Good Contract Management: A municipal perspective

7/27/2019 Good Contract Management: A municipal perspective

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1ST

LEGAL & FINANCIAL COMPLIANCE FOR

CONTRACT

MANAGEMENT

IN GOVERNMENT & SOE’S

DATE: 21 & 22 MAY 2013

VENUE: CSIR INTERNATIONAL CONVENTION CENTRE, PRETORIA

PRESENTED BYJB NARTEY, [email protected], 073-7369034

Good Contract Management

– A Municipal Perspective

mailto:[email protected]

mailto:[email protected]



TABLE OF CONTENTS

GOOD CONTRACT MANAGEMENT

CONTRACT MANAGEMENT-DESCRIPTION

PROBLEM STATEMENT

CONTRACT MANAGEMENT TURNAROUND STRATEGY

PROBLEM DIAGNOSIS(ROOT CAUSE ANALYSIS)

ENVIRONMENTAL ANALYSIS(SWOT/SLEPT ANALYSIS)

VISION,MISSION STRATEGIC OBJECTIVES

STRATEGIC INITIATIVES/ACTIONS(SOLUTIONS)

STRATEGIC PERFORMANCE MANAGEMENT SYSTEM

CONTRACT MANAGEMENT TURNAROUND STRATEGY

IMPLEMENTATION AND CHANGE MANAGEMENT

REFERENCES



HUMOUR



GOOD CONTRACT MANAGEMENT

Contract Management Regulations/Legislation/Guidelines/Standards

Good Contract Management

(system, practices, processes, controls etc)

SA Constitution-Section 217(1)

- Principle of contracting for goods and services

in a manner that is fair, equitable, transparent, competitiveand cost-effective

Batho Pele principles COMPLIANCE



CONTRACT MANAGEMENT- DESCRIPTION

Types of contracts in the Municipality

Public Body

Other Public

BodiesSuppliers

Contractors Consultants

Employees Banks

Other service

providersCONTRACT MANAGEMENT

REGULATIONS/LAWS/LEGISLATIONS

SA Constitution Section 217(1)

Contract Management Regulations/guidelines/standards

MFMA,SCM

Regulions/Policies,CMF,MSA,CIDB

Act,BBBEE Empow erment Act,CIDB

Guidelines,ECM Guidelines,Treasury

instruction notes/guidelines etc

Formal,standardized and structured contract managementprocedures/processes



CONTRACT

MANAGEMENT

PROCESS-

CREATION

Contract

Identification &

Classification

System(ERF)?

Contract

Inventory/Registration

System?

Contract Mgt

Plan/strategy?

Contract

documents

Ambiguities?

Expect Judgment?

Risk Analysis?

Risk Analysis?

Risk Analysis?

Risk Analysis?

Value for money

analysis? Sensitivity

Analysis?

Stakeholder Involvement?

Risk Analysis?

Excessive Delays?

Deviations?

Market Research? Soft wares; ECM,ERP?

Political Influences?

Quality Mgt. Systems?

Transparency?

Leadership

oversight/Monitoring?

Fierce tender

competition?

Very Slow?

Record Keeping?

Contract Performance

Mgt./feedback

Systems?

Poor demand

management?



CONTRACT MANAGEMENT PROCESS-CONTRACT EXECUTION

Soft wares; ECM,ERP?

SMMEs?

Organisational technicalcapacity/competence?


Political Influences?

Record Keeping?


Mgt./feedback

Systems?

Risk Monitoring &

Control?



.

.

.

.

.

.

.

.

Not Attended/ Not yet to

completed

Attended

E

Attending Snag and Defects (if any

identified) during defects LiabilityPeriod

By Contractor (Supervision – PSP,

PMU)

Attended Snags and

Defects (End of Defect

Liability)

B Contractor

Submission of Project Completion Report,

As-built Drawings;

Issuance of Completion Certificate and

Final Payment Certificate; Release of

Guarantee and Retention

B PSP Su ervision – PMU, CFO

Project Completion Reports, As-

built Drawings, O&M Manual

Completion Certificate (Clause

51.4), 100% Release of Retention

and Guarantee

DEVELOPMENT COMPLETED

ENTERED INTO OPERATION &

MAINTENANCE (IN USE)

Project Completed in all

respect and enter into

Operation &

Maintenance

Operation & Maintenance

IN USE

Defect Liability, Final Completion and

Closing of project

CONTRACT MANAGEMENT PROCESS- CONTRACT EXECUTION

Completion Reports?

Organisational technical

capacity/competence?



Mgt./feedback

Systems?

Record Keeping?

Risk Monitoring &

Control?



PROBLEM STATEMENT /SYMPTOMS

- KPMG FORENSIC PROBE Three service providers were initially contracted to execute a sanitation project but reportedly failed to finish, later abandoning

the projects.

The first contract went to Y contractor for the building of 2 483 toilet units estimated at R15.9-million in area 1, and the secondto Z Contractor for construction of 1 442 toilets at an estimated cost of R9.2million in area 2.

Y Contractor had quoted R6 443 per toilet and Z Contractor had quoted R5 682 for each toilet structure.

According to the Bid evaluation report, only Z Contractor was meant to be appointed as they had the lowest price.

However, the two companies were jointly appointed by a senior official who allegedly asked to deviate from regular tender

processes, citing urgency in completing the unfinished projects as the reason.

No irregularities in the payment to Y Contractor were identified in by KPMG.

The report said it seemed highly irregular as the official had no authority to appoint suppliers, specifically for contracts above

R10-million.

The deviation was allegedly approved by one of the implicated officials.

The report states that approval of the deviation was a result of gross negligence It also said it was irregular as it was not in line

with the municipality’s supply chain management policy. ―Their actions constituted an act of financial misconduct in terms of the

MFMA.‖ The report reveals that on certain occasions, Z contractor allegedly submitted invoices way above what it quoted and

also that it misinformed the council about the number of structures they had completed.

According to the report, the municipality paid:

R65 700 more to Z Contractor after it had submitted two different quotes to the company, with the municipality paying the highest

quote;

R15.3-million for additional work that did not relate to an emergency situation;

R390 835 for inflated prices of complete toilet structures other than the price agreed with the municipality; and

R850 519 for incomplete work, which the company claimed it had completed.



PROBLEM STATEMENT /SYMPTOMS -KPMG FORENSIC PROBE -CONT’D

―The expenditure relating to these appointments was irregular in terms of section 1

of the MFMA,‖ states the report.

―Further to that, the actions of [the senior official] to appoint these two service

providers constituted an act of financial misconduct, with her actions further

construed as gross negligence.

―We also established that Z Contractor made a misrepresentation to the municipality

by presenting inflated numbers relating to work performed. ―That action was

fraudulent and therefore constituted a criminal offence, so registering a criminal caseagainst them in respect of their fraudulent conduct is recommended,‖ continues the

report.



PROBLEM STATEMENT /SYMPTOMS - AUDITOR GENERALS REPORT

Irregular expenditure , High and increasing irregular expenditure due to not

following SCM requirements/procedures

Inadequate training of SCM officials.

Inadequate SCM Controls; Internal control deficiencies

Inadequate contract management

Uncompetitive or unfair procurement processes

High number of awards to close family members of employees andcouncillors without declaration in the financial statements-Non-prohibitive

High number of awards to employees and councillors or other stateofficials-Prohibitive awards

No written price quotations for transaction value between R10,000 andR200,000 as per SCM regulation 17a & c requirements.

Service providers register non-compliance -Quotations accepted fromprospective providers who are not in the list of accredited prospective providersas per SCM regulation 16b & 17b.

Bid Specifications not always drafted by the Bid Specification Committeewhich were composed of one or more officials of the department as required bySCM regulation 27(3).



PROBLEM STATEMENT /SYMPTOMS

- AUDITOR GENERALS REPORT

Final awards/recommendations to the accounting officer were not always made by aBAC as per SCM regulation 29(2)

Awards were made to suppliers who did not submit a declaration on their employment by

the state or their relationship to a person employed by the state as per SCM regulation 13(c).

Preference point system was not applied in all procurement of goods and services above

R30,000 as per section 2(a) of the PPPFA and SCM regulation 28(1)a.

The performance of contractors or service providers was not monitored on a monthly basis

as per section 116(2)b of the MFMA.

Contract performance measures and methods whereby they are monitored were insufficient

to ensure effective contract management as per section 116(2)c of the MFMA.

No sufficient and appropriate audit evidence to prove that construction contracts were

awarded to contractors that were registered and qualified for the contract in accordance to the

prescripts of the CIDB Act.

No updating of prospective providers lists for procuring goods and services throughquotations at least quarterly to include new suppliers that qualify for listing.

Prospective providers were not invited to apply for listing at least once a year as per

SCM regulation 14(1)(a)(ii) and 14(2).



PROBLEM STATEMENT /SYMPTOMS- SUMMARY

“This is blatant disregard of Supply Chain/Contract

Management legislation”

It is t ime to do things d i fferent ly.

One defini t ion o f insanity, attr ibuted to Albert

Einstein, is do ing the same thing over and over

again and expecting dif ferent resu lts.



HUMOUR



FLAWED ?

CONFUSION?

C

http://sloanreview.mit.edu/article/is-social-media-a-threat-to-cios/



CONTRACT MANAGEMENT

TURNAROUND /TRANSFORMATIONAL STRATEGY

External/Internal Analysis(SWOT,SLEPT Analysis)

Contract Mgt. Vision, Mission,

Goals,Values

Contract Mgt. Strategic

initiatives/programs

Contract Mgt strategic objectives

Analysis of Key strategy

drivers/enablers;

People,culture,org.structure,policies etc

ChangeAnalysis’who,what,when

Root Causes

Countermeasures

PMS-KPIs

Problem Analysis(Root Cause Analysis)

CONTRACT MANAGEMENT



CONTRACT MANAGEMENT

-ENVIRONMENT ANALYSIS-INTERNAL/EXTERNAL

Org.System

administrative/operational System

Market(Public Service providers)

Industry

Local

Government SLEPT

Human & Socio-cultural

Legal/Regulatory Environment

Economic

Political

Technological

MACRO

Contract

Mgt.SystemProject Mgt.System

InternalPolitical

System



CONTRACT MANAGEMENT

-SERVICE VALUE CHAIN

Service Delivery Value Chain

Contract Management Service Value Chain

Interaction: Servitization

“Technology “ support systems (ECM softwares/ERP systems)

Human and social-cultural sy stems -

Legal /Regulatory systems- Ever changing

Economic sys tems- Globalization and economic i mpact

Contract Financial /Payment systems - Advance,retention,payments,incentives,penalties,

value for money analysis- WEAK

Contract Life Cycle Pre-award and post-award phases

Quality of Service Delivery

Contract knowledge & Information Mgt systems - Automated /Computerised(ECM/Spreadsheets)

Relationship /Stakeholder Mgt Systems-Automated

Contract Performance Mgt /feedback systems- BalancedScore cards,M& E, Value for Money ,buyer/seller ,contract -Automated

Contract Change Management Systems- Change control policies,processes,procedures etc.

Contract Communication Systems-policies,processes,procedures

Quality Management Systems- policies,processes,procedures- TQM,

ISO 9001/2008 Compliance

Conflict Management Systems-policies,processes,procedures- ISO 9001/2008 Compliance

Administrative /Operating System

Political systems- Political Influences Risk Management Systems-policies,processes,procedures-



Opportunities;

Partnerships with other market players; private sector/public sector

Benchmarking with high performers in the industry

Weaknesses;

•Weak internal control & risk management•Lack of effective contract mgt. support systems

•Open system exposed to internal political influences

•Very Low technology use in the processes

•Lack of technical capacity/professionalism

• Inadequately resourced departments

•Non-aligned administrative structure(Weak Matrix)

•Poor Work ethics

•Negative Organisational Culture

Threats;

Political InfluencesGlobalisation-Global Economic Recession

Placed under provincial administration

Cutting of development budgets by treasury

Ever changing legal/Regulatory environment-Treasury

Strengths;

•Good Contract ManagementRegulations/Laws/Guidelines

•Financial Resources

CONTRACT MANAGEMENT

SWOT ANALYSIS

PROBLEM DIAGNOSIS



PROBLEM DIAGNOSIS

-CAUSE-EFFECT ANALYSIS

ISHIKAWA DIAGRAM-CAUSE-EFFECT ANALYSIS

CONTRACT MG T.ETHICS PHYSICAL RESOURCES CONTRACT GOVERNANCE CONTRACT ENVIRONMENT CONTRACT MGT. SYSTEM

NON-COMPLIANCE TO

CONTRACT MGT.REGULATIONS

LEADERSHI P CONTRACT MG T. STAFF

CONTRACT MGT.LAWS/

REGULATIONS/POLICIES/STANDARDS FRAUD/CORRUPTION STAKEHOLDERS

http://sloanreview.mit.edu/advertise/



PROBLEM DIAGNOSIS-

ROOT CAUSES Fraud/Corruption –Institutionalised/Normalised

Contract Management System/Processes- Lengthy/Cumbersome, Compliance difficultiesetc

Lack of Transparency

Lack of professionalism

Contract Mgt.Staff- Lack of commitment and dedication

Unethical behaviours

Contract Management-External Lack of Industry Control/fierce competition, Emerging/Inexperienced contractors(SMMEs)

Contract Demand/supply Management

Multi-contract environment(pressure),multi-tasking, poor resource demand/supplymanagement

Contract governance

SCM policies- Not reviewed to reflect market changes and Lessons Learned

Non-aligned org./administrative structure(weak matrix) ,Weak Internal Control, qualityassurance & Support Systems, No SLAs, Affidavits

Political Influences/Interferences

Leadership oversight and monitoring-Poor

Insufficient physical resources- ICT etc

Lack of Stakeholder Involvement- Internal/External

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CONTRACT MANAGEMENT

–VISION,MISSION,VALUES

VISION

The principles of contracting for goods and services in amanner that is fair, equitable, transparent, competitive andcost-effective is upheld; (SA Constitution-Section 217(1))

MISSION

To ensure that contracts are planned, created and executed

on time, on budget and at the right specification/quality tothe satisfaction of all stakeholders.

VALUES Integrity

Dignity

Empowerment

Accountability & Responsibility Transparency

Excellence

Partnering



To minimise fraud/corruption

To optimise and streamline the Contract Management System/Processes- To ensure transparency in the contract management process

To introduce professionalism into the contract management process

Review the SCM policies to reflect market changes and Lessons Learned

To ensure that all SCM staff is educated on contract management ethics

To encourage consolidation in the form of mentorships, JVs,consortia amongst our prospective contractors/suppliers

To make emerging contractor development compulsory for the award of contracts

To ensure a restructuring of the organisation to meet the requirements of the contract

management process

To strengthen the Internal Control & risk management system

To minimize political Influences/Interferences in the contract management process

To provide leadership oversight and monitoring of the contract management process

To provide adequate and quality physical resources for the contract management system

To ensure compulsory internal/external stakeholder Involvement throughout the contract

management process

CONTRACT MANAGEMENT

–STRATEGIC OBJECTIVES

CONTRACT MANAGEMENT



CONTRACT MANAGEMENT

-STRATEGIC INITIATIVES/ACTIONS/PROGRAMS Contract Management System and Processes-Redesign,

optimized and streamlined ;CCPM

Contract Control/ Demand Management; CONPIP/CONTIP-

CCPM

Internal Control,Quality assurance and Risk Management;

Strengthen & Involve Internal audit committees

Professionalism- Staff compulsory training, registration &accreditation by SACPCMP,ECSA ,SAICE etc

Benchmarking - High performing municipalities for peer review.

SCM Policy- Regular Review, changing contract environment,

lessons learnt, enforce mandatory time frames for all the stagesof the contract management process

Contract performance management system- Earned value

analysis, NPV analysis, Value for money analysis, Risk analysis

etc

CONTRACT MANAGEMENT



CONTRACT MANAGEMENT-STRATEGIC INITIATIVES/ACTIONS/PROGRAMS

Staff Mentorship/Coaching Programs – Structured and

compulsory, Min. 2-3 years Staff Continuous Training- Contract Management legislation/

policy compliance, technical competence

Staff Performance Management Systems- effective and

efficient Staff Reward Systems- Performance-Reward linkages

Staff Welfare/Assistance Schemes-Personal needs,

Marslow theory

Industry Consolidations Policy; Compulsory mentorships,JVs, partnerships and consortia amongst prospective

contractors.

SMME development programs-Compulsory, structured

mentorships eg. Large Contractor Model(DRPW)

CONTRACT MANAGEMENT



CONTRACT MANAGEMENT

-STRATEGIC INITIATIVES/ACTIONS/PROGRAMS

Contract Governance De-politicization

Organisational Restructuring Program Contract Management Support Systems-Adequate &

Effective

Contract Management Computerization - Customized

ERP/ECM systems implemented with the necessary andeffective change management processes.

Stakeholder involvement- Compulsory, Incentivised

Staff Recruitment & Selection- Talented and experienced

professionals



CONTRACT MANAGEMENT

-TURNAROUND STRATEGY IMPLEMENTATION & CHANGE MGT

Knowing is not enough, we must apply. Willing is not enough, we must do.— Johann Wolfgang von Goethe

"Every Improvement requires a change but not every change results in animprovement― Goldratt Institute

Requirements:

Top Management Overhaul- Strategic thinkers/Strategic Leaders

Strategic Leadership/direction-top management commitment & involvement Need for the change & its possibility

Understood and perceived by all stakeholders & employees

Strategy & change management communication

Engagement, understanding, support and commitment- All relevant stakeholders &Employees(middle managers)

Strategy implementation drivers Identification ; Strategic leadership,Organisational culture, values, behaviours, attitudes, reward systems,organisational policies, organisational structure, resource allocation and budgets

Strong alignment and linkage of these strategy implementation drivers to thestrategy

Employee roles and responsibilities -Key changes must be clearly defined.

Employee discipline and commitment- Value systems

Vision Without Execution is Hallucination-Thomas Edison



CONTRACT MANAGEMENT -TURNAROUND STRATEGY IMPLEMENTATION & CHANGE MGT

Requirements:

Necessary resources(competencies)

Special people management skills, Managerial

Competences, Motivation and Leadership skills -Top

Management Administrative support systems-Information &

communication systems- adequate & efficient PMS

Strategy Champions/Leader

Commitment & dedication

Strategic business units

Coordination of the strategy implementation efforts



CONTRACT MANAGEMENT -TURNAROUND STRATEGY IMPLEMENTATION & CHANGE MGT

Strategic Change Management process;

Change Resistance Management -Education &

Communication, participation & involvement, power and

influence etc)

Identify areas of change-Administrative/operational

systems, people & corporate values ,Strategic leadership,

Organisational culture, reward systems, organisational

policies, organisational structure, resource allocation and

budgets

Become a learning organisation

Continuous improvement-Benchmarking,TQM,6 sigma,

business process re-engineering)



REFERENCES www.treasury.gov.za

www.cidb.org.za/gov

Daily Despatch News

OR Tambo District Municipality. 2012. IDP 2011-12 Review , March 2012. OR Tambo

District Municipality. [online] Available: http://www.ortambodm.org.za[Accessed 5 May

2013].

Contract Management Framework and Guidelines Version 1- National Treasury

August 2010

The Constitution of the Republic of SA,1996

Municipal Administration- The Handbook 6th Edition 2011

PROJECT MANAGEMENT INSTITUTE, 2004. A Guide to the Project Management

Bod y of Kn owledge (PMBOK Guid e). 5th ed. Pennsylvania: Project Management

Institute.

BLANCHARD, B.S.,2008. System Eng ineer ing Management .4th Edition. Hoboken,

New Jersey: John Wiley & Sons Inc. Chapters 1-2 Bolton P. 2007, The Law of Government proc urement , LexisNexis,

Ehlers, T & Lazenby, K (2004). Strategic Management: South Afr ica Con cepts and

Cases . Van Schaik Publishers.

http://www.goldrattresearchlabs.com/

http://www.ortambodm.org.za/

http://www.ortambodm.org.za/

http://www.goldrattresearchlabs.com/



Documents

Good Contract Management: A municipal perspective