Darin Matthews, CPPO, C.P.M.

Governmental Procurement, ISQA 440Spring Term, 2012

Contract Administration

Importance of active contract managementInvolvement of procurement professionals

throughout contracting cycleInvesting in your contracts early onContract management tools

Overview

Helps ensure your organization is getting what it is paying for

Contract performance is a highly visible phase of the acquisition process

Many contracts experience problems during post-award activities

The majority of contracts experience cost overruns and schedule delays

Prime area for the public procurement professional to “step up” and add value to their agency

Why is the Topic Important?

One third of IT projects exceed budget and schedule by nearly 100%

60 percent of tech projects in healthcare industry are over budget by at least 30%

Countless government transportation projects are 2 to 3 times the original project cost

Public defense contracts have a track record of “over promising and under delivering”

Sources: Gartner, Washington Post

Cost Overruns and Schedule Delays

Procurement is part of the team throughout the contracting process

Ongoing participation in meetings, reports and site visits when practical

Operating in a proactive manner, not reactiveProcurement is not the last to know about a

performance problem

Active Contractor Management

Importance of Early Involvement

Not involved with planning phaseBudget process handled by other business

groupsSpecifications and works scopes developed

without involvement from ProcurementActively involved in Bid/RFP processAssist with contract negotiation and awardContract then “handed off” to using

department

Traditional Role of Procurement

Acquisition Cycle

Planning PhaseSolicitation

PhasePost-Award

Phase

Ensure Delivery and/or PerformanceVerify Inspection Don’t Settle for Less

Assist With Financial ManagementEngage Project and Program ManagersHandle Contract Amendments

Limits, ApprovalsTake Care of Disputes

Don’t Disappear When Things Go Bad

Areas of Focus / Contract Management

Establish clear scope and key features before beginning the workAvoid scope creep and feature creep

Assemble and prepare your technical teamAssign based on capabilitiesCreate positive work environments

Thoroughly investigate contractor capabilitiesPast performance, references, key

personnelStay diligent about keeping project on

trackPay attention to minor changesAvoid changes that impact cost and time

Source: Suzanne Thornberry

Preventing Cost Overruns

A leadership role – seeking new opportunities and driving them

A managerial role – managing systems and relationships

A creator role – identifying new opportunities and making them available to the organization (strategies, supply options, revenue streams)

A needs enabler role – enabling others in the organization to satisfy their own needs

Source: ISM, Joseph Cavinato, 2000

Role of Supply Management

•

Contract Administration PlanDescription and purpose Roles and responsibilitiesPeriod of performance/delivery datesData and deliverablesTestingInspection and acceptanceWarranty provisionsPersonnel requirementsSpecial terms and conditionsWatch list items/critical milestonesSchedules and meetings

Meet with apparent successful contractor Discuss scope, budget and project milestonesVerify they have clear understanding of agency

needsA “check point” prior to award

Pre-construction conference or pre-work conferences

Plan and strategize prior to mobilization or work beginning

Pre-Award Conference

Establish clear expectations in the Bid or RFP solicitation

Period reporting of orders (quarterly, semi-annual)

Performance reporting: work completed, quantities delivered, etc.

Contractor achievements with regard to performance (sustainability factors, waste reduction, etc.)

Final reporting at contract completion

Reporting Requirements

A tangible item that contractor delivers to agency

Clearly spelled out in contract Component of the work scopeProject milestones representedIdeal to tie deliverables to schedule and

payment

Training Delivery: Upon contractor’s successful completion of the first training on workforce diversity, agency shall pay contractor the amount of $5,500.

Identify Deliverables in Work Scope

Formally evaluate and critique contractor’s performance

Standardized process for evaluating areas such asQuality of workAdherence to agreed upon scheduleMeeting project milestonesCost control performanceAdministrative areas

Share with contractorRetain information for future contracts

Contractor Evaluation

Supplier Score CardOffice Depot Staples Office Max

Product Quality

22 21 19

Pricing Consistency

20 17 23

Timely Deliveries

19 18 22

CustomerService

16 23 19

Total 77 79 83

Partnership opportunity with using department and/or finance department

Ensure that someone is “minding the store”Verify invoices are in accordance with

contractUnit pricingAdd alternatesProject deliverables

Amount paid should be comparable to amount of work completed

Avoid “invoice-it is”

Financial Management of Contracts

Firm fixed pricing for set period (i.e. initial contract term)

Be knowledgeable of allowable price adjustments

Require justification for all price increases

Don’t be afraid to “push back”Limit or tie adjustments to a price

index (CPI, PPI)Realize that some commodities can

experience price decreases

Managing Price Adjustments

Bonding Approaches• Performance bonds (ensures performance of work)• Payment bonds (labor and materials)•Maintenance, warranty bond (guarantees work for set period)• Issued by surety or bonding company, an independent third-party that guarantees contractor will do what is agreed to

Liquidated Damages• Damages agreed to by contract parties at the beginning of a project•Normally in the form of monetary payment (or penalty)• Often applied on a daily basis for non-completion of work•May not be imposed as arbitrary penalty•Must be reasonable and represent actual damages

Performance Incentives• Contract where vendor is incented to provide • Savings• Cost reductions• Increased revenue• Terms negotiated in agreement where government agrees to pay additional sum to contractor if performance is achieved• Example: early completion of bridge repair

• Realize the importance of procurement’s role throughout the contract process

• Get involved early on, the sooner the better

• Do your best work up front, as it pays dividends down the road

• Use standard solicitation and contract documents

Parting Tips

• Consider the use of contract administration plans

• Require ongoing reporting by your contractor

• Formally evaluate the performance of your suppliers and contractors

• Consider past performance in your contractor selection process

Parting Tips

• Questions

Wrap Up