Contract Management

Background
Roles and Responsibilities
Approach to Contract Management
Service Level Agreement (SLA) and Key Performance Indicators (KPIs)
Management Information
Contract Review Meetings
Contract Modification and Extensions
Summary

 

1.     Background

The purpose of this Guide is to outline a consistent approach to the management of the University’s ‘call-off’ contracts.  A call-off contract is defined as an arrangement for the provision of goods or services which are purchased on an ‘as required’ basis during the course of the contract. 

The requirements for the management of ‘call-off’ contracts for commodities or services should be established either prior to tendering the requirement or by agreement with the appointed contractor.

In respect of contracts managed by a School(s) or Directorate(s), the member of the Procurement team responsible for the contract will provide the necessary advice and guidance in this regard, and should therefore be the main point of contact should any issues arise - for example, regarding the supplier’s quality of service/supply or any associated dispute with the supplier.

 

2.     Roles and Responsibilities

There are a variety of contract management arrangements within the University.  Currently, University contracts are managed by:-  

  • the Procurement Office, or
  • the School or Directorate for which the arrangement was established, or
  • jointly between the Procurement Office and the School or Directorate for which the arrangement was established, or
  • jointly between several Schools or Directorates – each of which avails of the arrangement.

Regardless of whether the contract is managed by an individual or by a team, the responsibilities of the contract manager(s) include the following:-

  • Oversee the operation of the contract
  • Establish and manage an effective communication framework
  • Represent the University’s interests with the supplier
  • Maintain/develop contract specifications
  • Act as a point of contact for all formal and legal correspondence relating to the contract
  • Establish regular reporting procedures and ensure that they are used
  • Monitor contract performance and maintain reports on overall service outcome levels
  • Determine and take remedial actions by agreement with the supplier
  • Escalate contract problems as necessary, in conjunction with the Procurement Office
  • Manage the dispute resolution process

 

3.     Approach to Contract Management

The approach to contract management will depend on a number of factors including the nature, profile, value and criticality of the contract.   Other factors which need to be considered are the nature of the supplier’s relationship with the University at the point of engagement and whether the contract itself represents a new initiative or a change in modus operandi which necessitates closer monitoring of both the arrangement and the supplier.

Where a baseline is identified at the outset of a contract, if there is either improvement or deterioration in service, then consideration should be given to implementing a change in the management approach, during the course of the arrangement.

As a guide, the approaches to contract management which should be considered are detailed in the table below:-

Priority Level

Degree of Management

 

 

 

Examples of Commodities or Services which may require this degree of management

High

 

 

Formal meetings every 3 months (or more if required).

Submission of management information on a monthly basis.

 

 

 

 

 

Equipment maintenance – Estates (boilers, air conditioning equipment, fume cupboards);
Facilities management services (cleaning, security, building and lift maintenance, fire alarm and access control maintenance, washroom services, statutory maintenance services);
Financial services (banking, audit, cash collection, insurance broking)
Personal computers and laptops;
Printing and copying;
Stationery;
Travel;
Waste Management

Medium

 

 

Formal meetings every 6 months.

Submission of management information on a monthly or quarterly basis.

 

 

 

 

 

Books and Periodicals;
Catering and Bar foodstuffs and consumables;
Consultancy;
Furniture, flooring and textiles;
Janitorial and cleaning products;
Laboratory consumables and chemicals;
Photocopiers;
Plumbing, mechanical and electrical requisites;
Printers;
Temporary Staff

Low

 

 

Annual meetings.

Submission of management information on a six-monthly basis, or an annual report.

Electronic components;
Equipment maintenance – non-Estates (computer hardware, laboratory equipment);
Legal Services;
White and Brown Goods

The above lists of examples are, by no means, exhaustive.  Hence, the management approach adopted for any contract should be established based on all relevant factors.

In relation to those contracts to which a high or medium priority level is applied, and which are managed at School or Directorate level, where possible and practical, the Procurement Office should be involved in contract review meetings every six months.

 

4.      Service Level Agreement (SLA) and Key Performance Indicators (KPIs)

The use of a Service Level Agreement and/or Key Performance Indicators will very much depend on the nature and size of the contract and the level of monitoring required on a daily basis. To this end, SLAs with appropriate KPIs should be established for all University service contracts, as well as for commodity contracts where the service element is key to delivery of the commodity.  Again, the Procurement representative responsible for tendering the contract can advise in this regard.

The Procurement Office uses a contract management system (In-Tend CX) to establish standard supplier KPIs which will ensure ease of performance monitoring at an operational level.  With a structured scoring mechanism, KPIs also give a clearly defined view of the contractor’s performance.

Other methods of performance management – such as incentivised KPIs, where the supplier pays a penalty for non-performance – are also used by the University, particularly in relation to Estates Services contracts.

An example of a simple KPI and scoring mechanism would be:-

The Contractor will deliver all goods within 24 hours of receipt of on-line order.

Score:
1          =          More than one incident of non-compliance
2          =          One incident of non compliance
3          =          Compliant

If the contract has, say, 10 KPIs in total, then the maximum score achievable by the contractor would be:-

3 (compliant) x 10 (KPIs) = 30 (or 100%)

The actual score is calculated as:

(sum of individual scores / maximum possible score)*100.

The results would then be classified as:

Greater than 90% - Excellent
Greater than 85% - Good
Greater than  80% - Satisfactory
Less than 80% - Unsatisfactory

On appointment of the contractor, those involved in managing the contract will be guided on the use of KPIs, if applicable, by the Procurement representative.

 

5.      Management Information

Management information (MI) provided by any contractor is fundamental to understanding whether the contract is being undertaken in line with the specification and whether the contractor is meeting his/her contractual objectives.  It also provides key information for discussion at contract review meetings.

It is therefore vital that the content and format of the MI is established and agreed with the contractor at the outset.

 

6.      Contract Review Meetings

The review meeting will be the forum at which the contractor’s performance will be discussed. 

As a general rule, the following should be discussed at each contract review meeting:

Heading

Issue

Service Delivery

 

 

Has the service been delivered to the level specified?
Has the contractor’s performance been in line with expectations and targets?

Service Quality

 

 

Has the quality of service been to the level specified?
Have any complaints been received about the contractor’s service?
Have any issues arisen in relation to compliance with legislation, eg, health and safety, equal opportunities, data protection.

Benefits

 

 

Are there clear examples of benefits and positive outcomes for users of the contract?

Contract Compliance

 

 

Have there been any issues of non-compliance with the specification or conditions of the contract?
Have there been any significant changes in the University which may impact on this contract?
Is insurance up to date and in line with the requirements of the contract?

Organisational Stability

 

 

Have there been any significant changes to the organisation, service management structure or contractor’s financial situation?

Future Development

 

 

Are there opportunities for developments, improvements or cost reductions?
Are there any perceived threats to the continuity of the service provision?

Close

Any other business and date of next meeting.

 

Where a Service Level Agreement or Key Performance Indicators are being used with the contract, then the contractor’s performance for the previous x months, using these forms of measurement, should be discussed.  

 

7.   Contract Modification and Extensions

 

The following guidance is extracted from section 4.6 of the Northern Ireland Central Procurement Directorate Procurement Guidance Note PGN 01/12 (as amended) the full guide can be found here.  Contract Owners should follow this guidance when seeking a change to an established University Contract.  

 

It is important for contracts to evolve over time in response to changing needs. This may include unforeseen additional requirements or when a supplier is taken over. For above threshold contracts (find thresholds here) , such modifications are made under Regulation 72 of the Public Contracts Regulations and the information in the section below sets out the range of allowable modifications.  Regulation 72(1)(a) in particular allows for modifications whose possibility was provided for in the initial procurement documents in “clear, precise and unequivocal” terms.  Such provisions need to cover both the scope and nature of the potential modification, and the conditions under which it may be used. 

 

Contract modifications may have an effect on service delivery and costs, and on whether the contract represents value for money.  Appropriate structures need to be in place with representatives of both the University and contractor for reviewing and authorising modification requests.  Maintaining contract documentation is an important activity, especially where there are any modifications to the contract, including modifications to services and procedural modifications. Formal agreement to any contract modification should be recorded, and all contract documentation must be kept up to date. 

 

Contract Owners need to be careful that any modifications comply with Regulation 72.   There are a number of steps which should be taken when approaching the question as to whether a modification will be lawful. 

 

When considering a change, you should first of all determine whether the change is ‘substantial’. If it is not substantial then that is the end of the matter. There may be situations where, for example, a modification for additional works does not actually amount to a ‘substantial’ change. The modification may lawfully be made and there will be no need to apply any of the gateways, as set out under Regulation 72. Those gateways (sometimes referred to as 'safe harbours') outline some limited situations where a modification, which is substantial, may nevertheless be made without a new procurement competition being necessary (i.e. without re-advertisement in OJEU).  If a change is substantial and falls outside the gateways a re-tender may be required and the Procurement Office should be contacted without delay for further guidance.  

 

What is a substantial change? 

 

A substantial change is defined in Regulation 72(8) as any change, irrespective of value, which meets one or more of these conditions: 

  • Materially alters the character of the original contract. 

  • Would have allowed other potential suppliers to be selected, or another tender to be accepted, or have attracted additional participants to the procurement procedure. 

  • Changes the economic balance in favour of the contractor. 

  • Extends the scope of the contract “considerably”. 

  • A new contractor replaces the original contractor, other than where the change arises from a review or option clause in the original contract or from corporate changes such as merger, takeover or insolvency. 

 

What are the Gateways that allow substantial change? 

 

Gateways that allow a substantial change without a new procurement competition being necessary.  If a change to a contract is substantial, this will render the modification unlawful (and require that a new procurement competition be commenced) unless the proposed change can fit through one of the gateways under Regulation 72(1)(a)(b)(c) or (d) which can be found here.  

 

Note: With respect to Regulation 72(1)(b) and (c), in theory more than one such change could be made during the life of the contract even if, in total, the value is more than 50% of the original contract value. However the successive changes must not be made in order to circumvent the regulations. 

 

In addition a contract modification notice must be sent to the OJEU for any change under Regulation 72(1)(b) or (c). 

 

What about minor changes? 

There are times when a proposed modification falls below a certain monetary value (a ‘minor’ change). Regulation 72(5) deals with this situation and can be found here

 

It should also be noted that where several successive minor changes are made the value is calculated to be the net CUMULATIVE value of the successive modifications.  This is different to the modifications under Regulation 72(1)(b) and (c) where the value is permitted to be calculated separately for EACH modification. 

 

What about below threshold modifications? 

 

Changes to below threshold contracts/frameworks fall outside the requirements of the Regulations. It is important to note however, that if there is deemed to be cross-border interest in the contract/framework, the Treaty principles of transparency, equality, non-discrimination etc. will apply. 

 

Contract Extensions 

 

The following is an extract from section 4.3 of the same PGN: 

Some contracts may cover long periods of time and have options to extend after the end of the initial contract period (e.g. the option to extend for a period of a year after a three year initial contract period).   Properly managing the supplier’s performance will help the University to decide whether or not the optional extension represents value for money or whether the contract should be put out to tender. 

  

8.     Summary

 

The Procurement Office would emphasise the need to apply and maintain adequate and robust controls, in respect of contract management – not least to ensure that the University achieves value for money in all its supply arrangements.  It is therefore the duty of the contract manager to be aware of, and discharge his/her responsibilities, in line with this guidance.

 

For further guidance please refer to the attached Contract Management Checklist click here and Management Plan click here