For a successful contract – planning is key!

Published: 6 February 2023

We are all aware of the saying, ‘by failing to plan, you are preparing to fail’. But sadly, this is an all-too-common observation we make when we audit contract management. We acknowledge that entities encounter time pressures, tight budgets, and limited resources, but this should not come at the expense of effective contract planning.

A failure to plan sees entities enter new contracts and rollover old ones without much thought for what they need to deliver, and consideration of whether (or not) the project scope is realistic. It can lead to needing to reverse engineer the project scope to match the signed contract once it has commenced, resulting in project inefficiencies and cost overruns.

Entities must allow sufficient time to ask:

What do we need to achieve from the contract?
How will we achieve it?
How will we measure success?

Do you know what you need?

Failing to clearly articulate the service need before awarding a contract is a common mistake. Ideally, before awarding a contract entities should have sufficiently considered what ‘need’ the contract will address, and, where relevant, completed appropriate research, stakeholder consultation, and demand/market analysis.

Proper stakeholder consultation can help inform the service need and help to avoid costly project decisions. For example, when disability groups were inadequately consulted prior to the New Generation Rollingstock (NGR) train build, the state government had to spend an additional $335 million to add an extra toilet to each new train. Our recent report, Contract management for new infrastructure (Report 16: 2021–22), also observed a failure to undertake stakeholder consultation during the project design phase to inform project planning. Stakeholder consultation is a critical step, but it needs to be genuine and timely – otherwise it defeats the purpose of doing it.

Defining the service need also ensures project teams and suppliers are aligned and are working towards the same outcomes and common goal. However, once an entity is in the practice of doing this, it shouldn’t ‘set and forget’ – it should regularly review its portfolio of existing contracts to reconfirm each is still achieving project objectives and meeting stakeholder expectations.

As we learned from our audit on the State Penalties Enforcement Registry, entities should not be scared to stop, reset and either change direction or cancel. While it can be daunting to think about the public money used to get to that point, it’s far better than the wastage that occurs when entities keep trying to drive a project that is no longer relevant or is failing to meet project objectives.

Do you know how you are going to deliver it?

This extends beyond project budgets and resources. Instead, we encourage you to think about what you need to deliver and match this to those who possess the right skills and experience to deliver it.

Too often, we find that entities resource projects with team members who lack the necessary skills and/or capacity to effectively deliver on project objectives. Contract management is a skillset that is often overlooked and not treated with the specialist status that it deserves.

Even once team members are allocated to a project, entities can fail to clarify roles and responsibilities. This causes confusion among team members and can have a negative impact on workplace cohesion and organisational culture. Entities also often forget that reporting lines of accountability are equally important. Contracts can have multiple parties, which involve several business units, and sometimes several government entities. Effective partnering is key to a contract’s success, and clear lines of accountability help to deliver this. Entities should consider how they will articulate roles and reporting lines when engaging contractors, consultants, and suppliers. The chance of success increases when people understand what they have been asked to do and are aware of who is responsible for delivering it. In Delivering successful technology projects (Report 7: 2020–21), we highlight that internal and external teams need to be working towards the same goals and outcomes.

Have you thought about what ‘good’ looks like?

Even if entities adequately define what they set out to achieve, many still fail to articulate how they will measure performance. This becomes problematic for project tracking and holding people accountable.

It is exacerbated when the party responsible is external to the entity, such as a contractor or consultant. Clearly defining milestones and performance clauses including KPIs, targets and applicable penalties, empowers entities to enforce the timing and quality of project deliverables. Sometimes entities include performance clauses in their contracts but may not be aware of what is available or how to use them. Our report on the Department of Justice and Attorney-General’s outsourced court recording and transcription services showed how the department did not effectively utilise performance clauses in the contract to validate the supplier’s performance.

Clearly defining performance expectations helps drive the quality of the project. And it also helps the project team to provide comprehensive status updates that prove invaluable for not only senior management, but others charged with governance like audit committee members. It can help pre-empt scope creep, delays, and cost variations to reduce project overruns, and help inform ‘stop/go’ decisions.

Look out for our future blogs on contract management that will explore key elements of measuring performance, managing costs and closing out contracts.

Resources:

Do you know what you need?

Do you know how you are going to deliver it?

Have you thought about what ‘good’ looks like?

A contract register is more than a list