Can new contract guidelines end project disasters?

Two government reports designed to improve contract management do not make cost savings and better IT projects inevitable, says Simon Colvin.

In December 2008 the National Audit Office (NAO) published two reports on contract management. The first, Central government's management of service contracts, identified common problems with contract management in large-scale projects. The second, Good practice contract management framework, provided advice on the contract processes required to avoid projects going off the rails.

Both reports concluded that more efficient contract management by government could save between £160m and £290m per year, against annual spending on service contracts of £12bn for 2007-2008.

With departmental budgets under pressure, savings on that scale are appealing, but achieving them is another matter and depends on how effectively the guidance is put into practice.

As those who manage government contracts will know, the Office of Government Commerce (OGC) has already provided a wealth of guidance, but this guidance has yet to solve many management issues. Government contract practice for IT services was set out in the OGC Model ICT Services Agreement (MSA), and accompanying guidance published in 2002. However, further guidance was needed in the area of contract management.

That guidance has been provided in the form of the new framework, which sets out 80 key activities for better contract management. These activities divide into four areas: governance structure and resources; the approach to delivery; development of the contract; and ensuring an effective strategy is in place.

Contract-management checklist
These key activities provide a comprehensive checklist for good contract management, but it is unclear how they should be reflected in contractual arrangements. For example, the MSA provides for programme and project-management functions, but it is not explained how these relate to the role of contract manager.

Also, some of the many management processes recommended will need to be documented at contract level, but some may not. To clarify that point, it might be better if detailed operational processes were incorporated into a process and procedures manual. Whatever approach departments adopt, they will need to consider the role of the contract manager and the key contract-management processes in a co-ordinated way.

If contracts are to achieve cost savings, departments will have to spend time and money on appointing and training employees with the right skills, because there is a shortage of such staff.

Departments will also have to ensure the contract manager is sufficiently empowered and incentivised to take on the role over the long term and maintain a stable team over the life of the contract.

In my view, the role of the contract manager needs to be established early in the procurement process and sufficient budget has to allocated for the contract management function. These two steps should help guarantee that the contract manager is involved in contract negotiations from the outset. This manager's input is vital to ensure the contract management processes agreed before the contract is awarded are appropriate and workable.

The two reports do not address how departments should incorporate the required contract management processes into existing contracts with their own governance provisions. The NAO recommendations and the importance of the contract-management activities cannot be ignored simply because they postdate an existing contract.

Cost considerations
Finally, as the recommendations are savings driven, government departments and suppliers will need to consider carefully how the additional costs of implementing effective contract-management processes will be allocated.

It is likely both parties will need to bear some of the costs, so these need to be factored into business case and charging models.

Given the poor reputation the government has for managing IT projects, the recommendations of the reports should be welcomed by all involved in complex government contracts.

However, adopting the recommendations will require a significant change in the approach of government — further guidance will help to ensure departments rise to the challenge.

No matter how the guidance is intended to evolve, departments should be reviewing existing contract-management practices to see how they measure up to the framework and assessing existing and planned projects to see whether there is a contract-management skills gap and how it should be filled.

Simon Colvin is a partner at international law firm Pinsent Masons. He advises government departments on large-scale technology projects, from the procurement phase through to the implementation stages.