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MPs scrutiny of government service contracts published

06 May 2009

The Public Accounts Committee has published its report (28th April) on 'Central Government's Management of Service Contracts' , and it makes nine recommendations.

For the full report and ordering Read more

In 2007–08, central government spent over £12 billion on service contracts, primarily in the areas of information and communication technology, facilities management and business process outsourcing, and an estimated £240 million on managing these contracts. In most cases central government monitors the performance of its suppliers, but it makes limited use of financial incentives to encourage suppliers to improve performance. In addition, 38% of contract managers did not always apply financial penalties where
suppliers under-performed. The extent to which central government tests the value for money of ongoing services and contract changes is variable. For example, 41% of contract managers had not tested the value for money of new services purchased under an existing contract.

Planning and governance is one of the weaker areas of contract management, although there are examples of good senior level engagement. Less than half the organisations surveyed, however, had an individual with overall responsibility for contract management, and there was no documented plan for managing 28% of contracts. In addition, many contracts do not have in place some or all of the elements of good practice risk management; for example, 56% of contracts did not have a contingency plan in case of
supplier failure and 30% of contracts where suppliers were dealing with personal or security information did not have a risk register.

No commercial director/head of procurement rated the level of resources allocated to the management of their major contracts as ‘good’, and 22% of contract managers considered they did not have time to perform their responsibilities well. Most contract managers had undertaken relevant training, although 60% of organisations did not provide a structured training programme for their staff.

The Office of Government Commerce is to issue further guidance on contract management in April 2009, building on the good practice framework it published jointly with the National Audit Office, and it is working to improve the provision of training on contract management. It is also extending its monitoring of major suppliers to government, and is reviewing recent examples of service failure where contractors failed to
perform—involving SATS tests and Educational Maintenance Allowances—to identify lessons for the future.
On the basis of a report by the Comptroller and Auditor General,1 we examined how well central government is managing service contracts and the effectiveness of the Office of Government Commerce in supporting central government to improve contract management.

Conclusions and Recommendations
Achieving value for money depends on effective contract management but central government does not accord contract management sufficient attention. The emphasis continues to be on the early stages of letting of a contract rather than on managing it afterwards. To help achieve a better balance, central government organisations should assign responsibility for contract management policy, practice and capability to a single individual, whose responsibilities should include ensuring that all major service contracts have appropriate governance arrangements and documented contract management plans.

2. Not all major service contracts include performance measures to manage the performance of suppliers. Without such measures, central government cannot effectively measure and drive supplier performance. Central government organisations should ensure that all their major service contracts have performance
measures, and that these measures are updated as necessary to meet changing business requirements.

3. The failure to enforce financial penalties whenever suppliers under-perform increases the risk that relationships between central government and suppliers are too cosy. Central government organisations should apply financial penalties when contracts entitle them to do so unless there are very exceptional circumstances why they should not. The Office of Government Commerce should develop guidance to set out what these exceptional circumstances are, with a view to minimising the loss to the taxpayer.

4. Central government organisations do not routinely test the value for money of their service contracts. As a result, there is no assurance that the contracts concerned are providing value for money and that opportunities for savings are not being missed. The expectation should be that the value for money of ongoing services provided under major service contracts should be tested at least every three years. All significant changes to major service contracts should be tested as a matter of course.

5. No central government organisation rated the level of resources devoted to managing their major service contracts as ‘good’. As a result, opportunities for securing better value for money may be missed and risk may not be managed effectively. Central government organisations should undertake a review of the
resourcing of contract management activities across their portfolio of major service contracts and take action where the review indicates that resources are not being used to best effect.

6. Central government organisations are not providing adequate support to their contract managers. Organisations should improve the support available by providing contract management training where necessary to supplement the arrangements being put in place by the Office of Government Commerce and by establishing contract management communities to facilitate the sharing of best practice among contract managers.

7. Risk management arrangements are inadequate for many contracts. Despite involving the delivery of critically important services, over half of contracts did not have a contingency plan in case of supplier failure. And even 30% of contracts where suppliers were dealing with personal or security information did not have a risk register. Central government organisations should review the risks associated with their major service contracts and put in place good practice risk management processes, including risk registers and contingency plans.

8. The Office of Government Commerce has not previously provided sufficient contract management guidance or monitoring of major suppliers. During 2009, it plans to issue further guidance and develop new training on contract management, and extend its monitoring of the major suppliers to government. These are important initiatives which should help central government secure better value for money from its service contracts, and the Office of Government Commerce must deliver on its plans. The National Audit Office estimated that between £160 million and £290 million a year could be saved through better contract management.

9. The recent problems with SATS tests and Educational Maintenance Allowances have demonstrated that service failure by contractors can have a major impact on citizens. The outsourcing of services means central government’s role becomes one of contract management, and every effort needs to be made to avoid similar difficulties arising on future contracts. The Office of Government Commerce should
publish the lessons from the reviews it is carrying out into these two cases, including particular lessons on contract management.

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