Long-term contracts need to be well managed, so agencies can realise the expected benefits.
Agencies must have systems and processes in place to help them prepare for contract expiry. They need to give themselves enough time to consider the value of alternative options before contracts are due to expire.
If agencies don't allow enough time to prepare for contract expiry, they are more likely to extend contracts without properly assessing value for money.
Since 2014–15, we have conducted three performance audits where we observed agencies did not give themselves enough time to prepare for contract expiry. We concluded they could not demonstrate value for money when extending those contracts.
The Queensland Government's Contract Management Framework outlines what agencies need to do to justify a decision to extend a contract. These steps include:
- Analysing contract spend—this involves identifying the total current and forecast spend against the contract. Agencies should compare contract spend to the original contracts, and consider if the current supplier is on a standing offer arrangement where better rates can be achieved.
- Assessing supplier performance—this involves assessing the supplier's performance against the agreed expectations, often expressed as key performance indicators. Agencies should document how they are addressing any performance issues. Agencies need to demonstrate they have assessed the supplier’s performance before they extend their contracts.
- Analysing demand—this involves assessing that there is still a legitimate business need for the services under the contract. This not only ensures that agencies only procure what they need, but that they also consider if they should re-approach the market if demand has significantly increased since they established the original contracts.
- Analysing the supply market—this involves assessing whether market conditions have changed. For example, new entrants into the market could increase competition between suppliers which reduces the price agencies can expect to receive by re-entering the market.
For major contracts, agencies should also consider benchmarking to help them identify if they should re-negotiate the pricing as part of the contract extension process. Benchmarking involves examining what prices similar agencies in other jurisdictions obtain for similar services.
These steps cannot be properly completed in the days/last few weeks leading up to a contract expiry. This is why it is important that agencies have a process that enables them to monitor upcoming contract expiry dates. Then, they can prepare for contract expiry with enough time to complete the activities that will help them demonstrate they are achieving value for money through their decisions to either extend contracts or return to the market.