Government relies on a diverse range of non-profit and for-profit organisations to deliver important government services through long-term contracts. Examples include disability services under re-structured NDIS arrangements, leasing & facilities management services for the Victorian government's office property portfolio, operations and asset management at privately managed prisons, and transportation services under franchise contracts. It is evident that these contracts play a vital role in delivering essential public services.
Regardless of the ongoing debates on using private suppliers for government services, ensuring effective service delivery and fulfillment of obligations to the government and communities remains a fundamental objective in this type of arrangement. These contracts involve complex arrangements encompassing governance, performance, and commercial aspects.
With contract terms lasting up to 20 years, they require effective collaboration between the government and private sector and need to be set up to navigate challenges such as policy changes and unforeseen events like the pandemic. These arrangements demand active contract management and are far from a "set and forget" approach.
In most contracts, most of the time, the partnership between government and provider is effective. However, it is important to recognise that procurement and contracting for delivery are distinct from the actual delivery process. To ensure the effectiveness of critical government service contracts, it is necessary to establish good practices, address any issues, and continuously improve. By doing so, these arrangements can consistently deliver value throughout their contract terms and beyond.
In this piece, we explore areas within contract management for complex services contracting that require focused attention to ensure successful long-term outcomes and better value for money.
Common Contract Management Issues and Key Considerations
Sustainable and effective KPIs: Despite good intentions, performance regimes can have unintended outcomes when KPIs don't work in practice. Issues can arise from data availability, timeliness of information, subjectivity, or ambiguity. We've seen contracts where KPIs were unused for years. The good news is that KPIs can be refined, reset, and negotiated without significant impact on outcomes. It benefits neither party to stick with an ineffective performance regime.
Contractor sustainability: While rare, some suppliers face financial difficulties that hinder their service delivery. Supplier financial capacity is assessed during procurement, but it should be continually reviewed. Contracts typically include insolvency protections and require financial information from contractors. It's crucial not to overlook this aspect and regularly assess financial capacity to identify potential distress signs, allowing for early pre-emptive action.
Preparedness for handover: Most contracts include provisions to support smooth transition at the end of the term to successor arrangements, such as requirements to develop formal 'handover packs' and access to data, systems, processes and people. In some arrangements this is an area that is overlooked until close to the end-of-term at which point deficiencies in handover planning can impact transition. To address this, contract management can hold contractors accountable for handover planning from year 1 of the contract by ensuring the development of comprehensive handover packs, rectify deficiencies, and regularly update the material. If necessary, leverage contract management rights to secure the needed information for a successful transition.
Undelivered obligations: Suppliers frequently make promises during the tender process, such as introducing innovative technology or improving inefficient processes. However, it is surprising how often these commitments go undelivered. While there may be legitimate reasons for non-delivery, such as pending government approvals, it is crucial to closely monitor, report on, and track the progress of committed obligations. In cases where delivery is not feasible, alternative solutions of equivalent value should be considered.
Best practice and continuous improvement: A desire to ensure services are delivered with a continued focus on efficiency means many contracts including obligations for continuous improvement. Best practice in this area has seen government working closely with its suppliers to draw on their broad experience and expertise, alongside government working with them around the governance, change and affordability implications. This type of approach can take continuous improvement from an area where it can be treated relatively superficially, to an area from which genuine change can be derived. In some cases, government's services requirements may evolve and begin to diverge from what was documented in the original contract. Periodic review should be undertaken to ensure contracts appropriately align with service needs; this may require some level of renegotiation using the contract’s change mechanisms.
Data deficiencies: Data and information will often be collected and held by the contractor, a necessary function to support service delivery. Government also needs data generated in the contract to act as an informed client to support it in areas such as policy planning, incident response & communications and asset management. If government is not getting the data access it paid for it should leverage its contract rights. Otherwise, establishing government’s information needs and reconciling them with contract obligations is a first step ahead of negotiating the right level of information.
Poor performance: In some cases, performance falls short of expectations. While performance management frameworks within the contract should address this, persistent or systematic issues may require alternative approaches. Ideally, a mature client-contractor relationship resolves performance issues through remediation plans. However, we have observed instances where contractor’s attribute failures to government, contract arrangements, or external factors beyond their control. Additionally, low profitability, sometimes resulting from underbidding, can lead to resource constraints and further impact performance. It is crucial to assess the circumstances and causes to explore available options. Government must carefully balance maintaining its original risk allocation while considering the implications for ongoing performance and supplier/contract sustainability. In such situations, fallback planning may become necessary.
While the vast majority of government contracts work effectively for the vast majority of the time, continued focus on contract management is critical in ensuring government gets what it’s paid for and that those services arrangements remain effective.
With billions of dollars spent annually on these arrangements, improving outcomes by small margins can lead to significant improvements in service delivery and value for money. Effective contract management can play an important role in an environment where budget repair is a priority.
TCAP's team has helped many government clients secure better outcomes by working with them, and their contractors, to identify risks and opportunities for improvement and develop practical solutions to contract management challenges. Our team’s work in sectors, including justice, education, property and transport have helped ensure services contracts continue to deliver value for money and high quality services.