Many organisations often underestimate the importance and value of a comprehensive contract register.
Commonly thought of as providing only a listing of each contract, our recent reports clarify that an effective contract register includes information on each contract’s:
- purpose – what outcome are we trying to achieve?
- duration – how long does it last and when should we plan for the next contract?
- cost – how much do we plan to spend?
- supplier – who is it with?
- contract manager – who is responsible and accountable for managing the outcome?
When done well, contract registers can help entities budget for committed costs, better track their obligations, prepare for rollover/renewal, and reduce variations and overruns. But we regularly find that entities are not aware of how many contracts they hold and what information they need to record in their registers. Sometimes we find entities do not maintain a register at all.
Are you aware of all your contracts?
While it may sound like a relatively straightforward question, it is not always an easy one to answer.
As part of our audits, we often find clients are unsure how many contracts they have and who they are with. In our report Contract management for new infrastructure (Report 16: 2021–22), we found that the 2 entities we audited (who delivered around 60 per cent of the state’s building and infrastructure) had incomplete contract registers. Their contract management practices:
- led to inaccurate and incomplete contract data
- limited the usefulness of their information
- restricted how effective each entity was at managing its contracts.
One of our earlier reports, Confidentiality and disclosure of government contracts (Report 8: 2017–18), also emphasised the importance of maintaining a complete and up-to-date contract register to ensure effective contract management.
Are you recording contracts consistently and in the right place?
Contract management can be complicated by the sheer volume and different types of contracts that government entities enter. Different teams managing individual contracts throughout entities only exacerbates this issue. This can lead to a decentralised process, where an entity uses several different registers and records contracts inconsistently. Instead, entities should maintain a central register and implement consistent practices. This will help avoid:
- loss of corporate information
- failure to track contracts effectively and consistently
- increased time and effort attempting to locate required information.
Are you capturing the right information?
Entities should record sufficient information about each contract to ensure completeness, accuracy, accessibility, and fast retrieval. This includes:
- contract name and unique identifier
- nature of contract – brief description
- contract manager
- names and contact details of supplier and key stakeholders
- commencement and termination dates – including a trigger date that flags when a contract is soon to expire. The trigger date should allow sufficient time to determine if the contract will continue and for appropriate procurement processes to occur before the contract expires
- contract value
- whole-of-life costs (totals costs over the life of the contract)
- project risks
- performance measures and milestones.
Including this information helps entities better manage their contracts and monitor performance. In Local government entities: 2017–18 results of financial audits (Report 18: 2018–19), we advised that contract registers are critical to help track contractual obligations and budget for committed costs, while providing a source of truth to those charged with governance.
Where entities fail to track this information, we often observe they poorly manage contracts. This may lead to:
- delays in delivery
- unexpected cost variations and scope creep
- significant overruns
- significant costs (direct and indirect) when compiling billing and budget reporting
- duplicate purchases
- forgetting to cancel or renegotiate contracts
- contracts automatically rolling over.
In Contract management for new infrastructure, we recommended that departments review their internal policies, procedures, and guidance for managing infrastructure contracts at least every 3 years and, where necessary, implement changes to enhance their contract management performance. We will likely revisit their progress in March 2023 as part of our yearly report on the status of Auditor-General’s recommendations, where we ask entities to self-assess their progress in implementing our recommendations.
Do your systems support you?
Another consideration when taking stock of all your entity’s contracts is to consider the means you use to record and store the information. What type of system are you using and is it fit-for-purpose?
Not every entity needs to implement the ‘Rolls-Royce’ of contract management tools, and for some, a secure, and well-managed spreadsheet is all that is required. This decision requires your entity to ask itself some questions to determine the best solution:
- What is the nature of our contracts?
- How complex is our organisational structure? How many locations?
- How many contract managers do we have?
- What types of performance targets and milestones do we need to track?
It is only when you ask these questions from the outset, that you can ensure the most appropriate solution for your organisation is in place. In our blog, How effectively are you managing your infrastructure contracts?, we identified that a single, up-to-date and fit-for-purpose system enables accurate and reliable information to inform decision-making.
|This blog represents the first in a suite we plan to publish on contract management. Our aim is to shine a light on the common issues we identify from our audit work across Queensland’s public sector and local government entities, recommend corrective action, and provide a refresher on better practice.|