When setting up a contract, entities often focus on securing the best deal as quickly as possible. But they may race into contractual arrangements without allowing sufficient time to properly consider and craft the terms and conditions. At QAO, we often find the contract clauses meant to manage and drive performance are done poorly or completely omitted.

While the consequences of poor contract planning can include a failure to think about what you want to deliver, how you will deliver it and by when – even worse is not knowing if you have actually delivered it. Without clear measures, it can be hard to effectively monitor contract performance and outcomes.

Why is it important for measures to be clear?

Our report on Delivering successful technology projects (Report 7: 2020–21) stresses how important it is for entities to clearly describe the solution (what you want to achieve) and the performance measures needed to achieve it (how you will achieve it and by when) in their contracts. Doing so bases any assessment of performance on sound evidence, which those charged with governance can point to when considering or challenging a project’s performance.

The next step beyond defining the ‘what’ and the ‘how’ is thinking about how you will measure success. What does good really look like? How do you know if you have achieved what you set out to do?

For example, you might have set out to deliver a critical piece of infrastructure or project by a certain date and time and budgeted how much you would like it to cost. But do your contract deliverables clearly articulate what needs to be delivered? The most critical part, which is often forgotten or overlooked, is assigning relevant and measurable targets to track delivery against. When entities include clear, specific performance measures in their contracts, as well as milestones, those responsible understand what is required and the contract owner can easily track project status and hold people accountable.

Our report on Improving grants management (Report 2: 2022–23) provides a further example. It shows that clear performance measures are equally important for grant agreements. Just like with contracts, entities should establish performance measures for grants before commencement so they can objectively assess performance at the end.

Are budget and time pressures your only drivers?

Project objectives outside of budget and time frame can be equally important as – and sometimes compete with – these more traditional targets. It's one thing to say you delivered a project on-time and within budget – but did you meet all project objectives or have you compromised equally important objectives, such as environmental targets and achieving legacy benefits, to deliver on-time and in budget? These would all be very real considerations for those entities charged with delivering projects for the Brisbane 2032 Olympic and Paralympic Games.

In our report on Provision of court recording and transcription services (Report 9: 2015–16), we highlight that when delivering projects, ‘achieving value for money requires public sector entities to obtain the best return and performance for the money spent’. Price and costs should not be an entity’s only considerations; it should also consider:

• project objectives
• project outcome
• non-cost factors, like fitness for purpose, quality, service, and sustainability.

It is only when you take a holistic view to project performance that you can ensure you are delivering the best value for money for the state or local government area and understand if the project was a true success and met all requirements.

Why is performance monitoring just as important as the measure?

Unclear, non-specific, and immeasurable targets also make it hard to effectively monitor, manage, and drive performance. It's hard to hold someone to account if you haven't specifically outlined what to deliver, when, and what success looks like. This can result in work that is of poor quality, is not delivered, or fails to deliver desired project outcomes. It makes it easier for those responsible to avoid accountability.

Our report on the Effectiveness of the State Penalties Enforcement Registry ICT reform (Report 10: 2019–20) found that the State Penalties Enforcement Registry’s (SPER’s) contract lacked sufficient detail to drive performance. SPER was limited in its ability to measure and assess vendor performance, and could not take timely action to address it as a result. The contract’s performance indicators were also only targeted at the post-implementation stage, meaning SPER couldn’t effectively assess contract performance during system implementation.

Penalties and incentives in contracts drive performance and keep people honest. Entities should ensure they include and use these performance clauses to monitor performance and influence high-quality service delivery. However, even when they are included, we often see an apprehension to call contractors and consultants out on their performance. Our Provision of court recording and transcription services report found that while the department had performance clauses available to it, it failed to utilise these and subsequently was unable to make an informed assessment on the contractor’s performance.

Likewise, in our report on Contract management for new infrastructure (Report 16: 2021–22), we found that while entities generally have sound processes in place to manage contract complaints and disputes, they hadn’t given enough consideration for how to manage identified performance issues. We recommended that as soon as entities detect an issue, they should undertake a performance review with the contractor to ensure timely discussion and rectification. Taking a proactive approach can help avoid project delays and cost overruns for rectification works.

How can I craft a clear performance measure?

One of the most useful references in both performance and project management is SMART goals. Time and budget pressures often mean we forget to incorporate these basic elements when drafting performance clauses in our contracts. A simple, yet clear and direct performance measure can be invaluable to a project’s success.

When drafting performance clauses, project deliverables, and milestones, ensure that your performance measures are SMART:

• Specific: use clear language, which is not vague or general – so there is no doubt about what needs to be delivered.
• Measurable: align all deliverables with measurable targets – so you can easily assess success.
• Achievable: ensure deliverables are firstly realistic – so as not to set the project up for a fail.
• Relevant: align targets to project objectives – so you give meaning and purpose to contract deliverables.
• Time-bound: set clear time frames – so you can drive project completion and ensure good progress.

Look out for the final blogs in our contract management suite that will reflect on managing costs and closing out contracts.

Resources

• For a successful contract – planning is key! (Blog: 6 February 2023)
• A contract register is more than a list (Blog: 17 November 2022)
• Improving grants management (Report 2: 2022–23)
• Contract management for new infrastructure (Report 16: 2021–22)
• Delivering successful technology projects (Report 7: 2020–21)
• Effectiveness of the State Penalties Enforcement Registry ICT reform (Report 10: 2019–20)
• Provision of court recording and transcription services (Report 9: 2015–16)