should be paying them for that.

Meetings

You want to diarize other things like meetings in terms of whether you're meant to have monthly, quarterly, annually or bi-annually ... have those meetings, and then who's meant to be in those meetings. You can have a list of standing agenda for say, monthly contract management meetings, and then quarterly executive meetings. Ideally those agenda are set in stone.

Meaning that there's a base template of things that must be covered, and then you would then just determine for each relevant meeting, whether you need to go through all of them or you can skip some of them, et cetera.

KPIs or SLAs

One of the key things the ANAO cracks down on, which is obvious, which is if the Commonwealth has gone to all this time and money of going to tender and signing a contract and getting a supplier to deliver something, then you really need to manage and ensure that they actually do deliver.

And one of the key things you can look at are the KPIs or the SLAs in the relevant agreement, assuming there are some, and then you need to measure and report on their achievement of the KPIs or the SLAs or otherwise.

So it's too late now because the contract's been signed, but ideally the relevant KPIs and SLAs are able to be measured using some sort of metric.

So that's the first thing, is you need to collate the information. Now probably you won't have to do that, but you probably need to oversee the process and make sure that other people provide you the information that you need so that you can collate it all, put it in a report.

And then you need to ensure that you provide that detail to you are relevant delegate by certain dates so that they have some confidence that the contract is being accurately managed and actively managed. And that they have an understanding of how well or not the supplier is delivering against the relevant contract requirements.

Delivery and Acceptance

Delivery is not such a big one. In terms of the contract will specify if the supplier is providing goods, what the delivery process is. Acceptance is a big one when it comes to things like software and solutions, because you really need to track the commencement of the acceptance process, because usually when say software's handed over to the department for them to start the acceptance testing process, that usually kicks off a whole regime of things that the department does.

So, you really do need to report when that acceptance process has commenced so that you can then work out the flow on dates that will arise. Once again, be careful not to just restate the whole contract.

Payment Arrangements

Obviously, it's an important part of the contract in terms of, the supplier's not doing this for their health, they're doing it to get paid, but actually recording them in the contract management plan is not such a big deal because it should just be in the contract.

And usually, the obligations are to receive an invoice, check the invoice is accurate, then pay the invoice within a certain timeframe.

Key Personnel

What is important is specified personnel. Some of the larger contracts may impose obligations on the supplier to have key personnel nominated, and that could be one person, 4, 5, 10, 15, 20 people, whatever it is. But there may be some sort of bonus riding on those people.

And what I mean by that is often the department or the Commonwealth, if they're smart and astute, when they're putting it in place the contract, if key performance of the contract is pivotal or riding on say the skills of certain people, then the Commonwealth would be smart to tie those people in to being available for the life of the contract.

And the way it does that and the way I've seen it done is that they then pay the supplier a bonus, assuming the party sticks around for the length of time nominated.

So, in other words you may say, look, these four key people, you'd list their name and their security clearance and their title and what they're meant to do, and then maybe the obligation will be, if they are still around two years after the commencement date then the Commonwealth pays the supplier a bonus of X.

Now the supplier, if they're astute will then flow some of that money down to the relevant people to ensure that they have a financial incentive to stick around.

Access and Security

You want to record supplier access and security. So what access to what information they have and basically any GFX.

So government furnished information, equipment, material, data, any government furnished stuff that the department is providing to the supplier you want to record it. So that one, you know what they've got access to, but also secondly, you can work out what to turn off access to when the contract ends.

You can also work out what to ask back as in what information or stuff they have of yours you want back. Or you can also ask them to destroy what information you know that they have, that you don't want them to have anymore. And they can be asked then to provide a stat deck saying the relevant data or information has been destroyed.

Insurances and Guarantees

You will want to record the fact that there is a requirement for bank guarantees. You want to record how much they are and when they expire.

You want to record in your contract management plan, if they end, in terms of if they need to be renewed each year, and any other obligations that relate to the bank guarantees because that is one key way that the Commonwealth is protected, and so you want to make sure that this bank guarantee is current, in place and provides the appropriate amount of protection that it was inserted in the contract for in the first place.

Contract Variations

The next one is an easy one to talk about. Contract variations can be tough. And what I mean by that is, defining the process or in referring to what the variation process in the contract management plan is, is not a big deal. Because usually it's, any variation of the contract needs to be put in writing and signed by the parties. Usually pretty basic.

The problem then arises in terms of, you want to actually record every variation. So every variation that's ever signed between the parties about your contract, you want to keep a record of that variation.

And then not only that, but every time you do a variation, you want to do two things. You want to mark up the contract showing the latest round of changes and also provide a clean copy as at that date.

So then when round two of the variations apply, you take that clean copy and make a second version in markup and clean copy with the new date so that at any point in time you can show what the relevant terms of the contract were and what variation added what information into the contract.

And that way you can be satisfied that if the ANAO comes knocking, that you are hand-on-heart managing the latest and most up to date version of the contract.

Not always easy, as I worked for an agency who shall remain nameless, where one contract was varied by the time I left 366 times. I wasn't exactly sure about the status of that contract. Anyway, you live and learn.

Contract Renewal

The last one is extension options or contract renewal. You just want to make sure that you diarize those and leave yourself enough time so that you have ... you can trigger the option in accordance with the contract.

So as an example, if you have to give 30 days notice, then obviously leave yourself enough time so that you can still hit the 30 day notice timeframe but because you may need to get spending proposals, section 23 approvals et cetera in the background, and that can take time that you may want to start the process three to six months before you need to.

It's always good to tell the supplier that you are intending on extending, because that gives them some comfort as well.

Final Words

So, as I said, I've just tried to blaze through that, even though I see this is video is nearly 13 minutes. All of this stuff comes from the Department of Finance's Contract Management Guide from page 16. Very good stuff. It's a very good guide. So have a look at that for more information.

Hope you found that helpful. Any questions feel free to get in touch, simon@shrewd.com.au. Or 1800 SHREWD, which is 1800 747 393. Thank you.