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December 11, 2018 | Bonfire Interactive
Once the difficult work of sourcing a supplier is completed, where does your contract go?
For all too many teams, it’s into a filing cabinet or a locally-stored spreadsheet, out of sight and out of mind. Without clear visibility over your active contracts, it’s difficult to keep on top of milestones and ensure contractual obligations are being met — let alone monitor performance or build vendor relationships.
Contract management is a key piece of the procurement puzzle. Here are three examples of how a proactive contract management process can benefit your organization.
American City and County reports that the majority of contracted projects end up with schedule delays and cost overruns. A certain amount of change is to be expected — in fact, a study from National Association of State Procurement Officials indicates that a 20% increase in contracts is considered typical. Nevertheless, it’s imperative for teams to be able to effectively track their contracts in order to ensure contractual agreements are being fulfilled and delays or changes are kept to a minimum.
Columnist Darin Matthews, director of procurement for University of California Santa Cruz, advises, “Stay involved with your contracts, even after award. Make sure you are not the last one to know about any changes or increases.”
In terms of metrics, he recommends tracking the awarded contract value vs. the final contract value, in order to be able to demonstrate the value your team is bringing to the organization.
With clear visibility into their contracts, public officials are able to proactively identify areas of overlap or inefficiency and maximize the impact of taxpayer dollars.
A good example of this in action is Seattle’s recent reform of their process for contracting homelessness services, as reported in Governing Magazine. The city worked with Government Performance Lab to drastically reform their contracting process for homelessness services, and the first step was consolidation of existing contracts.
Before embarking on this process, the city had more than 200 separate contracts with 60 providers for homelessness services — one provider had 18 separate contracts. Not only was this fragmented for the city, the lack of funding flexibility was an obstacle to service providers in efficiently supporting the needs of the populations they were trying to serve.
They consolidated 26 contracts held by five providers into eight contracts, offering more flexibility to providers and better value. This was an important step in kicking off a process of contracting reform, which included establishing performance metrics and instituting a results-oriented approach to their contract management.
With contract management streamlined, teams are able to more effectively use data to collect and improve delivery of their contracted services. This includes not only troubleshooting immediate concerns to keep contracts on track, but also working with contractors to share performance information and continuously improve performance.
As described in this Governing article, the contract management approach that works for some contracts are counterproductive in other types of contracts. For example social services contracts require a more active and continuous approach to move beyond simply checking compliance to be able to continually progress towards outcomes established for the target population.
Once contracts are centralized and the administrative steps streamlined, teams are able to adopt a more strategic approach to their contract management, such as performance-based contracting or results-driven contracting.