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Auditing Contracts

July 30, 2012

Government procurement policies have often influenced private sector trends and practices. Last week, I encountered another innovation which, if it spreads, would have significant impact on those responsible for contracting.

I attended a conference where a senior Government auditor presented on emerging plans for future audits of contracts and contract management. He emphasized the growing focus in this area (something evident in a range of countries) as public sector agencies become more vigilant in their elimination of waste and efforts to improve the success of their projects and expenditure.

The auditor explained that there will be four areas on which future checks will concentrate. First, there is the question of whether the right supplier has been selected. This extends beyond simple compliance with public sector procurement rules; it also looks at wider issues of corporate social responsibility. With growing use of suppliers that have foreign connections (ownership, subsidiaries, supply base etc.), this represents a significant duty for public sector employees, though is already a familiar demand for many in the private sector.

He also highlighted that auditors will examine whether the right terms have been put in place and whether there is effective oversight of contract responsibilities. Neither of these focus areas is exceptional. It was the fourth item that caught my attention, because it relates to the overall quality of contracts and contract management in a way that I have not previously encountered, but strongly support.  In future, auditors will question the staff responsible for developing and managing contracts to establish whether they are actively benchmarking external practices, to ensure that they are pursuing ‘good practice’. With this in mind, the presenter urged the audience to start working on building connections to external organizations so that they can illustrate the rationale behind the contract structure and terms they have used for any specific acquisition.

Such a move will be demanding for Government employees. Indeed, it would be demanding also for most private sector staff, because contracts and contract management remain areas where there is limited research. I know this because most of today’s research is undertaken through IACCM and we are the only organization to offer a worldwide network of practitioners capable of providing a practical, low cost and dynamic benchmarking service.

The idea of continuous improvement in contract terms, practices and process lies at the heart of the IACCM vision, Many of our members fervently believe that improvement in these areas will raise organizational performance and support the growth of world trade. Therefore, pressure by auditors to promote benchmarking and better contracting practices will be welcomed by many.



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