Best Practice Contract Management: From Agreement To Delivery

Once the (metaphorical) champagne is popped and both parties sign on the dotted line, attention typically shifts to delivery. At this point, the contract is often relegated to the figurative bottom draw, rarely revisited until something goes wrong. 

However, it is important that entities do not lose sight of the contract. Actively using the contract to develop an effective and practical Contract Management Plan (CMP) helps ensure the contract delivers its intended outcomes and entities realise the value for money proposition.

As per the Department of Finance’s Contract Management Guide, developing a formal CPM is required for all ‘complex’ contracts and recommended for ‘routine’ contracts. It is suggested that most contracts above the procurement threshold (generally $125,000 inc GST for Non-Corporate Commonwealth Entities) would be considered a ‘complex’ contract and this includes contracts off a panel and those using the Commonwealth Contracting Suite.

A good CMP includes matters such as:

• key milestones
• roles and responsibilities of each parties
• governance structures
• performance management framework
• process for delivery and acceptance of deliverables
• key personnel and their roles
• meeting requirements and cadence
• change management process
• process for varying the contract, and
• contract extension options and renewal dates.

A CMP is a critical tool to help operationalise the contract and it is fundamental that its consistent with the obligations of the contract.

A common issue we encounter is the gradual divergence of day-to-day contract management activities from the process specified in the contract. This risk is heightened when there is no comprehensive CMP in place. A typical example is where the contract requires the issuing of an acceptance certificate to confirm acceptance of specified deliverables. However, in practice, these certificates are sometimes not issued, meaning the entity never formally ‘accepts’ the deliverable or confirms that it complies with the requirements of the contract. If this occurs systematically, the entity can inadvertently vary the contract by conduct, thereby removing its right to accept, and more importantly reject, deliverables.

This is a key right for entities to ensure that the deliverables meet the requirements of the contract and can cause significant issues if performance deteriorates and the entity seeks to rely on its rights in the contract to reject a deliverable.

Our key tips for ensuring good contract management and contract delivery success are:

• ensure you involve the team that will manage the contract in the contract development and negotiation phase so that they understand the contractual requirements and can provide input to confirm that the contractual process is practical and can be operationalised
• ensure that the performance management framework is aligned with the size and risk level of the contract. Applying a significant and complex performance management framework to a simple, low risk contract can place an unnecessary administrative burden on the contract management team and increases the likelihood the framework will not be applied consistently or effectively
• ensure that the contract represents operational reality. A contract that does not align with how the entity operates is unlikely to be managed in accordance with its terms
• avoid committing to unrealistic or unachievable obligations – this is particularly important when setting timeframes. For example, a requirement for the entity to accept or reject a deliverable within five days of receipt often does not allow for an entity to properly assess the deliverable, prepare the appropriate approval documentation and obtain delegate approval.

In summary, contract management is an essential phase in the procurement lifecycle. Entities who establish robust contract management set themselves up for success.