The foundation of effective contract management is a suite of essential documents which allow managers to keep track of performance and expenditure on their contracts, while dramatically reducing the time required to do so. Key documents that support effective contract management include:
These should be supported by a Standard Filing Structure. We explore the what, how and why of each of these requirements below.
Operations Manual – How to maintain management consistency
The operations manual is the cornerstone of effective and consistent day-to-day management of a Strategic Supplier contract. The operations manual is vital for ensuring both continuity when there are changes of personnel and efficient day-to-day management of the contract.
A well-structured operations manual is also an indispensable reference guide for the client. As well as providing the information needed for day-to-day contract management, it serves as a handy database for responses to requests for information from government agencies and finance managers and to Freedom of Information requests. This avoids the need for gathering the information from scratch each time and ensures consistency.
In some projects, the contractor produces its own guides, usually for end users. It is important that the Strategic Supplier manager has direct input to such guides, to ensure they contain all relevant data and are accurate and impartial. However, even the most comprehensive and well-structured contractor guide is unlikely to contain all the information needed by the client. It is therefore recommended that the client keeps its own operations manual, tailored to its own needs, even if this duplicates some of the content of the contractor’s document.
In summary the main reasons why the client should maintain its own manual are:
- Ease of access to key information
- Continuity when there are changes of personnel (on either side)
- Ensuring the document is suited to the client’s needs.
What and how?
The detailed content and structure of the manual should be determined locally, depending on the nature of the project and the needs of the client. However, there are some overarching principles regarding content, which should be reflected in all Strategic Supplier operations manuals:
- Keep ‘perishable’ data to a minimum and instead include a cross-reference to the location of the source document in the standard filing structure. This avoids the need to constantly update the manual as well as source documents.
- Even with use of cross-references, some information will inevitably become obsolete sooner or later. Version control (with the date and details of the last update made clear at the front of the document) enables the client to maintain control of the document and know if the information it contains is up to date.
- Include an annual/ bi-annual operations manual update task in the monitoring calendar to ensure that key information is updated regularly.
- Ensure that any significant project changes (such as changes of contractor or changes to the service specification) are reflected in the manual as soon as they happen rather than at the next scheduled update.
- If the client has two or more similar Strategic Supplier contracts, it will save time and effort to have a single manual for all of them, particularly if the same team manages them.
Although the detailed content of the manual should reflect local needs, there are some key components that should be common to all Strategic Supplier operations manuals. These are:
- Glossary of terms
- Summary of roles and responsibilities of client personnel
- Key information including a summary of:
- Asset data
- Equity and funders data
- Scope of services
- Contract value
- Day to day tasks (such as organising meetings, receiving and checking invoices etc)
- Periodic tasks (such as benchmarking and market testing)
- Change control
- Non-contractual procedures or protocols – covering operational arrangements made with the contractor, which are not reflected in formal contract documents
- Standard filing structure
- Locations of the most commonly used sections of the contract. These should include as a minimum:
- Service Specification (may be included in the Authority’s Requirements or Payment Mechanism)
- Payment Mechanism
- Contractor’s Proposals (the operational sections)
- Availability and Performance criteria (usually part of the Payment Mechanism)
- Reporting and liaison responsibilities (usually part of the Service Specification or Payment Mechanism)
- Variation process (often referred to as Authority and Contractor Changes)
- Annual plans – details (i.e. minimum requirement of the service plans the contractor is usually required to update annually)
- Insurance and related risk share arrangements, if relevant
- Benchmarking and Market Testing clauses and schedules
- Dispute resolution procedure
- Contract breach and termination provisions.
The operations manual is essential for ensuring continuity in Strategic Supplier contract management as well as being a considerable time saver. It serves as a key reference guide to the most commonly used Strategic Supplier documentation. A good manual should:
- Include cross-references to other documents for regularly changing data
- Be reviewed on a regular basis
- Contain key information required for the management of the contract.
This section explains the why, what and how of the Strategic Supplier monitoring calendar – an essential tool for clients to stay on top of the responsibilities of the contractor and its sub-contractors as well as their own responsibilities.
Strategic Supplier contracts are sometimes described as ‘self-monitoring’, implying that the contractor can be left to oversee its own performance. While many contractors are competent and diligent in fulfilling their duties, pressure from shareholders and top management to reduce costs can often dis-incentivise the contractor from carrying out monitoring and service delivery in a neutral manner to the degree expected by the client and required under the contract.
It therefore falls to the client to ensure that the contractor performs all of its obligations. In addition, the client needs to keep on top of its own contractual obligations and its responsibilities to end users, especially where there is a separate legal agreement or SLA (Service Level Agreement, e.g. with a school governing body) that sets out such responsibilities.
Finally, the length and complexity of a Strategic Supplier project often leads the parties to create procedures outside the contract to enable them to operate the project more effectively (such as arrangements for regular site inspections, vandalism management and so forth). These will also need to be covered in the monitoring calendar.
The main purpose of a monitoring calendar is therefore to ensure that:
- The contractor delivers the full scope of contracted services and meets any specified timescales
- The contractor fulfils its other contractual obligations, e.g. providing information required under any income sharing provisions
- The client is well prepared for periodic activities (e.g. benchmarking / market testing)
- Transactions with end users, including any financial contributions due from them, take place on time
- ‘Best-practice’ periodic activities (e.g. site visits, financial monitoring activities) are captured, making contract management more effective.
What and how?
The simplest way to structure a monitoring calendar if you do not have a dedicated software solution, is in a spreadsheet, which can be filtered by a specific month. For larger and more complex contracts, a database or online monitoring tool may be appropriate. If a spreadsheet is used, it is recommended that the following are included as a minimum:
- What activities need to be undertaken
- Party responsible (client/ contractor / end user) and designated lead on each side
- Reference to contract clause or schedule where relevant
- Frequency of the activity
- Date on which the task is due to be carried out
- Status (e.g. red, amber, green)
To ensure that the calendar is kept up to date and monitored regularly, it is recommended that an officer on the client side is tasked with monthly review and dissemination of the outstanding and relevant monthly tasks. All team members with monitoring responsibilities should be asked to regularly update the status and comments sections of the calendar, to ensure there is record of which activities have been carried out and which are outstanding. This will allow Strategic Supplier managers to track the performance of their own staff, as well as the contractor, and decide which issues require escalation.
The monitoring calendar is an essential tool for effective management of Strategic Supplier contracts, enabling the client to keep track of:
- Contractor performance of all its obligations including:
- Periodic activities
- Reporting on income share
- Benchmarking and market testing
- Provision of reports, information and documents
- Payments to and from end users
- Periodic financial reconciliations
- Non-contractual best practice activities.
Although public sector organisations tend to keep their financial information on corporate systems, such as SAP, Oracle and so forth, the complexity and scope of Strategic Supplier financial transactions necessitate additional financial controls. These are usually best utilised on dedicated software systems that have some form of automated API link to your core financial systems that maintain up to date synchronisation of data; reducing any manual duplication of data and negating the risk of one system or the other having redundant or out of date data on it.
If you are unable to implement a dedicated software system with the appropriate automated data links into core systems, then keeping your data on a separate spreadsheet may be your only option. But it is an option that it is critical that you undertake, despite elements of duplication and cross-checking you will need to accept.
As a minimum, your dedicated software system or spreadsheet should allow you to monitor the following processes and information:
- Sinking fund tracker – projections of payments and receipts up to the end of the contract, to ensure there is no affordability gap, either overall or in a particular year
- Monthly unitary charge profile – adjusted to reflect:
- Indexation (usually based on RPIX)
- Changes to payments following benchmarking / market testing
- Adjustments to annual payments relating to variations, including additional or reduced facilities management (FM) and lifecycle costs
- Variations register
- End user contributions profile (if such contributions are due) – adjusted in the same way as the unitary charge and including an allowance to cover ad hoc charges for vandalism, additional use etc.
Strategic Supplier financial profiles require regular adjustments to reflect changes to income and expenditure streams. Such adjustments fall into two broad categories: scheduled (indexation, benchmarking, cost share etc) and ad hoc (variations, vandalism etc). To keep firm control of costs, it is best to include all the scheduled cost and expenditure adjustments in the monitoring calendar.
Strategic Supplier contracts tend to run for significantly long periods of years. It is unlikely that the same officers will be responsible for financial monitoring of the contract for its duration. To ensure that all the knowledge and good practice relating to management of Strategic Supplier costs is retained within the client organisation, it is advisable to include the relevant information in the operations manual. As a minimum this should include references to monitoring documents (see above) as well as formulas and contractual references for:
- Calculation of indexation
- Benchmarking and market testing
- Variation fees
- Cost share provisions (insurance, utilities etc)
- Availability and performance deductions
- Conditions for payment and payment adjustment provisions.
Sound financial monitoring systems need to be put in place. All scheduled activities with a financial impact should be included in the monitoring calendar. The operations manual should include formulas and contract references for key financial elements of the contract.
Given the value, length and scope of Strategic Supplier contracts, a risk register is essential to manage the risk of financial and operational failure. It depends upon the premise upon which the Strategic Supplier agreement was originally set up, but a lack of true visibility of the risks can often be the result of a lack of forward planning and preventative action. The risk register should cover the impact and mitigation options for the following risks, as a minimum:
- Personnel changes, both on the client and contractor side
- Contractor and sub-contractor changes
- Impact of a rise in costs as a result of Benchmarking and/or Market Testing
- Any other risks to affordability, e.g:
- ‘Raiding’ of Strategic Supplier sinking fund due to budget pressures elsewhere in the client organisation
- Higher than expected inflation,
- Increase in number of end users
- Changes in the status of end users, such as a school converting to an academy or the occupants of an office building forming a mutual
- Any planned client activities with an impact on the Strategic Supplier asset (change of use, asset rationalisation etc)
- Any major contractual activities (lifecycle replacement etc)
- Impact of financial difficulties on client and/or contractor side.
Although it sounds like a mundane issue, a robust filing system is an essential tool for effective contract management. This section explains why spending time on setting up these systems pays for itself in the long run and gives practical tips on folder structure and name conventions, to make the many hundreds of Strategic Supplier related files manageable.
The need for an efficient filing system for management of any complex contract should be self-evident. However, this need is magnified in the case of a Strategic Supplier contract. The main reasons for this are:
- The need to keep and have easy access to documents over a 20-30 year period, in particular, where key staff members on the client or contractor side change. Without a clearly structured and documented filing system and process, it becomes near impossible for new/replacement team members to get up to speed with the operational elements of the relationship.
- The scope and complexity of Strategic Supplier contracts
- Continuity and change control.
Adopting the following key principles will make Strategic Supplier documentation easier to navigate and use as a tool for effective contract management:
- Standardised main folders and key documents – these should cover the following categories as a minimum:
- Contract documentation (all the documents produced at the financial close of the Strategic Supplier agreement, including the financial model, site plans and area data sheets)
- Contractor reports
- Change control
- Benchmarking and market testing
- Other operational issues.
All Strategic Supplier related documents should slot easily into one of these categories. With the right folder structure, new staff will be able to find documents without having to guess their location. This can be made easier by controlling the content and number of files and folders through:
- Use of separate, clearly identified sub-folders for storing superseded documents and those relating to issues that are no longer ‘live’
- Standard naming conventions, dating and version control of all documents, particularly those likely to go through several iterations (change notices, annual service plans and so forth)
- Use of dated/ numbered sub-folders for documents created on a regular basis (correspondence, change control, monthly reports and so forth)
- Use of document/ folder titles which are likely to be meaningful to new staff.
- Registers – are essential to keep track of:
- Correspondence to and from the contractor
- Change control
- Archived documents.
- No documents deleted – it is impossible to know what may become an issue over the lifespan of the contract, so it is advisable to keep all documents – both current and earlier versions – throughout the contract period. This applies to any documents the client team may have inherited from the construction and pre-construction periods, as it is surprising how often issues that were agreed at these stages resurface during the operational period.
- Easy access to archived documents – the easiest way to keep track of Strategic Supplier documentation is to make arrangements with the IT department to exempt Strategic Supplier folders from compulsory archiving. If this is not possible, the Strategic Supplier manager should ensure that the operations manual sets out the location, content and access instructions for all hard copy and electronic archives.
- Save key emails in relevant folders.
Documents that Support Effective Contract Management – Summary
- Good filing is essential in Strategic Supplier and saves time in the long run.
- Folders structures should be standardised and have meaningful titles.
- All documents should be retained with non-current files in a separate sub-folder.
- Keep registers of correspondence and so forth.
- Maintain access to archived documents.
- Copies of key emails should be saved in the relevant folders.