Audit report highlights the importance of appropriate contract management

On 3 December 2013, the Queensland Audit Office (QAO) tabled in Parliament its audit report regarding the achievement of value-for-money contracts by three major departments.

QAO reviewed 62 existing contracts across these three departments. Following the review, QAO concluded that the audited departments 'could not consistently demonstrate that they achieved value for money from their goods and services contracts, or got the best solution for the best price'.

Key findings of the audit report

The key deficiencies relating to contract management identified by QAO included:

  • poor determination and monitoring of the performance of contractors
  • ineffective early planning for contract expiry, particularly when determining whether the products and services are still required and, if so, whether it would be preferable to extend the existing contract or to re-test the market.

The audit report highlighted that when establishing contracts, it is important for agencies to establish objective and measurable performance expectations -- for example, key performance indicators with clearly defined targets. Once established, it is equally important for agencies to regularly assess the contractor’s performance during the term of the contract.

The audit report also highlighted the importance of agencies ensuring that they plan for contract expiry. In particular, agencies need to give themselves enough time prior to the expiration of a contract to determine whether the contract should be allowed to expire or whether the agency still requires the products or services being provided.

Where the agency still requires the products or services, it should also determine whether it would achieve better value for money by extending the existing contract, entering into a replacement contract with the existing contractor or by going to the open market to engage an alternative supplier.

If an agency elects to extend or renew an existing contract, it should first evaluate the contractor’s past performance under that contract prior to extending or renewing the contract.

Audit report recommendations

The audit report recommends that all agencies should:

  • develop and implement a contract management capability framework to ensure the responsible officers are appropriately skilled to manage contracts
  • develop and apply a risk/value matrix approach to define expectations for effective contract management and performance monitoring with the aim of ensuring value for money
  • develop and apply a risk/value matrix to allocate sufficiently skilled resources to contract management based upon the specific risk profile of each contract
  • before extending or renewing an existing contract, validate the value-for-money proposition of the contract, including a review of the contractor’s past performance under the contract
  • implement a contract management life cycle system.

What this means for your agency

In accordance with the findings of the audit report, agencies should ensure that a contract management plan is prepared for each contract.

The plan should identify how the contractor’s performance will be measured, recorded, monitored and reported and which officer is responsible for carrying out those activities.

The plan should also detail the frequency of meetings between the parties to discuss the contractor’s performance under the contract.

Agencies are also encouraged to prepare and comply with a policy governing contract extension and renewal. The policy should provide guidance for agencies to assess their ongoing business needs for the products and services being provided under the existing contract.

The policy should also outline the process for agencies to follow to assess the current market supply conditions prior to proceeding with any contract extension or renewal.

Finally, agencies should ensure that they have complete records of all of their contracts. The records should include details of the entire contract life cycle, including the initial procurement, contract formation, contract management, performance monitoring and planning for contract expiry.

The issues raised in the audit report are of particular importance to all agencies given the focus on contestability in the recently-released ICT Action Plan.

The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.

Published: 17 December 2013

Author: Adam Hall