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NAO says cultural change needed to improve contract management within government

Out-Law News | 12 Sep 2014 | 5:27 pm | 2 min. read

The government must improve the way it manages contracts with its suppliers to ensure it gets value for money from those deals, a spending watchdog has said.

The National Audit Office (NAO) said that changes in culture and practices are necessary after identifying a number of weaknesses in areas of contract management within government departments (61-page / 453KB PDF).

"In our view there needs to be widespread change in the culture of the civil service and the way in which contractors are managed," the NAO said in a new report. "There needs to be more emphasis on a commissioning approach, transparency over the contractors, use of open-book to align incentives and a targeted focus of the government’s commercial capability."

According to the NAO, there are more than 100,000 contracts in central government. Departments spent an estimated £40 billion in 2013-14 in procuring goods and services from suppliers, it said. The NAO reviewed a number of the arrangements in place and said it found "widespread problems with how government manages its service contracts".

The watchdog highlighted problems in planning and governance, with senior management not involved sufficiently in contract management. It said that the number and capability of staff tasked with contract management was sometimes lacking and that there was in many cases the management of supplier contracts was not dealt with "as a multi-disciplinary function" across different departments.

Departments are also failing to utilise all the "commercial incentives" they could use to prompt suppliers into improving service delivery in certain cases, it said. The NAO also said performance indicators in contracts with supplier were "often weak" and that the government relies too heavily on performance data provided by suppliers.

An insufficient understanding of the risk present in outsourcing arrangements, a lack of attention paid to changes to contract changes and the absence of "a strategic approach to managing supplier relationships" in some cases were other weaknesses the NAO said it identified in its review.

The NAO said that the Home Office and Ministry of Justice (MoJ) had already undertaken "significant change programmes" to improve how they manage contracts and said there were lessons other departments could learn for this work.

The NAO said departments could take a number of steps to improve their own contract management and ensure they get value for money from outsourcing arrangements.

Among its recommendations, the NAO called for "systems and processes" to be put in place by departments to ensure better oversight and management of supplier contracts. It said departments had already taken some action to address governance, including by "appointing senior champions for contract management", defining responsibilities and the procedure for escalating issues to senior staff.

It also said that "contract management needs to be integrated into the commissioning process". In practice, this means that policies and contracts must be designed "with a view to the contract management capability available and any flexibility required".

The government needs to better understand suppliers and be able to better influence their behaviours, the NAO said.

In particular, it said the government must be "far more inquisitive about the strategy, internal operations and culture of its strategic providers" and said the information departments require can be found in "sources such as public announcements, investor information and the work of market analyst". However, it said there needs to be "skilled analysis, collation and sharing of this information" to ensure those leading "cross-government negotiations with strategic suppliers" are informed of important information.

The NAO also called for greater transparency of government contracts with suppliers and gave its support to a number of Cabinet Office initiatives that are aimed at ensuring the government makes "the most of its commercially experienced people".

It said commercial staff within government departments must be capable of performing "an enhanced role" in relation to contract management and said changing the nature of commercial staff jobs would make them more attractive to prospective employees.

The NAO also said better information sharing on supplier contracts would help ensure that the Crown Commercial Service, the central procurement body within government, is better able to support departments.