The role and purpose of contract management
This week I have focused on the findings of the UK National Audit Office in its investigations on the state of contract and commercial management.
Few of its observations will come as a surprise to practitioners in this field. Indeed, it reflects many of their pent-up frustrations in the misalignment of contracting discipline with business value. The relegation of contract management to a subordinate and largely administrative / quasi-legal role has significant cost and revenue implications, as revealed by many IACCM research reports.
The NAO describes these issues in the following way:
“Government fails to recognise the value of contract management. The purpose of contract management is to use commercial mechanisms to improve services and reduce costs. Too often contract management has been seen as delivering the deal that was agreed when the contract was signed. This has meant that contract management has been seen as a way to avoid things going wrong, rather than unlocking value.
Government needs to recognise that value is achieved over the life of the contract. This means designing policies it has the capability to deliver, planning for the contract management stage earlier, and paying it more attention.
Senior managers in central government departments have not taken contract management seriously. Central government has yet to adapt to the commissioning role it aspires to. Departments have not adapted governance to the expanding role of government contracting: they have lacked the basic infrastructure of oversight, senior engagement, challenge and scrutiny. Systems of governance have focused on approving new projects, as if government’s responsibility ends when the contract is signed.
Senior managers have not demanded visibility over their contracts. Senior managers have not always acted as if they recognised that departments are responsible and carry the risk for the services they have contracted. Managers have rarely demanded combined portfolio information to scrutinise and challenge operational contracts. Senior managers have often only engaged on contracting issues to firefight problems. As a result, they have put little pressure on teams to improve the information they rely on to manage the contract.”
The highlighting is mine. I challenge private sector organizations to demonstrate that these same weaknesses do not largely apply within their operations. The truth is that contract and commercial management are typically weak and often ignored as disciplines. As the National Audit Office points out, it is time to change.