Public sector contract management: OGC to respond to £290m-savings claim

"We estimate that better contract management could potentially generate efficiency savings of between £160 million and £290 million a year," said a damning report by the National Audit Office (NAO) in December. "As well as financial savings, better contract management could bring improvements in the quantity and/or quality of services, the avoidance of service failure, and better management of risk."

The Office of Government Commerce, which advises Government departments and agencies on procurement and contract management, published jointly with the NAO a 'framework'. That framework, also published in December, outlined how contract management might be improved in light of the NAO report. The OGC has been asked to publish a full response, which could come as early as March.

The NAO said that Government departments are not paying enough attention to the process of managing a contract and extracting the full potential value out of it.

"Central government organisations are not always according contract management the priority it deserves," said the NAO report. "There is often no one individual with overall responsibility for contract management across an organisation."

The NAO said that each department should have someone senior within it taking responsibility for the management of contracts.

"Central government organisations should assign ownership of contract management issues across their organisation to a single individual (for example, the commercial director/head of procurement) who has a clear remit to improve contract management and the authority to deliver change," it said.

Even when individuals had clear responsibility for contracts, though, they were sometimes too stretched to be effective, the report said. "One contract manager, for example, was managing two other service contracts as well as the £29 million a year contract for the provision of court security."

The NAO said that the OGC "can do more to support central government organisations to improve contract management". It said that the OGC would publish a fuller response to contract management problems this year, and it is understood this could come as early as March.

The OGC currently operates a 'model contract' for IT services, which Government departments follow in their dealings. But according to Clive Seddon, a partner with Pinsent Masons, the law firm behind OUT-LAW.COM, the relationship between the new emphasis on contract manager roles and existing model services agreements (MSAs) needs to be cleared up.

"Given the prominence accorded to the role of the contract manager in the new framework the absence of reference to contract managers in the current MSA needs to be rectified and reconciled with existing practice," he said. "This will require more than simply a drafting amendment to the MSA."

The NAO found near-unanimity on the need for action. It found that 97% of Government department commercial directors or heads of procurement believed that better management of contracts would be better serviced from the private sector. It said that 67% thought it could bring cost savings.

But the report highlighted that the current managers of contracts may not be well placed to help find those savings.

"Most contract managers had no formal commercial qualification," it said. "For example, 70% held neither the Chartered Institute of Purchasing and Supply Graduate Diploma, the core graduate procurement qualification, nor the Government Procurement Service Certificate of Competence."

"The NAO reports place heavy emphasis upon Government departments taking control, actively managing the service provider and the risks associated with private sector service delivery," said Seddon. "To do this effectively, Government departments need to allocate time and resources to appointing, training and empowering personnel with the right skills."

Seddon said that the NAO was not satisfied with the amount that Government spent on managing contracts, which it said was usually 2% of the contract's value.

"The private sector will generally spend around 5% of total cost on similar activities," he said. "The reports are critical of this expenditure allocation and the lack of attention and prioritisation given to contract management. It recommends that Government needs to do more, in a better way, if improvements are going to be effected and the projected savings realised."